The sudden squeeze in the availability of cash over the past week has not just hit sales of the neighbourhood kirana stores, street vendors and others, but the online e-commerce industry too.
When Prime Minister Narendra Modi’s surprise November 8 announcement that Rs 500 and Rs 1,000 notes would cease to be legal tender sucked out almost 86% of the cash circulating in the economy overnight, many thought that people would move to making payments online, leading to a windfall for e-commerce sites.
However, the volume of sales of several Indian e-commerce businesses this past week indicates that is not exactly the case.
No cash on delivery
Nitin Pamnani, the founder of iTokri.com, a popular online fashion and handicrafts enterprise, said that the company’s sales have dropped by at least 50% since the demonetisation policy came into force.
This is not surprising if you consider the fact that before demonetisation, cash on delivery was widely used as a payment option for online purchases in India.
According to the Nielsen Global Connected Commerce Survey released in January, 83% of online shoppers surveyed said they chose cash on delivery as the mode of payment within the last six months.
“The popularity of cash on delivery is driven by a few factors. There is a sizeable group of unbanked consumers in India, credit card penetration is relatively low, and many consumers avoid paying with plastic due to security concerns. Moreover, e-commerce is still in its early stages of development in the country, and the ability to touch, feel and try on merchandise prior to purchasing reduces the risk of not getting what they paid for.”
— Nielsen Global Connected Commerce Survey Q4 2015
Pamnani said that the majority of iTokri.com’s customers also choose the cash-on-delivery payment option.
“Cash sales have now been completely wiped out,” said Pamnani. “We are receiving only a few orders, many with requests for their product to be delivered after 20 days. Payments by debit and credit cards have also dropped because of the panic situation.”
Pamnani said that women constitute a large proportion of the consumer base in the e-commerce industry. “But many women are not familiar with electronic transactions,” he said. This is why the majority of housewives preferred to use cash to make their payments, he added.
If the drop in sales in the past week is not bad enough, iTokri.com is also dealing with the fallout of customers being unable to pay for cash-on-delivery orders made before November 8.
“The warehouses of our transportation and distribution partners are choked with huge undelivered shipments,” said Pamnani.
Happily Unmarried unhappy
Another business enterprise, Happily Unmarried – which sells kitschy gifts and accessories online and in stores in a few cities – reported a 60% drop in online sales in the past week.
“Cash-on-delivery has been affected in a massive way,” said Rajat Tuli, cofounder of the popular brand. “Lots of courier companies stopped cash-on-delivery options because of the shortage of currency. There hasn’t been a spurt in online payments either.”
Tuli said that even though the prime minister said that it would take 50 days for the cash squeeze to ease out, business will take longer to pick up momentum again.
“Even if this [cash availability] problem gets solved in 50 days, it will take at least another month to get back to the level at which we were,” said Tuli. “In e-commerce, you are constantly building momentum and doing work. So when things go a little awry, plans get delayed.”
Essentials business
The online market for groceries and other household essentials, however, presents a mixed picture. While some e-commerce enterprises that operate on a smaller scale have reported a massive drop in sales, larger companies with multi-city operations do not seem to have registered the same impact.
Nitin Arora and Latha Sharma, the cofounders of e-genie.in, an online shopping store that delivers in Delhi and neighbouring Noida and Ghaziabad, said that the business has been forced to cancel an average of Rs 2 lakh-worth of orders every day for the past week.
Latha Sharma said that since the wholesale market from where they purchased their goods functioned entirely on cash, e-genie.com was unable to meet the demands of buyers who placed bulk orders.
She added that the online store usually conducted most of its business in a 20-day period starting from the 25th of one month and ending on the 15th of the next month as hoteliers and households stocked up during this time. “But at this very crucial point, when we had orders in hand, we were unable to buy any items,” said Latha Sharma.
MaligaKadai.com, an online grocery store that services Chennai, faced a slightly different situation.
Satish Sundaram, its founder, said that the enterprise had received a lot of cash payments due to the recent festive season. But since he usually paid his vendors through online transactions, he had to deposit large amounts of cash into the bank, which was getting delayed because of the crowds visiting banks following the announcement of the demonetisation policy.
Larger players in the e-commerce sector also said they registered a drop in sales, at least initially.
Over the weekend, Heritage Fresh, a chain of grocery stores that has an online and on ground retail presence across several South Indian cities, just about made up for its initial losses.
“Grocery are necessities and are usually not postponed after a point,” said Pradeep Nidamarthi, the business head of e-commerce for Heritage Fresh.
While Nidamarthi said that it might be too early to predict the long-term impact of demonetisation on the e-commerce industry, he felt that it could lead to the creation of stiff competition for large organised players in the near future.
Explaining why he thought so, Nidamarthi said that one of the biggest advantages the e-commerce grocery industry had over neighbourhood stores was the convenience of online payment.
“Now, a lot of enterprises that hadn’t introduced an online payment option might rethink their strategy,” he said. “Even the neighbourhood grocer might consider going with online wallets. This way, organised players might lose their competitive advantage going forward.”
Push for online payments
Nidamarthi said that prior to the demonetisation announcement, cash-on-delivery orders constituted nearly 65% of Heritage Fresh’s business. Since these orders had declined considerably over the week, Nidamarthi felt that it was the right time to encourage online payments.
“I look at this as an opportunity because we are doing a very active campaign to show the convenience of online transactions,” said Nidamarthi. “This strikes a chord given the present situation.”
Following the demonetisation policy announcement, e-commerce giant Amazon.in swiftly made arrangements to overcome the problem of the lack of cash availability.
From November 11, Amazon.in enabled the option of making payments through credit or debit cards at the customer’s doorstep. This way, it was able to accommodate customers who found it difficult to make online payments, but were able to use electronic instruments on delivery.
“In the last two days, electronic payments at the doorstep have gone up by a factor of 10X,” said an Amazon.in spokesperson. “This clearly indicates that customers are able to adapt to electronic payment methods when cash is constrained.”