E-commerce vs offline festive clash: Is the consumer the winner?

It’s that time of the year when it's raining offers and bargains as both retailers and e-commerce players vie for the festive season pie. 

 

With Diwali just a few days away, all eyes are on the deals rolled out by major players in the retail industry through the three-month-long period in India, when the entire ecosystem collaborates to grab consumer eyeballs and captivate their interests. 

 

The OND (Oct-Nov-Dec) quarter with festive shopping has a higher contribution to most brands’ annual business as compared to other quarters, marking the litmus test for consumer demand in India. Needless to say, the period is extremely important for retailers and is marked by discounts galore on both online and on-ground retail sites.

 

India’s eTailing GMV (Gross Merchandise Value) for the entire festive period in 2023 is expected to touch a record-breaking INR 90,000 crores, marking an 18-20% growth compared to the previous year’s festive month sales, as per a recent Redseer report. This growth is expected to be fueled by a significant user base of around 140 million (14 crores) shoppers who are projected to make online transactions during these festive months driven by the festive season sales of e-commerce giants Amazon, Flipkart, Myntra and others in India.

 

The ecomm vs retailer tussle

 

With most of the leading e-commerce players having their grand annual festive sales, screaming reason-defying bargains, has led to concerns from brick-and-mortar retailers in India about these platforms receiving online-exclusive and end-of-life models deep discounts from electronics and mobile phone brands, leaving the offline retailers at a disadvantage.

 

Industry groups representing offline retailers have written letters to mobile phone brands such as Samsung, Oppo, Vivo, Realme, Xiaomi, and OnePlus, and other big firms such as LG, Bosch, Godrej, Whirlpool and Sony to express their concerns and urge them to maintain price parity, consumer offers and stock supplies to help them compete fairly with e-commerce platforms during the festive season.

 

Smartphone maker Motorola recently announced massive discounts on its smartphones during the Flipkart Big Diwali Sale, including on its recently launched models. The brand further stated that ‘additional platform offers may apply with effect’ during the Diwali sale period from 2-11 November 2023.

 

“With the ongoing festive season, our expectation is not just to maintain but accelerate our growth momentum, by growing at high double-digit premium to market including disproportionate growth in our premium as well as 5G revenues,” said Shivam Ranjan, head of marketing, APAC- Motorola.

 

“At Motorola, we believe in ROI-centric marketing, and our investments in the festive are a combination of impact and performance marketing properties that together show measurable outcomes in driving business objectives,” he added.

 

The brand has been doubling its revenue YoY in FY23, and its expectation from the festive season is to maintain or accelerate this growth rate versus the previous year.

 

Ranjan however stressed the importance of both offline and online channels. “Point of sale visibility at both, retail and e-commerce marketplaces are an extremely important component of driving recall during the festive to capitalise on the exponential traffic/ footfalls at the respective channel,” he said.

 

Wholesale retailer Nikhil Furia, founder and partner, Era Creations, waded into the dispute, sharing that retailers are still to have a great festive season this year. “We are hoping by mid-November when Diwali comes, it will work out. Expectations from Eid to Dussehra have not been exciting, but with Diwali now coming up, it may change in the coming week.”

 

On whether he sees this year's festive revenue surpassing last year, Furia was sceptical adding that sales or revenue exceeding last year is still 'a far-fetched game'. He stated that usually around 55% of the annual sales happen during the festive time.

 

“At the wholesale level, we have done fairly well, even though it’s not matched our targets entirely,” he said, adding that markets can expect a rise by 10%-20% in terms of sales.

 

Karan Taurani, senior vice president - research analyst (media, consumer discretionary & internet) - Elara Capital, explained that e-commerce companies selectively put products below their cost price to be persuasive because there are ample opportunities for them to attract customers that way.

 

Globally the percentage of online sales as compared to total retail sales is somewhere close to 20-25%, whereas in India it's still about 9-10 %, he shared. 

 

“So it's still a very low adoption rate as compared to global counterparts. Even if you look at online shoppers, it's only about 140-150 million shoppers compared to a base of over 600 million plus smartphone users. So I think all these are moves to drive frequency to make sure customers stick to the online platform.”

 

"We are just coming out of the post-Covid era when e-commerce had an edge and now physical stores are trying to make a comeback. So there is some sort of competition from the offline side," Taurani added.

 

The Flipkart-Big B ad controversy

 

In an ad published on Flipkart's YouTube channel ahead of its Big Billion Days sale, Amitabh Bachchan was heard claiming that the mobile deals offered by the e-commerce portal are not available at retail outlets. This led to the Confederation of All India Traders (CAIT) filing a complaint with the Ministry of Consumer Affairs to immediately suspend the advertisement, and penalise the e-commerce major for false and misleading advertisement and also penalise the actor. 

 

Ummed Singh Kajla, head retail, Cheil India, shared his take on the debate: “Over the years brands have created a go-to-market strategy with these special occasions when festival shopping reaches its peak, and plan their marketing and pricing accordingly. Brands which are available both online and offline balance their offers and pricing to keep parity between the channels. The online-only brands offer a deeper discount or offers during these festivals,” explained Kajla.

 

"Many brands push their old inventory using these discounts/ offers or create products exclusively for online or offline channels. Most brands also use festive offers to build a large basket size during purchase rather than giving deep discounts," he added.

 

Stating that differential pricing or discounting creates business challenges and also leads to a poor consumer experience, he stressed that “brands will not grow one channel at the cost of the other as a successful brand needs to straddle all channels.”

 

Kajla further noted that while ‘online’ is a growing channel, the majority of India still buys from offline stores for the experience they provide, adding that ‘offline’ is still very strong for premium products.

 

“DTC or online-only brands will continue using the discount route to grab consumer attention but brands which are available both online and offline will always create a balance between the channels in both pricing and discounts,” he added.

 

Affirming that both e-commerce players and retailers have their own space, Ranjan said that pricing alone cannot be the reason to change consumer behaviour. 

 

“It is important for the channel to focus on their respective strengths to create a differentiated shopping experience that addresses the different consumer needs.”

 

He added, “For the smartphone Industry, we see almost equal distribution between the e-commerce and retail channels. There will be consumers who prefer to get a look and feel of the product, talk to an ISD and purchase from their local retailer – while there are others who can do their research online, use new technologies such as 3D and AR to get a feel of the product and are very comfortable with online purchases.”

 

Understanding the concept of discounts

 

The brick-and-mortar retailers have been accusing the e-commerce players of selling the products below their cost price by offering disruptive discounts. The affair of deep discounting and ‘predatory pricing’ is not unfamiliar to the market. This was being done to drive the ‘competitors’ out of the market, according to the retailers.

 

On this topic, Taurani said, “Many of these platforms now want to focus on a path to profitability because none of them are making any profit. Right now if you look at the market dynamics, it's been almost six-seven years now that e-commerce has seen a very strong adoption in India and online sales have been growing at a faster pace compared to offline. And in terms of users, we are at a respectable 120-150 million shoppers and this will only grow.”

 

“In terms of penetration too they are almost there, at around 40,000-50,000 pincodes. This is one reason why they need to focus on a path to break even, which is why the discounts are coming up.” 

 

Taurani added, "In the long term too, while discounts will remain they will find some sort of a rationale to cut corners to ensure profitability."

 

This type of environment sets up retailers for risky discount wars as they fight for customers. Smaller retailers have no choice but to continue offering deals to vie for shoppers who increasingly put ‘price’ ahead of ‘brand loyalty’.

 

Taurani explained that while most of these discounts are funded by the e-comm platforms, ‘how much discount’ can be offered depends on the brand. 

 

“That comes under the kitty of the brand, how they want to propagate discounts or not. Even the brands themselves have promotional offers around this season to cash in on the consumers’ mood, which is usually upbeat during the festive season,” said Taurani.

 

"As far as discounting is concerned, that’s the only way online platforms can grab the attention of the buyers to persuade them since they cannot offer much on the ‘look and feel’ aspect of a product. Whereas in physical stores, due to the high costs of rental, electricity, maintenance, employee costs etc which they have to deal with, it is not possible to give heavy discounts, unlike an online platform where these other costs are nil," he added.

 

The same proposition was also supported by the Competition Commission of India (CCI) in Ashish Ahuja v. Snapdeal.com, wherein the CCI observed that the e-commerce market thrives on special discounts and deals. Therefore, for an e-commerce player, which is not dominant in its market, offering discounts and deals cannot be held as anti-competitive.

 

Meesho recently concluded its flagship festive ‘mega blockbuster sale’, wherein the platform saw 1.6 crore new app installs with 120 crore customer visits, and categories such as Home & Kitchen, Fashion and Beauty & Personal Care garnering more than 72 orders per second.

 

According to Soumitra Choubey, associate director, brand marketing, Meesho, as a marketplace, they do not set prices. “Each seller has the autonomy to set their prices based on various factors such as production costs, competitive analysis, market demand, and desired profit margins.”

 

Sumit Jasoria, co-founder and CEO of omnichannel brand, Newme, shared the belief that offline stores stock their products at a mark-up price-point which makes many shoppers buy online. 

 

“This has been a trend observed in the last few years, especially post-Covid. This has increased spending patterns and preference for shopping online,” said Jasoria, however, he added that for omnichannel brands like theirs, the price-points of products and other offerings are consistent across platforms to standardise the shopping experience for customers.

 

Weighing in on the subject, Furia added, “Retailers that we supply to are majorly conventional MBOs (multi-brand outlets) and large format chain stores, and all have their respective pricing and discounting policy. However, during the festive and wedding season, retailers normally do not have many offers, as the product is seasonal. This is done primarily to have fresh sales.”

 

Discounts essentially aren't about merely marking down the price of a product, explain industry experts. These have to be constituted after a proper analysis of the offerings and the consumers' mindset. The two models of retail - online and offline - have different business models and cannot be looked upon with the same lens.

 

Nikhil Sethi, partner, KPMG India, sees e-commerce sales making a comeback this festive season, with e-tailers expecting to clock a growth of ‘approximately 20-25%’ over last year.

 

“We have witnessed an agile discounting approach being followed where brands continue to balance their discounting strategies in line with consumer demand and purchase behaviour,” he said.

 

Further, most major brands have rebalanced their portfolio, supply strategy, discounts and channel margins across offline and online channels to bring value parity, he noted.

 

So, in this online versus brick-and-mortar marketing blitzkrieg, who will come up trumps this festive- Will the consumer walk away with the spoils ultimately?  

 

“In a nutshell, the customer walks away with value, but the quantum of discounts has tapered over the years for festive seasons,” Sethi surmised.