E-commerce companies could see a cash burn of up to US $400 million during this year’s festive sales, compared to about US $200-250 million last year, research firm RedSeer Consulting said.
The cash burn for the e-tailing industry, which has deep-pocketed investors like SoftBank and Alibaba backing players, is forecast to reach up to US $370-400 million this year on a expected gross merchandise value (GMV) of US $1.5- 1.7 billion.
Last year, the cash burn stood at about US $200-250 million on a gross GMV of US $1.05 billion, it added.
GMV is a term used in online retailing to indicate total sales value of merchandise sold through the marketplace over a certain period of time.
The report said that it is expected that there would be an increase in discounting spends and supply chain expenses as a percentage of GMV when compared to last year.
It added that with the latest funding firepower, market leader Flipkart would most likely increase discounting spends to acquire new customers as well as to gain momentum over rival Amazon (which is also expected to raise its spending).
“As e-tailers focus on an offering better than ever discounts and also offering a faster than ever delivery experience, including to Tier 2+ cities, this year will see a significant growth in cash burn year-on-year,” CEO, RedSeer Consulting, Anil Kumar said.
Advertising expenses, RedSeer said, will either remain same or decrease compared to the last year’s festive sale.
E-commerce players, including Flipkart, Amazon, Paytm and ShopClues are holding festive sales on their platform currently, offering deals and discounts to customers across categories like fashion, electronics and household items.
These offers not only increase sales volume for the players but also help the companies get new customers onboard their platform.