Even without the curbs imposed on them, e-retailers don’t seem to have made too much money in FY16. While for some companies, the losses doubled, for others, it trebled, indicating many of them are simply buying revenues. In other words, they are driving sales by offering customers big discounts and spending large sums on advertising and promotions. This strategy should pay off in the long run, but for now while top lines may have grown, the losses, too, have ballooned. At Paytm, for instance, revenues have risen by nearly 200%, losses have increased fourfold.

While there’s no doubt more shoppers are buying on the Internet, the initial spurt in online spends appears to have been driven by discounts.

It’s not surprising therefore that investors are reluctant to fund too many e-commerce businesses at lofty valuations.

Between January and November, just $3.7 billion has been invested in these ventures, about half the $7.5 billion which came in during the comparable period of 2015, data from Tracxn Technologies shows.

How disillusioned investors are is clear from the markdown in the valuation of Flipkart—the e-retailer is now valued at $5.54 billion, down from $11 billion as on 31 March, 2016, and the peak of $15 billion in June 2015.

Among investors who have written down the value of the e-retailer are Morgan Stanley Mutual Fund, Fidelity Rutland Square Trust II and T Rowe Price Group Inc.

Despite having been around for five years, Foodpanda hasn’t been able to scale up; revenues in FY16 were just Rs 38 crore while losses stood at Rs 143 crore. The company spends a good amount on promotions through vouchers—in FY16, they spent Rs 56 crore which dented the bottom line. The management is, however, hoping the business will be profitable by FY19 as it takes on a bigger share of the deliveries.

At Pepperfry, the furniture retailer, revenues have grown fourfold but the losses have nearly doubled. The management believes it has done well to contain the losses and expand margins by scaling up. The biggest costs are related to delivery.

At Urban Ladder, also in the business of e-tailing furniture, revenues have grown threefold but losses have also grown as much on the back of a big jump in other expenses and employee benefit expenses.

At Flipkart, too, employee benefit expenses have more than doubled. Spends on advertising and promotions also jumped to Rs 923 crore in FY16 from Rs 381 crore in the previous year.

In late March, the Department of Industrial Policy and Promotion (DIPP) issued guidelines for players that were funded by Foreign Direct Investment (FDI). These allowed marketplaces to function with financial support from FDI. However, marketplaces are disallowed from influencing prices on the platform. Moreover, an e-commerce marketplace should not allow a single seller to contribute more than 25% of the total sales on the platform.

Source: The Financial Express