As India’s retailers feel the pinch, focus is shifting from customer acquisition to staff retrenchment, in an attempt to reduce negative gross margin.
India’s online retail sector is looking at staff retrenchment as a means to bring gross margins out of the negative, with focus shifting from customer acquisition, which is estimated to use 70 percent of revenue.
“The period of land-grabbing is over. Now there is investor pressure to achieve efficiency and positive economics per transaction,” said Pearl Uppal, co-founder of early stage investment firm 5Ideas, in an interview with The Economic Times in India.
Reports indicate nearly 250 employees from Flipkart’s supply chain, logistics and call centre teams received their marching orders, representing approximately one-tenth of the workforce, with a similar number being laid off by Jabong, hitting harder with under 1,000 staff in total. Inkfruit, an apparel portal acquired by web retailer Zovi.com last year, has also had to follow a similar course of action with its employees.
“People are being let off every month,” said former Flipkart employee, who was retrenched last month.
In conflict to the revelations above, The Economic Times article also revealed that Jabong’s co-founder Praveen Sinha has admitted to only laying off 20 employees to date, and that both Jabong and Flipkart continue to hire. This is perhaps further indication of the turmoil within the sector at present.
Regardless of the actual numbers, the push to retrench has been nudged along due to pressure on Indian e-commerce firms to alter their business models to comply with regulations. As it currently stands, online ventures receiving foreign investment are prohibited from selling brands from multiple vendors direct to their customers.
To get around this, many retailers are making changes, adopting a marketplace model allowing them to aggregate multiple brands on their sites. This, however, has added to the push to reduce workforce numbers.
“A marketplace model requires fewer employees, leading to the current spate of lay-offs,” according to an industry executive.
Companies wanting to invest in the online retail sector in India are insisting that companies shift their focus to profitability.
It’s not all doom and gloom in the Indian e-commerce sector. Despite gross margins in the negative, the retail sector is showing signs of positive growth, with revenue estimated to reach Rs 10,000 crore from Rs 6,500 crore in 2013, according to the Internet and Mobile Association of India.