E-commerce’s cash-burn rate to shrink by a third by 2023
As of 2018, the e-commerce companies burned $3.6 billion to earn a GMV of $24 billion.
Chennai: The cash burn rate in e-commerce will shrink from 15 per cent last year to 5 per cent by 2023 as the sector evolves and the customers become more mature.
“E-tailing as a sector lost $15 for every $100 of gross merchandise value (GMV) in 2018. We expect this to shrink to $12 in 2019 and $5 in 2023. The significant shift in unit economics will be driven by multiple factors,” said Mrigank Gutgutia, Head, Consumer Internet, RedSeer Consulting.
As of 2018, the e-commerce companies burned $3.6 billion to earn a GMV of $24 billion. By 2023, e-commerce GMV is estimated to move up to $90-$100 billion and the cash burn would be around $5 billion or just 5 per cent.
According to RedSeer, the change in segmental revenue split will be a major factor that would ease the cash burn. Low margin categories like mobiles and electronics have started seeing a slowing growth, while high-margin fashion and home products are taking over.
“Even in China the mobile market has saturated and we foresee at least the growth significantly coming down in the near future. Fashion has been growing faster and it provides comfortable margins as well. In the home category, there are several segments, including furniture and furnishing, which have a considerable potential for growth,” said Gutgutia.
Further, the discounts offered by the sector are likely fall in the coming years, as the increasing internet user base becomes mature. Increased trust in the internet ecosystem will lead to customer stickiness and drive sales despite lower discounts.