Hit by cut-throat competition and mounting losses, online retailers like Flipkart and Snapdeal in India have taken a big step towards rationalizing their offering — they have stopped offering free shipping for orders worth less than Rs 300.
The move follows relentless competition in the fast-growing field, which forced these companies to offer ultra-low prices and free shipping.
A recent report by Zinnov Consulting predicted that the online retail sector in India will go from $10 billion to $125-260 billion in the next 12 years.
However, it pointed out that on average, online retailers in India are losing an average of Rs 90 for an order size of 1,200. At less that Rs 1,200 per order, losses would be higher as a percentage.
The reasons for losses in the sector were smaller order sizes, lack of trust (leading to consumers preferring the expensive cash on delivery), high delivery charges, warehousing charges and high marketing costs, the report had found.
The new move to levy Rs 30 as a shipping charge has been adopted by various websites, including homeshop18 and others, and is applicable only if the total value of all the items in the order is less than Rs 300.
“It is a bit of bummer,” says Paritosh Gange, a college student who spends about Rs 7,000 a month on buying gadgets and other stuff online every month.
“But the fact that 9 out of my 10 orders are above Rs 300,” he says.
It is not clear what impact the decision would have on customer preferences. Most of the business for online retailers comes from items such as mobiles and other branded merchandise that don’t require a ‘touch and feel’.
As such, one of the possible categories that may be hit is mobile accessories.
An industry insider said that purpose of the move is not really to earn more money from low-value orders, but to encourage shoppers to order more items at the same time.
“We could have done this without imposing a shipping charge. We could have just increased the price by Rs 30.. and that would have probably kept more people happy than imposing a shipping charge,” he said.
But the person, who spoke off the record, said imposing the shipping charge would encourage customers to buy a second item — if the value of the first item is less than Rs 300. “That way, they can save that Rs 30, and give us more business,” he explained.