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To give cashback or not! Paytm Mall has a problem

Paytm Mall has slashed cashbacks by over 80% across categories for a strategic shift away from a warehouse-based delivery plan to an online-to-offline play

twitter-logo BusinessToday.In        Last Updated: February 4, 2019  | 13:56 IST
To give cashback or not! Paytm Mall has a problem

In the last fiscal, Paytm E-commerce, which operates as Paytm Mall, saw its revenue from operation spike 10293% year-on-year, but the cashback schemes that were powering this phenomenal growth were also leaving the entity deep in the red. Last September, it had earmarked Rs 501 crore as cashbacks during its festive sale to compete with Flipkart's Big Billion Days and Amazon's Great Indian Festival.

In the bargain, the Alibaba- and SoftBank-backed ecommerce venture reportedly posted a net loss of Rs 1,787.55 crore in FY18 as against a loss of Rs 13.63 crore in the previous fiscal. And, hence, Paytm Mall has reportedly now discontinued the cashback model, which is negatively impacting sales on the platform.

According to The Economic Times, Paytm Mall has slashed cashbacks by more than 80% across categories including grocery, electronics and fashion, for the strategic shift away from a warehouse-based delivery plan.

Sellers on the platform told the daily that the withdrawal of the offers has caused sales to slump. "Sales have dropped by more than 90% in grocery, people are clearly not buying any more. The cashback offer was up to a maximum 35%, but Paytm Mall stopped giving cashback from December 2 as it wanted to be margin-neutral," said one of the largest grocery sellers on Paytm Mall.

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Paytm Mall's focus till now has been on groceries and daily use products - unlike Amazon and Flipkart that concentrate more on categories such as mobile phones and electronics - and to that end it has worked closely with companies like Hindustan Unilever, Parle, Nestle, ITC, Dabur, Mondelez and Coca-Cola for joint promotions and collaborations for exclusive product launches.

In the good old days from a consumer viewpoint, anything bought on Paytm Mall would fetch a cashback of Rs 50-60, which converted into movie tickets and recharge vouchers. Now, not only are there no attractive hooks to lure eyeballs, but the company has also introduced shipping charges. So the buzz is that inventories worth crores are stuck in the warehouses.

"We have cut cashbacks across categories. This is part of the plan to... build stronger O2O [ online-to-offline] play, where we are investing big this year," Paytm Mall founder Vijay Shekhar Sharma told the daily. "We are removing cashbacks from warehouse supplied items and directing them toward physical store supplies. This saves logistics costs and gives us more to share with the consumer and merchant."

ALSO READ:Paytm to foray into two more developed markets in 2019, says CFO

Explaining this strategic shift Sharma added that while most brands in the country are well distributed across thousands of cities and towns, warehouse inventory for online merchants is concentrated in top 20 to 30 cities.

According to Sharma, the grocery O2O model has become net positive in select markets, prompting the company to remove cashbacks from warehouse-led sellers where double costs apply, that is of the warehouse as well as couriering. "The focus is on local offline sellers and leverage local deliveries versus delivering a soap bar in Agra from the Gurgaon warehouse," he added.

Edited by Sushmita Choudhury Agarwal with PTI inputs

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