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E-comm sector stumbles after tremendous rise

Shamim Ahmed
27 Sep 2022 00:00:00 | Update: 27 Sep 2022 00:33:49
E-comm sector stumbles after tremendous rise

The e-commerce sector in the country is witnessing a sharp fall in sales after a tremendous rise during the Covid pandemic.

A number of big e-commerce companies have shrunk, or refrained from expanding, their operations and aggressive marketing due to the drop in sales.

The fast growing e-commerce sector stumbled at a time when the country is claiming to have achieved “Digital Bangladesh-Vision 2021” goal, and set to moving towards “Smart Bangladesh” with an aim to digitalise every possible sector.

The business insiders say the imposition of VAT on online sales and deliveries and excessive import duties could further impede the growth of the sector, which has already slowed down due to the scams that had surfaced last year and the ongoing inflation.

“We were expecting that e-commerce sector would mature and expand to district and upazila levels like in India and China by 2022 and 2023, but the current scenario is rather frustrating,” said Fahim Mashroor, founder and CEO of one of the leading e-commerce company Ajkerdeal.com.

“Although online sales had gone up during the pandemic, the sale was mostly city-centric and of groceries and essential commodity segment. But now, the sale has dropped drastically even if compared with that of 2019. Sales from our platform have fallen by around 50 per cent compared to the sale in 2019,” he said.

Fraudulence of some ecommerce companies like Evaly has created mistrust among the people, and recent inflation has triggered a massive fall in sales in the last 4-5 months,” Fahim said, adding, “But, we have some internal problems also. The imposition of 5 per cent VAT on online sales has affected our business. Moreover, the big e-commerce firms suffer due to VAT-related harassment.”

Nazmul Sheikh, CEO of the largest beauty start-up Shajgoj, said, “If we consider the Covid time as unusual period, the growth of the sector has remained the same as in 2019.”

He said, “Eighty per cent of consumer products are imported ones. The increase in import duty and dollar price hike by 25 per cent has disrupted the supply chain. At the same time, container costs have increased by 2-3 times.”

“In addition, due to purchasing power fall, the customers earlier bought two units are now taking 1-1.5. Our sales have dropped by 30 per cent compared to 2021. In fact, the fall in sales started after April this year,” Nazmul added.

Incurring losses, most of the e-commerce companies have stopped spending much on marketing, he informed.

AHM Hasinul Quddus Rusho, chief corporate affairs officer of the leading e-commerce platform Daraz, said, “Our sales grew tremendously by over 100 per cent in 2020 and 2021 during the pandemic.

“We managed to achieve a 200 per cent growth from fiscal year 2018-2019 till today. But, if we count our growth from January to September this year, it will be only 29 per cent compared to the same period of 2021. It means that although Daraz is witnessing growth in business, but it has shrunk by a big margin,” he said.

Unfortunately, due to a series of scams in the industry in the last year, the policymakers and regulators in the country have adopted a rigid governance approach which is detrimental to the future growth potential of this industry, he observed.

Mentionable, the government has launched a digital business identification (DBID) scheme to prevent different sorts of irregularities and fraudulences in the e-commerce and f-commerce business.

Asked about the issue, Fahim Mashroor said, “Companies, be it big e-commerce platform or small f-commerce ones, now need DBID to register. But those who have cheated people had already registered earlier. The fraud money should be returned to the customers to regain confidence among people.”

“The small entrepreneurs on facebook stake the maximum portion of online business. The imposition of VAT and tax has created fear for them towards online business,” he said.

Shahabuddin Shipon, vice-president of E-commerce Association of Bangladesh (e-CAB), said, “Online sale has dropped due to various reasons. Marketing is the driving force of e-commerce, but the marketing cost has increased by 30 per cent. Besides, the delivery cost has increased by 20 o 30 per cent. These increased costs have led to a sale drop of around 30 per cent in the sector.”

“Now if we expect 70 per cent growth, it would not be possible; there will be a gap in expected growth and actual growth. Though online sales have dropped but the sector is still on the growth trajectory,” he said.

The e-commerce market is worth around Tk 22,000-23,000 crore, he informed. We are communicating with the government to develop delivery system through the existing post offices to minimise delivery costs. We are also demanding VAT and Tax facilities from the government, Shipon added.

He also urged banks to give loan facilities to e-commerce companies.

Logistics delivery companies bearing the brunt

The recent fuel price hike has increased the delivery costs of the e-commerce companies.

“Currently, we give 15 per cent VAT on logistics delivery which means a big amount for any last-mile delivery. Ultimately, it is increasing the product prices. So, why people would purchase products online,” questioned Fahim Mashroor, also the CEO a digital SME parcel aggregator Delivery Tiger.

He said that they have not increased the prices yet and will observe the situation for the next two more months.

“The government must suspend or cut VAT on online sales and delivery to help e-commerce companies sustain the present situation,” he added.

Biplob G Rahul, founding chief executive officer of eCourier, said, “One of the problems we are facing is non-compliance and unstructured practices in the market. People are taking delivery services from unanimous vendors with lowest charges accepting money risk and quality delivery.”

“Here, we are being compelled to compromise delivery quality which is not good for the sustainability of the logistics industry,” he said.

“With the commodity and fuel price hikes, our operating costs and product delivery costs have increased by 25 per cent. But the delivery vendors do not want to reduce the fares as fuel price has increased almost by Tk 35 per litre,” he said.

“Although the number of deliveries has remained almost same on our platform, we are not being able to earn revenue to give compatible services,” he said.

Initiatives underway to bring discipline

The commerce ministry is going to formulate “Digital Commerce Authority Act”. The act will be passed in the parliament to govern the local errant e-commerce shops and businesses.

Hafizur Rahman, additional secretary to the commerce ministry and also head of the digital and WTO cells of the ministry, said, “We have already read thoroughly the digital commerce laws of China and Europe. The commerce ministry wants to enact the law so that clients’ interests are protected and the business could grow.”

Two platforms — Central Logistics Tracking Platform (CLTP) and Central Complaint Management System (CCMS) — will be launched in November, by which the government will be able to take actions promptly after the consumers face any trouble or problems, said Rezwanul Haque Jami, head of e-commerce, a2i of the Bangladesh government.

“After the two platforms are launched, only honest entrepreneurs will be able to run their businesses online,” he said.

At present, 1860 e-commerce companies are listed with the e-CAB and while over 4 lakh women entrepreneurs are connected with Women and e-Commerce Forum (WE).