The bubbles of e-commerce

E-commerce platform Aleshamart started operation in January this year with a promotional campaign offering 30% discount in its products and was taking advance payments with a promise to deliver products within 35 days.

In the first month of its inception, the online shop received customer orders worth Tk24.29 crore.

The e-commerce site then gradually increased price discounts to as high as 50%, taking the monthly sales to Tk124 crore in April.

In the first four months, the online shop's accumulated sales turnover stood at around Tk200 crore.

This is how tempting discount offers help online stores witness turbocharged growth in sales.

 

Using the same business model, e-commerce platform E-orange got customer orders of more than Tk400 crore in four months since January this year, with its monthly sales amounting to Tk150 crore in April.

Dhamakashopping, another online shop popular for offering high discounts in products, accumulated orders worth more than Tk350 crore in four months from January.

In this new business model, online shops collect money from customers in advance for one or two months. In some cases, these stores take more time to deliver products. And often they inform customers that the products they ordered have been exhausted and so delivery cannot be made.

Allegations run rife that customers do not even receive refunds after waiting for months, in cases of seller's failure to deliver products.

That e-commerce firms in the country are accumulating huge amounts of money by alluring online shoppers with high discount offers has raised concern at the Bangladesh Bank.

Raising alarm about high transaction value through unregulated e-commerce sites, the Bangladesh Bank sent a report to the commerce ministry recently, saying there is no asset against advance payment collected from the consumers.

In its primary analysis, the central bank has found that total sales of eight online shops were around Tk1,300 crore in six months from November last year to April this year. And these figures are only from one of the many payment gateways.

The volume of the sales turnover will be higher if transactions through other payment gateways are calculated.

The Bangladesh Bank has also observed that the online shops are not delivering products to customers in due time.

If any online shop vanishes overnight with customers' money, it will affect the growing e-commerce industry.

From this perspective, the central bank has requested the commerce ministry to take necessary measures to bring the e-commerce industry under proper regulation.

Md Hafizur Rahman, head of the digital commerce cell under the commerce ministry and an additional secretary at the ministry has termed this business model a "financial business", as online shops are collecting advance money from customers.

Such online shops will have to take licence from the Bangladesh Bank for collecting money from customers, he said.

He further said there are two sides of the growing e-commerce industry.

"One is that many new entrepreneurs are getting involved with such businesses, which help generate employment opportunities and bring innovative products.

"The second – the dark side – is that some online shops are cheating their customers after taking money in advance."

The commerce ministry is preparing a guideline for e-commerce businesses to protect customers, he added.

The business model online shops follow

Usually, a business entity starts operation with the aim to make profit from the outset. But a new trend of business has emerged on the digital platform – starting a business with a negative balance sheet.

The main target in the new business model is to increase cash flow by gaining a digital customer base that will eventually increase the value of the company.

In this business concept, companies enter the market with huge discount offers in products in the case of e-commerce and other tech firms.

The ongoing Covid-19 pandemic has led to a surge in online shopping, encouraging new business entities to enter the e-commerce sector with fierce discount offers. The behaviour of online shoppers has also changed – they look for discounts to buy products from any new digital shop.

The question is whether such a business model is sustainable and can protect consumer rights since businesses on the digital platform are not regulated yet.

The total transactions of e-commerce platforms hit an all time high of Tk911 crore in April this year, following the entry of a large number of online shops into the e-commerce sector.

Currently, around 1,000 e-commerce firms are listed with the Ministry of Commerce.

Offering discounts at the beginning of business operation brings losses for the firm, said a senior executive of Aleshamart.

However, the firm offered discounts as an investment in order to habituate customers with it, he added.

He further added that digital consumers are now habituated with high discounts in products. But, the real challenge for e-commerce firms is to ensure on-time delivery to retain customers, he observed.

"There is a tendency among e-commerce entities to delay delivery so that they can use the cash. This is eroding customer confidence," he said.

In this business model, the main challenge for the e-commerce firms is to gain consumer's trust through timely delivery of products, he continued.

Nevertheless, the fast growth of digital business entities in the country using the new business model is attracting foreign investors as well.

Foreign investors have already started investing in local e-commerce firms and digital payment service providers.

In March this year, Daraz Bangladesh – a concern of the Chinese e-commerce giant Alibaba Group – acquired HungryNaki, the pioneer of online food delivery services in Bangladesh.

When asked about the growing business trend of making a customer base by offering high discounts, Syed Ahmed Abrar Hasnain, head of marketing of Daraz, said this method is globally accepted.

Daraz also made its customer base through discount campaigns, he added.

"However, the discounts should be logical. Daraz offers a maximum of 10% discounts on some small number of products for a certain period."

The main objective of Daraz is to build customer trust and ensure quality services and products for customer satisfaction, he claimed.

Ahmed Abrar also pointed out that there is a risk at the customer end, as there is no regulation for e-commerce business to protect consumer rights.

Mentioning that starting business with a negative balance sheet is a new business trend in the digital platform, a senior executive of the Bangladesh Bank, said, "This business model is prevailing across the globe, but it warrants strict regulations to protect consumer rights as are chances of business collapse."

As e-commerce is growing rapidly with this new concept in Bangladesh during the pandemic, this is the time to analyse the viability of such a business model, he opined.

He further said the number of e-commerce firms has increased significantly during the pandemic so rules and regulations should be very strict to minimise frauds.

He also said the Bangladesh Bank is working with the commerce ministry to formulate a policy for the e-commerce sector.

Delayed product delivery by popular online shopping platform Evaly has already raised concerns about the protection of online shoppers' rights.

The online shopping firm gained huge customer response within a short time due to unusual discount offers in products. However, it failed to deliver products on time, gradually leading to anarchy in online businesses which came to the government's attention.

An investigation report of the home ministry found that customers did not receive products or refunds after making advance payments six to seven months ago.

Such failure in product delivery caused a gradual reduction in sales of Evaly in six months from November last year to April this year, transaction data show.

How online shoppers are being harassed

Dhamakashopping in May this year offered a price discount of around Tk41,000 on a refrigerator of Singer brand, the original price of which was Tk86,000.

Customers would have to make advance payment of the full offer price to avail the offer.

As a test case basis, this reporter ordered the product and made advance payment on 9 May. The online shop did not give any feedback about the product delivery even after one month till writing this report. The online shop did not give any timeline for product delivery either.

Sharing her experience of online shopping, B-Amma Mollica said she ordered a washing machine of Samsung brand from Dhamakashopping with advance payment of Tk25,202 on 10 May this year. The original price of the product is Tk46,000.

The customer did not receive any feedback about the product delivery even after a month.

In another case, Jahidul Islam, 26, ordered 10 kilograms of beef at around 50% discount from Evaly on 30 December last year. The merchant of providing the goods was well-known grocery shop Swapno.

On 27 April, Evaly notified the customer that the money would be refunded.

In spite of making advance payment, the customer neither received the product nor the refund even in six months until the filing of this report.

This correspondent also ordered a perfume that was offered by Care Me Global, a new online shop, at 40% discount on 18 March this year. The online shop took 25% advance payment of the discounted price.

After one month, the online shop informed the customer that they could not deliver the product and would refund the money without any compensation.

Raising concerns over the unusual price discounts, Liberation War Affairs Minister AKM Mozammel Haque, who also heads the cabinet committee for law enforcement agencies, said online shops might disappear after collecting money from customers like Jubok.

Formed in 1994, Jubo Karmasangsthan Society or Jubok collected Tk2,500 crore from depositors by enticing clients with the promise of high returns, before its operations were suspended in 2006 on charges of conducting illegal banking activities. Fifteen years into the closure of the company, none of the 3.5 lakh investors has got back a single penny of their investment.