E-commerce in Sri Lanka

Fast changing companies in a fast changing landscape

The Indian e-commerce boom is trickling down to Sri Lanka, resulting in a sudden explosion of interest in the sector. In addition to the numerous local e-commerce sites, many brick and mortar companies are jumping on the bandwagon. A majority of such traditional brick and mortar companies have not even had a company website until now and e-commerce will truly be their first taste of what the World Wide Web can offer.

Today it is possible to avoid the usual costs associated with setting up an e-commerce operation such as purchasing bank payment gateways, a delivery fleet of vehicles etc. Companies such as Shopbox – which provides a customizable storefront and a common payment gateway and Kapruka, which recently spun off its e-commerce fulfillment operation into an independent business – providing some of the key infrastructural elements for new entrants. Following the industry’s standard mantra, online businesses have the ability to now fail fast and fail cheaply since they themselves don’t have to invest in the infrastructure.

By lowering the risks and costs of going online and coaxing more local companies into online commerce, such services are adding to the fast crowding and fragmented e-commerce marketplace in Sri Lanka. While a few clear front runners such as Takas.lk and Wow.lk have emerged, their future in a small consumer economy is still undecided, particularly given the many new entrants. Local e-commerce portals fall broadly into three categories – niche players concentrating on one narrow vertical such as accessories, clothes etc., large players offering a variety of goods ranging from electronics to interior décor and established brick and mortar companies selling through an online storefront. Each category faces its own set of opportunities and challenges and varying levels of competition.

The majority of the niche e-commerce players are in the fashion industry. They mainly differentiate themselves from the brick and mortar retailers by offering lower prices and offering the customer opportunities to customize the product via the website. Customization is a real advantage but also a double edged sword as it limits the scalability of the business. Niche players such as findmyfare.com have cornered their verticals by combining the advantages of the online medium to create a superior user experience. This is arguably harder for an online fashion retailer to execute, but could provide the crucial differentiation that captures consumers.

Established brands are venturing into e-commerce lured by the hype surrounding increasing number of locals making purchases online and the promise of higher margins by cutting out the regular distribution channels. Most such companies venturing online have little idea of online marketing and rely on creating awareness through traditional above the line media to drive traffic to their website – a high cost strategy compared to other online marketing avenues such as pay-per-click advertising. Such players are creating a market for ‘been there done that’ e-commerce giants to spin off their domain expertise into new businesses as Kapruka has done.

Online portals selling a range of consumer durables are the behemoths of the local e-commerce scene. This is the category that has attracted the most amount of interest with some portals backed by some of the largest telcos and significant venture capital funds. This category remains the most likely to be threatened by eroding margins due to intense competition or competitive entry by a global or regional giant such as Amazon or Flipkart. The small size of the Sri Lankan market makes entry by a global giant unlikely and at the same time caps the growth potential for the winners in this space. It is still early days and new entrants are essentially expanding the market, but on the flip side also hastening the point of saturation.

As the e-commerce race heats up, the sure winners are likely to be the other local internet startups. E-commerce players are likely to bid up the advertising rates of high traffic local websites as they try to funnel-in more traffic. By bringing more buyers’ online and conditioning locals to pay digitally, e-commerce will also pave the way for other business models such as online marketplaces; cash transfer networks and monetized digital media content.