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Reports suggested that India’s consumer electronics and home appliances market is set to grow at a CAGR of 10.08% by 2021. During the pandemic, end-customers, confined to their homes, expressed a growing demand for kitchen and office appliances. Small electronics retailers, however, were plagued by lowered purchasing power and cash flow constraints.
Merchants distributing electronics to retailers can tap into opportunities created by this situation. They can make the most out of the growing demand from on part of the end-customers, while also incentivising the retailers to buy more by digitising their processes. Currently, however, e-commerce giants like Amazon and Flipkart enjoy the lion’s share of the online electronics market.
How electronics merchants can play to their strengths
Small retailers may be unable to stock as much inventory as big players who have access to large warehouses and exclusive deals with manufacturers. These retailers are also far too fragmented to band together and bargain for competitive prices from suppliers. But, they offer something big e-commerce players cannot - the immediacy of in-store purchasing.
By leveraging their ability to instantly fulfill orders, along with competitive pricing and digital payments, retailers now stand a fighting chance against the behemoths of online shopping. They can partner with e-commerce startups like Arzooo that facilitate the expansion of their inventory and provide logistical solutions. Embedded credit, offered on the merchant’s app itself, can help retailers address liquidity and cash flow problems that arose due to the pandemic.
Once brick-and-mortar retailers enter the e-commerce space, they open themselves up to several payment, financing and loan solutions hitherto unavailable. Embedded Finance, payment gateways, flexible credit and alternative credit scoring can help retailers expand their operations and boost sales. B2B BNPL, a product of innovations in digital financing, is a crucial piece of the puzzle that can help electronics retailers give a boost to their operations. For B2B merchants, offering BNPL increases order values.
Why electronics merchants must offer BNPL
In B2C e-commerce, buy-now, pay-later met with immense success during the COVID-19 pandemic. It allowed customers to finance their purchases by breaking them up into smaller, recurring payments in a time of salary cuts and layoffs. With similar applications in the context of B2B operations, BNPL can be offered by merchants as trade credit through which retailers of electronics can stock their stores, pay their employees, and meet other cash requirements.
Solution to inadequate credit access
Recurring, short-term trade credit feeds the cash inflow of any business. It is required to replenish inventory and meet expenses - both urgent and routine. However, it is often difficult for businesses to come by such credit. According to one estimate, the credit gap among MSMEs in India stood at an astonishing 70 percent in 2018.
(Source: IFC https://bit.ly/3BQuBXz)
The need for such credit is felt even more keenly when the business offering is relatively expensive. Small retailers of big-ticket products like electrical appliances require a heavier cash flow to conduct business smoothly. Maintaining inventories of these products is a cash intensive exercise, and can often be a struggle.
Addresses lack of liquidity: Through BNPL, electronics retailers can make repayments in installments over the next few weeks or months, hence solving the pressing problem of illiquidity. The merchant finds himself in a win-win situation because he not only provides a solution to illiquidity, but does so without taking on any additional risk. He is paid immediately for the purchase, as the retailer ends up repaying to the lender over their loan tenure.
Leg up against competition: Distributors have traditionally offered credit to retailers. With BNPL, merchants can extend this credit to retailers in a more elegant manner. BNPL digitises the credit offering, making the process seamless. It offers bigger loans on better terms than traditional distributors, and allows new-to-credit retailers to avail credit through alternative data underwriting.
Offers flexibility and seamlessness: BNPL lenders offer the retailer a flexible repayment schedule, allowing them to work around their cash flow problems. This type of credit is also offered in-context and at the time of checkout. This makes the payment for retailers' large and recurring orders seamless.
Through the many benefits of BNPL, merchants can make the most of the growing demand for electronic appliances that has arisen due to lockdowns. In fact, the flexibility, seamlessness and liquidity BNPL offers can also encourage sections of customers, whose purchasing power has been hit by the pandemic, to meet their needs. Combined, all these factors prompt retailers to place larger and more frequent orders, ultimately contributing to healthier business metrics for the merchant’s e-commerce platform.
Boosting average order value
Although at a nascent stage of $15 billion currently, BNPL in India is poised to become a $100 billion market by 2025. This meteoric rise of the payment method is attributed to the convenience it brings to customers. The ease afforded to customers results in healthier gross merchandise value, customer lifetime value, acquisition to activation ratio, and average order value for merchants.
For end-customers, electronic appliances are a one-time, big-ticket expense. So, when building their inventory, small retailers prefer keeping stocks of products that are safe bets. This deters them from taking bigger risks and restricts the size of their target market. For merchants selling to these retailers, smaller orders lead to a low average order value.
By offering BNPL, merchants can empower retailers when they scale their operations through e-commerce. Retailers are more likely to make bigger purchases to fill up larger warehouses and fulfill orders through their newly optimised logistics. They also do not shy away from placing recurring orders when the checkout process is made seamless and requires minimal input of their sensitive financial details. Merchants gain from the success of retailers as this increases their average order value and cart value.
In a time of growing demand and ample opportunity for small electronics retailers to expand their business and challenge big e-commerce, merchants can give them a boost by offering BNPL. It allows retailers to increase their order volume and frequency, and helps them manage their cash flow better.
By easing the burden of bulk payments, BNPL helps boost demand even from customers with lower purchasing power. Ultimately, offering BNPL imbibes a sense of confidence in customers to place larger and recurring orders, thereby helping give a boost to the merchant’s average order values.