The ‘To-Let’ sign hanging in shops across Kathmandu Valley has been a common sight for the last two years.

Shoppers say online stores that deliver goods and services to the customer's doors have eaten a huge market pie of physical stores ever since the Covid-19 pandemic in 2020.

Now, it’s the turn of online shops. The impact of the economic slowdown that has eroded people’s income has become visible in online marketplaces with many shutting down operations and laying off workers.

Market insiders say that the economic slowdown has hit almost every sector, and e-commerce could not remain an exception.

The e-commerce sector thrived especially after the pandemic with most companies reporting business growth by tenfolds.

Sastodeal, one of Nepal’s largest homegrown e-commerce companies, has folded, with a loss of 200 jobs.

“We shut down three weeks ago after running for a year and a half,” said Amun Thapa, co-founder of Sastodeal. “Obviously, there is no demand. The consumption has sharply declined.”

Sastodeal forayed into the market in 2011, providing an online shopping experience, with 10 million users.

In June 2020, Dolma Impact Fund, the first international private equity fund, invested $1 million in Sastodeal.

Also, the company made an exclusive cross-border partnership with Myntra and Flipkart of India.

“Observing the current economic situation of the country, we thought it better to shut down for some time. We see no immediate sign of improvement,” said Thapa.

“But there are also discussions to bring in new management.”

In Nepal, buying habits have changed significantly, with tens of thousands of people shopping online. The country’s transition from a cash-based economy to a burgeoning digital payment ecosystem has been a remarkable journey with a positive impact on financial inclusion and economic development.

The pandemic sped up the shift to online shopping. Nepal Rastra Bank, the country’s central bank, started to keep records of electronic payments from the fiscal year 2019-20.

But online fraud started to grow at an alarming rate, worrying tech-savvy customers who are increasingly turning to online shopping, especially after the Covid-19 pandemic.

Many online shops that have popped up in Nepal promise a service they never intend to deliver.

Consumer rights activists say that since there is no monitoring of online fraud, it leaves customers in a dilemma—to shop or not to shop online.

Besides, there are hassles of untimely delivery and the long process to follow for a refund by the online shops.

Thapa too admitted that the customer base started to fall as they failed to deliver on time. “The market competition was tough.”

The situation is not good for many other e-commerce players.

Bjarke Mikkelsen, CEO of Daraz Group, a subsidiary of Alibaba Group, told Reuters a year ago that it was reducing its workforce by 11 percent to prepare for the 'current market reality’.

He said that a difficult market environment, with a war in Europe, huge supply chain disruptions, soaring inflation, increasing taxes, and removal of essential government subsidies from its markets were reasons behind the plan for layoffs.

On February 27, Daraz Nepal announced layoffs.

“Over the past couple of years, we have worked to manage costs and improve operational efficiency substantially. Despite our efforts to explore different solutions, our cost structure continues to fall short of our financial targets,” Daraz said in a statement about its move.

“Facing unprecedented challenges in the market, we must take swift action to ensure our company’s long-term sustainability and continued growth.”

The Daraz Nepal refused to comment.

The e-commerce bill that envisages streamlining the market remains stranded in Parliament for months. The legislation had been drafted in 2021.

The absence of a law governing e-commerce has emboldened errant players. Many customers have complained of having been delivered damaged products, getting the wrong product, price differentials and the lack of a return and refund policy.

Consumer rights activists and e-retailers say an e-commerce law is long overdue in Nepal. Lawmakers have been overtaken by business trends which allowed unscrupulous market activities to spread, they say.

E-commerce entrepreneurs said that the demand for fast-moving consumer goods (FMCG), fashion goods accessories and electronic items has subdued due to slowed economic growth.

“The overall online demand for goods has declined by 40 percent,” said Surakchya Adhikari, co-founder and chief operating officer of Thulo.com, another online shopping platform. The demand for luxury goods and electronic items is almost down to the bottom, she said.

“Also, people are opting for cheaper goods,” Adhikari said.

According to the Connectivity in the Least Developed Countries Status Report 2021, e-commerce is related to a country’s level of development, partly explaining the poor performance of the least developed countries (LDCs).

The report said that even among countries with higher internet penetration, awareness of e-commerce platforms is low in LDCs like Nepal.

In a recent panel discussion organised by the Kantipur Media Group in Birgunj, panellists said that the private sector has lost confidence and factories are shutting down one after another.