JOIN USIt's restructuring time for Indian ecom cos
Amazon’s decision to invest another $3 billion in India comes at a time when the competitive landscape of the ecommerce business is being regulated by the new FDI policy, and home grown companies going through dwindling fortunes led by Flipkart.
Indian ecommerce business is getting global attention as the internet user base grew 40% in 2015 to 277 million, compared with the 33% growth last year, making India the second largest country after the US. The ecommerce industry, which is almost a decade old and still maturing, has really influenced the buying urbanites and other affluents.
Flipkart, which was the poster boy of Indian ecommerce as it began its journey by selling books way back in 2007, had a lackadaisical journey after its raising of $1 billion in June 2014, as the market is shifting from cash burn and the investors looking for more revenues.
The other players, including Paytm, Snapdeal and Shopclues, are also facing the pains of cash burn and looking to restructure their business plan. What is in store for them is a question at a time when Amazon decided to invest a massive amount.
When the Amazon CEO declared to pour in $2 billion into Indian operations in 2014, during the earnings call, its CFO Brian Olsavsky said the company will continue to offer more money to reach out to Indian customers. The company would not like to commit the same mistakes it did while facing competition in China. Amazon had to concede defeat as it opened its own store on Alibaba site Tmall in 2014.
India focus
While the retail industry is expected to grow to $1 trillion by 2020, the report published by Google and consulting firm A T Kearney estimates that the total number of online shoppers in India will rise to 175 million and gross merchandise value will surge to $60 billion by 2020.
The ecommerce players have been using various tactics to hook customers and merchants to their platform. In the initial phase, cash burn via mega sales attracted the attention and later the companies realised its failure. Investors have put a full stop to it as they are expecting the companies to increase revenue streams.
Amazon India country manager Amit Agarwal has made it clear that its strategy is to make the supply chain more efficient. According to him, the measures will help the company offer customers low prices for products. The company also mulls investment in warehousing and product delivery, paving the way for lowering sellers costs.
According to a recent statistics, Amazon already spent more than $2 billion in its Indian entity since the announcement of Jeff Bezos in July 2014. The new move will further boost its spend on advertisement and market reach out programmes. Since its launch in June 2013, Amazon India has tried to hook the Indian customers using various business service like Amazon Now, its grocery ordering service.
It is helping merchants by giving the advantage of facilities like Fulfilment by Amazon and Easy Ship. The company has already set up 21 warehouses and plans to expand it further to reach out to tier II and III cities. Recently, the company announced its strategy to cuts commission rates for sellers of mobile devices to 3.5% and further start its sales event.
Indian companies’ strategy
As Indian ecommerce industry is feeling the pinch of cash burn, companies like Flipkart, Snapdeal, Paytm and Shopclues have come to realise that this method will not sustain long. In an interaction with Deccan Herald, Flipkart spokesperson Sengen said the company’s game plan to expand its reach and the primary objective is to make sure that all Indians should get quality products at affordable prices.
“We want to build India’s first consumer internet brand which should stand ahead with others around the globe. We don’t worry too much about the sales, revenues, market share as it will come once the company will focus on the large goal to be fulfilled,” said Sengen.
He said the company has succeeded in solving unique problems in India to make ecommerce happen. “Access to internet banking or access to credit or debit cards in India was very low when we started. We ensured that the Indian customers get the benefit of ecommerce. Indian customers had the practice of feeling the product by touch. Flipkart succeeded in ensuring that change,” he said.
Rumour is rife in the business parlance that Paytm is going for a massive restructuring game plan supported by its Chinese investor Alibaba so that its ecommerce business can take on the challenges thrown by Amazon. As per the RBI regulation, the company cannot continue with the payment business along with the ecommerce app.
According to a source familiar with the development, the company is banking on its phenomenal trust with Alibaba. “We have been witnessing a good working relation with Alibaba that our payment technology is getting support from the company. The plan envisages the splitting of the ecommerce and payment business of Paytm. To take on the Amazon challenge, Alibaba will have to scout for a strong partner in India and Paytm fits well into the game plan,” said the source.
An analyst from Motilal Oswal said the poster boys of Indian ecommerce Flipkart and Snapdeal cannot take the challenge, as their track records are bad and revenues are declining. “Flipkart is reeling under marked down by global rating and investment companies. Snapdeal, which has been registering a triple-digit growth in its gross merchant volume, witnessed only 80% growth in the last quarter,” he said.
According Sanjoy Sen, researcher at Aston Business School, Deloitte UK, Indian companies will have to go for strategic alliances with global players and innovation so that they can compete with the challenge of Amazon.
“There is always American way of throwing challenge in the business. But here Indian companies have the real edge as government has put a lot of restrictions on overseas companies. Since real India lives in villages who are also affluent now, ecommerce companies should try to lure them going forward,” said Sen.
There is always American way of throwing challenge in the business. But here Indian companies have the real edge as government has put lot of restrictions on overseas companies. Since real India lives in villages who are also affluent now, ecommerce companies should try to lure them going forward
Sanjoy Sen (researcher, Aston Business School, Deloitte UK)