For Amazon's US buyers desi goods come cheap

Americans shopping on Amazon.com this holiday season may find that the best deals for popular gifts like leather shoes and luxury bedding are coming from an unexpected source: Indian merchants.

Amazon, always on the lookout for ways to lower prices, has been aggressively recruiting Indian vendors to sell their goods directly on the e-commerce giant's American site.

At least 27,000 Indian sellers have signed up since Amazon began the outreach two years ago. They range from giants like the Tata Group, that hawks its Titan watch line on the site, to smaller firms like The Boho Street, a peddler of vegan tapestries, incense and handcrafted copper mugs.

The result is lower prices for consumers because selling foreign goods through the e-commerce giant cuts out some of the usual costs of a traditional importer. But it is also beneficial to Amazon, which gets to add to its enormous product lineup and charge sellers hefty fees.

For Indian merchants like Abhishek Middha, founder of The Boho Street, Amazon provides almost turnkey access to the US market. "Amazon handles everything in the US, from shipping to customer handling, so we can focus on making the best quality products and adding more products to our catalogue," he said.

Although Middha used to sell on other marketplaces like Etsy, he switched almost entirely to Amazon two years ago because of its vast scale and suite of services. Last year, his sales on Cyber Monday spiked to four times the usual level, helping to propel his annual revenue to $1.9 million. On Black Friday this year, his sales tripled compared with the previous day. "Amazon taught us how to create a brand," he said.

The growth of Amazon's Indian global seller programme shows how sophisticated the Seattle retailer's strategy has become. The company operates India's second-largest e-commerce site, Amazon.in, which caters to the country's growing base of online consumers.

But Amazon also sees India as a source of cheap and high-quality products that can be sold on its US site, especially in crucial categories like apparel, to help it take market share from competitors like Walmart.

Abhijit Kamra, who heads Amazon's global selling programme in India, said Americans already buy many products that are made in India, such as cotton towels.

"What we are trying to do is compress the global supply chain and bring sellers and customers closer," he said in a phone interview. Some of the 17 million Indian products on the main Amazon.com site, such as saris, tend to attract customers of Indian heritage. But other categories, like jewellery and health products, have wider appeal, Kamra said.

Amazon has listed many of its Indian products on a special page, Amazon.com/India, to help customers in the US find them. For the holiday selling season that kicked off with Black Friday, the company spent months helping sellers prepare by stockpiling goods in the US and programming special "lightning deals" to generate shopper interest. In some cases, the company even lent sellers money for inventory.

The India programme is quite lucrative for Amazon's bottom line. A merchant who chooses the full array of Amazon services, including buying advertising and contracting with the company to store and deliver the products from Amazon's US warehouses, typically hands over about one-third of the item's sale price in fees and commissions.

These third-party sellers are crucial to Amazon's business, said Aaron Cheris, head of the Americas retail practice at Bain, a global management consulting firm. "They make more money on their third-party stuff than on the stuff they sell themselves," he said in a phone interview. Amazon says that more than half of the units sold on its shopping sites come from such outside sellers.

To attract customers on a crowded site like Amazon.com, it helps to have a niche. For Krishna Murari, the founder of Rajlinen, that niche is luxury cotton bedsheets for the odd-size beds in recreational vehicles.

"I have never seen an RV," said Murari, a former electronics engineer. But he learned about the specialty sheets from a US company that sells custom mattresses, and then studied images of camper mattresses. Now his factory in Indore sells more than 10,000 RV bed sets per year in the US, many of them custom sewn.

Murari said buyers have little interest in camper sheets until June or July, so for the holidays, he is focusing on high thread-count percale sheets for regular beds. Murari often imitates designs sold by big US retailers, but tried to undercut them on price, selling his versions for about $30 a set, slightly below Target's prices and less than half of Bed Bath & Beyond's prices for similar items.

At the start of the holiday shopping season, Rajlinen had about 42,000 sheet sets sitting in Amazon warehouses across the US, waiting for orders to come in. Murari said his profit margin was low and he did not intend to offer big discounts over the weekend or on Cyber Monday, unlike many US retailers. His primary goal was to bring in enough revenue to keep his 115 workers employed.

Potential markets

While Amazon.com has sellers hailing from many countries, Cheris said that India and China
are the two most important places for Amazon to recruit new merchants, since both nations are sources of cheap manufactured goods.

Unlike China, where local companies dominate e-commerce, India is also a huge domestic market for Amazon. Although most of India's commerce is conducted offline, Indians are coming onto the internet at a rapid clip through their smartphones. Amazon's chief executive, Jeff Bezos, views India and its 1.3 billion residents as vital to his company's future, and he has vowed to spend at least $5 billion building up his India operations.

Flipkart, the top e-commerce site in India by volume, has pushed the central government to pass policies to protect local internet companies from unfair competition by foreign companies willing to lose lots of money. By promoting Indian exports, a top priority of Prime Minister Narendra Modi, Amazon is positioning itself as a good corporate citizen.

The Indian merchants selling on Amazon.com find their local site, Amazon.in, to be a less appealing marketplace. With a per-capita income of $1,600 a year, most Indians are unwilling to pay anything close to the prices that sellers can command in the US.

Raja Rajan, head of Boston Creative Co. in Coimbatore, has done well selling $13 engraved spoons and $60 folded book art on Amazon.com. He recently began selling the spoons on Amazon's Indian site, too. In the first six days, Rajan said, he did not have even one sale.

Perhaps that was because Indians know how cheap such spoons are to produce. Rajan said his profit margin is about $8 a spoon - rich enough to allow him to slash prices on Black Friday and Cyber Monday and see what happens. "We are going to cut the price in half," he said. "I just want to try it."