NEW DELHI — There’s been continuing transformation in India’s online retailing space over the last two months, further galvanized this week by an additional $200 million in funding for e-tailer Snapdeal.
In the bruising competition among the top three players — Flipkart, Amazon India and Snapdeal — investments have been growing, as have company valuations. But so have the losses.
The numbers are not for the fainthearted. The losses total more than 50 billion rupees, or $730 million at current exchange rate, for the top three e-commerce players alone in the last financial year.
Amazon India, for example, is estimated to have had losses of 17.24 billion rupees, or $250 million, in the year ended March 31, 2015; Snapdeal had losses of 13.28 billion rupees, or $192 million, in the same time period. Amazon does not break out exact figures for its Indian subsidiary, however.
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“In some ways, it is both a surprise and a validation,” said Devangshu Datta, chief executive officer of retail consultancy Third Eyesight, discussing the balance between losses and the sector’s growth. “It is a market that is being transformed so the companies are continually in the investment phase as well. The amount of business e-commerce has generated in the last two years has been unprecedented. Modern retail went through something similar between 2004 and 2008 — it was similar in scale, but this is much more dramatic because the market is that much bigger.”
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Analysts have warned repeatedly that the combination of huge advertising and big discounts to win customers would eventually destroy the market and be of no ultimate benefit to the e-tailers themselves.
Most e-commerce companies initially were in “market-acquisition mode,” Datta explained, focusing on cutting prices simply to attract customers and generate revenues. “They have been creating new shopping and business and converting customers, growing the market as well. However, discounting is a game that only the deep-pocketed can play and even those pockets need to be replenished,” he said.
“You still have to think seriously about how to make that profit — perhaps your customer acquisition cost is too high. If you’re only giving discounts, then each time the biggest discounter will win,” he added.
The size of the e-commerce market has been growing dramatically, from $4.4 billion in 2010 to $13.6 billion in 2014 and is likely to have reached $16 billion by the end of 2015 on the back of the increase in the number of online shoppers, according to a joint study by industry body Associated Chambers of Commerce and Industry of India and consulting firm Deloitte.
By 2020, e-commerce is expected to grow to $100 billion, with the fashion segment predicted to account for a third of the total. The number of online shoppers is expected to grow from 40 million in 2015 to 250 million by 2020.
Amazon invested another 16.96 billion rupees, or $247 million, in its India business in December, and 19.80 billion rupees, or $287.9 million, in January. The company claims to have the largest number of products on offer, more than 40 million, with nearly 55,000 new products added each day. This is almost 10 million more products than the other sites. Total sales have been growing as well — Amazon Seller Services registered a sixfold increase in sales, from 1.69 billion rupees, or $24.53 million, in 2013-14 to 10.22 billion rupees, or $148.5 million, in 2014-15.
But Flipkart continues to be the market leader, with a valuation of $15.2 billion, and a round of funding in September of $700 million. The company expects to sell goods worth $10 billion by the end of this financial year, March 31.
As in China, big sales events have become a recurring theme in the Indian e-tail market as the three leaders seek ways to win customers. Sales in the festive season — which runs from September to December — are always an indicator, with many e-tailers selling three times more in the period than in the rest of the year. Snapdeal, for instance, said that its sales grew 700 percent during the festive season, and it experimented with a series of Monday fashion sales, bringing more than 500 fashion brands on its platform.
In October, which is often considered the peak of the festive season, Flipkart had sales of $300 million, up from $120 million in the previous year.
Amazon India also showed solid growth, selling more in the last three months of 2015 than it did in all of 2014, according to company sources.
But as the market has changed, so has the leadership of some of the companies, with an accompanying shift in strategy.
In January, Flipkart named a new chief executive officer — Binny Bansal — with the previous ceo, Sachin Bansal, becoming executive chairman. Both are founders of the company (they share the same last name but are not related).
Last week, Mukesh Bansal, founder of the biggest fashion e-tailer Myntra, which was acquired by Flipkart in 2014, resigned. He was head of commerce and the advertising platform after the acquisition and looked after the fashion category overall for the company. He said that the company “had built a strong leadership in the fashion category” and that it was “the right time” for him to move on to the next phase. Ankit Nagori, chief business officer, also resigned.
In December, fashion e-tailer Jabong, which had been rumored to be an acquisition target, got a new ceo and managing director, Sanjeev Mohanty, who was ceo of Benetton India from 2007 to 2016 and built the Italian brand into one of the forerunners of retail in India in the brick-and-mortar space.
Trying to increase customer loyalty has been a major focus for all the companies over the last year, with several new strategies.
Last week, Myntra changed tack once again, revealing it would relaunch its mobile program. “This is not a revenue-related decision. We want to give customers an additional reason to use Myntra. This move will eventually result in more app installs,” said Ambarish Kenghe, head of products at the site.
Last May, Myntra had adopted an app-only platform, one that parent company Flipkart was expected to follow, citing a far greater customer base in that channel. Analysts observed that this effort to increase customer loyalty may have been an expensive experiment, pointing out that many of the big-ticket items are still ordered through desktop computers and via the convenience of using multiple devices that are not limited by an app-only platform.
As all three companies race toward the $10 billion sales mark, 2016 is expected to be the year that e-tailers find ways to improve the customer experience — for instance, shorter delivery times, stronger technology and an even greater geographical reach.
“I believe in 2016 we will see much more work happening in core operations — product development and sourcing, logistics, technology, customer retention. I expect the e-commerce game in India to be stepped up, and not just in terms of marketing spend,” Datta observed.