Expect more promotional offers by e-commerce players

Ateeq Shaikh, DNA (Daily News & Analysis)

Mumbai, 30 June 2016

The e-commerce sector is likely to benefit from the implementation of the Seventh Pay Commission, but not immediately.

“If the entire amount of arrears is paid it will boost consumption in a relatively shorter span,” said Harish H V, Partner, Grant Thornton India LLP.

But if the payment is staggered, it may take time for increase in sales through e-commerce platforms.

Devangshu Dutta, managing director of Third Eyesight, a retail consultancy firm, said, “The increase in consumption would be over a period of time. In the short term, the increase would be in durables and lifestyle oriented purchases.”

“E-commerce is only a channel and not a different business. It is just a fraction of overall market,” he said.

There also has been reduction in overall discounts and discount-led promotions offered by e-commerce players in the last 12 months, bringing the prices of products nearly at par with brick and mortar outlets.

“There would be promotional pushes, but the same will also be followed by retailers (not having exposure online),” said Dutta.

On Wednesday, the government announced that the Seventh Pay Commission award will cost the public exchequer Rs 1.14 lakh crore during 2016-17. The revised salaries of central government employees are likely to be paid from July 1, 2016. The employees will get arrears for salary from January 1, 2016, but allowances will be paid only from July 1, 2016.

(Published in Daily News & Analysis (DNA))

Apparel brand US Polo tops Rs 1,000 crore India sales in FY16

Sagar Malviya & Richa Maheshwari, The Economic Times

Mumbai/Bengaluru, 22 June 2016

Apparel brand US Polo crossed the Rs 1,000-crore sales mark in India in the fiscal ending March 31, less than five years after it entered the country, according to a top executive of the company. US Polo’s fastpaced sales puts it in the same league as Zara, which became the biggest apparel brand in India within four years of setting up shop.

Zara now clocks over Rs 1,000 crore in retail sales here. In comparison, brands such as Louis Phillipe, Van Heusen and Benetton had taken nearly a decade to reach this mark.

“We caught the consumer trend with a fashionable but highly affordable brand,” said J Suresh, managing director of Arvind Retail, which holds licence to sell the brand. “The iconic logo with two polo players on horses helped too. India is possibly fastest growing market by sales and stores addition.”

Arvind Retail opened the first US Polo store in India in 2011 and has since added nearly 230 more. The 750-sq ft store at Select City Walk in Delhi on average rakes in Rs 225 per sq ft a day. Zara, on the other hand, makes on average Rs 150 per sq ft each day from the same mall, although from a bigger store.

According to Suresh, the company plans to open one US Polo store every week over the next few years as part of Arvind’s broader push to grow its retail business. 

“Two factors have worked: they are more casual driven and less about fashion and second, they are a value international brand and well positioned on price, which appeals to wider audience,” said Devangshu Dutta, CEO at Third Eyesight.

(Published in The Economic Times)

Apple free to take bite out of India after FDI rule change

AFP/The Hindustan Times
New Delhi, 22 June 2016

The gleaming glass atriums and blue-clad “geniuses” that herald the arrival of an Apple store could soon be landing in India, after the government cleared the way for it to open in the rapidly growing smartphone market.

Before now, the Silicon Valley giant has been just a bit-player in the country of 1.2 billion, selling through local shops with none of its own.

It applied to open stores in January, but was reportedly rebuffed because of a diktat that states foreign retailers must source 30 percent of their products locally.

But on Monday New Delhi relaxed the rules, just weeks after Apple chief Tim Cook toured India on a breathless charm offensive where he was pictured using Prime Minister Narendra Modi’s gold iPhone to launch the premier’s own app.

Companies making state-of-the-art technology — understood to include Apple — now have up to eight years to meet the sourcing requirements under a waiver, part of a push by India’s pro-business government to attract foreign investment and create jobs.

For Apple, which saw iPhone sales dip for the first time ever in the second quarter due to slowing demand in China and the United States, India is a tantalising prospect.

While analysts say it currently accounts for only around one percent of global iPhone sales, its giant population and low number of smartphone owners relative to its size mean it is a huge potential market.

“Apple has not really seen India as an important enough market in the past, but somewhere, the penny has dropped,” Devangshu Dutta, chief executive of retail consultancy Third Eyesight, told AFP.

Apple’s vast, hands-on stores are designed to become destinations in their own right, analysts say, luring potential customers with the promise they can play without buying.

“The store is not just a place to do business — it acts as a live billboard for the brand,” Dutta said.

‘Cost-conscious market’

Browsing mobile accessories in FutureWorld, a technology retailer in New Delhi’s Connaught Place, Aryamaan Chauhan said he would “definitely” visit an Apple store if one opened in the city.

The 19-year-old IT student owns an Android smartphone, bought for about 20,000 rupees ($295), but is considering switching loyalties.

“Money is what’s stopping me. My budget is low, I can’t afford it,” Chauhan said.

“Now, I think most Indian people prefer Android but they are shifting. After graduation I will buy an iPhone.”

With a basic iPhone starting at almost $600 — more than in many countries, thanks to India’s high taxes — they are wildly unaffordable for most in a nation where average incomes are less than $1,600 a year.

Handsets costing under $100 dominate the market, many of them made by Chinese manufacturers such as Xiaomi or Huawei.

“It won’t become mass-market, (Apple) will always be a niche player. This is a very cost-conscious market,” Vishal Tripathi, research director at Gartner, a technology research firm, told AFP.

“But there is a growing number of consumers who like Apple.”

By pricing itself exclusively at the luxury end, Apple has distinguished its brand from arch-rival Samsung which has both low-cost and high-end phones.

“Indian consumers are always under the notion that more expensive means better and consider carrying an iPhone as more of a status symbol than anything,” said Bhasker Canagaradjou, the head of Ipsos Business Consulting in India.

“The brand enjoys a very strong aspiration value, especially among the young population.”

‘Make in India’

For now, Apple has given no indication when or if it plans to open its own stores. But if it does, it will eventually have to meet strict sourcing rules as the government exhorts companies to manufacture in India.

The company will require factories that can produce its exacting, cutting-edge products — something India largely lacks.

“To create a local supply chain, it takes time. They will be able to operate stores and benefit from stores in the meantime,” said Dutta.

Foxconn, the major Taiwanese Apple supplier which also assembles products for Sony and Dell, is spending billions of dollars setting up factories in India.

The iPhone is not yet on the production line, but Canagaradjou says he believes Apple could start manufacturing in India “in the next one or two years”.

However, while its stores may arrive in India soon, analysts don’t expect to see legions of Apple superfans camping out to buy new releases as they do in other countries any time soon.

“If someone is expecting a replication of how it is in other markets, people queueing up outside the stores from 3:00 am, I don’t think that’s going to happen,” said Tripathi of Gartner. “In India, people prefer to sleep until late.”

(Published in Hindustan Times)

H&M to double store count in India by year-end

Sapna Agarwal, Mint

Mumbai, 20 June 2016

Swedish fashion retailer Hennes and Mauritz (H&M) on Monday said it will double the number of its stores in the country from six to 12 by year-end. The Indian unit of Hennes & Mauritz AB, which entered India in October and currently operates stores in Delhi, Punjab and Bengaluru, will expand to Mumbai, Pune and Chennai.

Two new stores in Mumbai will come up at Phoenix Mills in Lower Parel and Phoenix Market City in Kurla. Chennai will have its first H&M Store of over 34,500 sq.ft at Express Avenue Mall. Additionally, two locations have been confirmed for stores in Pune at Phoenix Marketcity (33,000 sq.ft) and Westend Mall (23,000 sq.ft) and a third location for Mumbai at Inorbit Mall, Malad, a suburb in Mumbai.

“H&M is having a great first year in India, the fantastic response from our consumers, to adopt international trends in their wardrobes, and a stronger economy have encouraged us to explore new markets in metros and beyond. All our new locations will be full concept stores, offering the latest in women’s, men’s and children’s fashion,” said Janne Einola, country manager, H&M, while sharing that the company plans to maintain the strategy of opening new stores in the market.

Globally, H&M had 3,970 stores as of 29 February and plans to open 425 more by November, The Wall Street Journal reported on 6 April. The company is the world’s second biggest clothing retailer by sales after Zara’s parent Inditex SA from Spain.

Inditex SA, the world’s largest clothing retailer which owns Zara, has been in India since 2010 in a joint venture—Inditex Trent Retail India Pvt. Ltd—with the Tata group’s hypermarket and department stores retail company Trent Ltd and has opened 16 stores in five years, according to its annual report for fiscal 2015.

Zara is one of the fastest growing apparel and lifestyle brands in India to have crossed $100 million in revenue within five years of operations. However, H&M looks like it could cross the $100 million mark in a much shorter time period. Despite its late entry in the country, H&M is getting prime locations as mall developers are making space for it, taking away the advantage of location for Zara. For instance, at Select City Walk in New Delhi, H&M has come in place of Pantaloons. Likewise, in Mumbai at Phoenix Mills and Inorbit Mall, its new stores will replace stores of existing retailers.

“Sales per sq. ft of Zara and H&M in India are roughly comparable adjusted for location and size. If H&M builds scale faster in a shorter time, it will manage to cross $100 million in revenues even faster than Zara,” said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm.

India is the second-most attractive market for global retailers to expand after China, according to The 2016 Global Retail Development Index by consultancy AT Kearney. According to the firm, India has in the past couple of years improved the ease of doing business. Clarity on foreign direct investment (FDI) regulations too have helped.

To be sure, challenges remain. India continues to be a complex market for foreign retailers, where understanding dynamics at the state level is important as the country’s 29 states have the power to opt in or out of FDI reforms. Also, infrastructure bottlenecks, including archaic labour laws, complex regulations, high attrition rates, and limited high-quality retail space, remain important areas of concern for retailers, said the AT Kearney report, adding that still, the potential is vast as the country presents a $1 trillion retail market.

In the past year, several foreign retailers have entered India. In fashion, A�ropostale, The Gap, and The Children’s Place entered in partnership with Arvind Lifestyle Brands. Topshop and Topman entered via e-commerce through, while H&M became the first international fashion retailer to enter alone after the government approved 100% FDI in single-brand retail.

Other sectors that saw multiple entrants include sports (Sonae, under the Sport Zone banner), restaurants (Wendy’s, Jamie’s Italian, Jamie’s Pizzeria, Barcelos and Carl’s Jr.) and convenience stores (UAE-based Fmart). Among existing international retailers, Marks & Spencer, Burger King, Dunkin’ Donuts, Starbucks and Nando’s have initiated significant expansion programmes.

(Published in Mint)

Apple Closer to India Stores After Government Eases Curbs

Saritha Rai, Bloomberg
Bengaluru, 20 June 2016

Apple Inc. may be closer to opening stores in India after the government eased onerous local sourcing requirements on retailers.

The world’s second-most populous country on Monday announced the easing as part of a raft of measures intended to boost foreign direct investment and expand the leeway afforded multinational corporations. It loosened policies that require retailers to source at least 30 percent of their components locally before they can set up shop.

Apple is pushing to increase its share of the world’s fastest-growing major smartphone market as device sales slow elsewhere. Chief Executive Officer Tim Cook visited the country for the first time in May and met with Prime Minister Narendra Modi to outline his ambitions for the burgeoning arena.

Under the new regime unveiled Monday, single-brand retailers have a three-year grace period in which they can operate stores, before they have to comply with the local sourcing requirement. Companies that can show they are selling state of the art or cutting edge technology can benefit from a relaxed local sourcing regime for “another five years.”

The government hasn’t ruled on whether Apple meets the cutting edge criteria. Apple didn’t respond to an e-mail seeking comment on the government’s decision.

Apple will now have to apply anew for permission to open its first stores in India, Commerce Minister Nirmala Sitharaman told reporters Monday. The Cupertino, California-based company has used flagship stores in New York, Tokyo and Shanghai to promote its products and boost sales, but in India it sells through partners such as Redington India Ltd. as well as the retail units of Indian conglomerates Tata Group and Reliance Industries Ltd.

“The relaxed rules give Apple a window to build up a credible brand and gives the company a chance to build up internal capability and familiarity with the supply base,” said Devangshu Dutta, chief executive officer of Third Eyesight. “For branding, a certain consistency is critical and this can be done by having retail control.”

India is a challenging market because of the iPhone’s premium pricing. It now has less than 2 percent of an Indian market in which four-fifths of phones cost less than $150. The iPhone maker had sought permission to become the first company allowed to import and sell cheaper refurbished phones into the country, but was said to have been rejected.

Still, Apple’s sales there jumped 56 percent in the March quarter, indicating that demand for the brand is growing. Cook called out the country’s “incredibly exciting” prospects during his last earnings conference and said his company will devote more energy to that market. Apple’s stores have always played a key-role in attempts a convey a unique image and feel for its products.

“It gives Apple more branding and positioning strength. Having a direct presence will help it gain more mindshare,” said Vishal Tripathi, an analyst at research firm Gartner. “It can help create a well-fashioned brand in the Indian market.”

(Published in Bloomberg)

Malls go all out to lure fashion brands

Raghavendra Kamath, Business Standard

Mumbai, 17 June 2016

To drive footfalls and attract brand value, mall developers across the country are rolling out the red carpet for prominent chains.

Recently, H&M signed a lease agreement with a Hyderabad mall developer, wherein the latter gave the Swedish retailer six months rent-free, promised an investment of Rs 2.5 crore on fit-outs (a term used to describe the process of making interior spaces suitable for occupation) and a 30-year lease, according to a source. This was over and above the fit period of three to four months.

According to sector experts, department stores ask and get a rent-free period of three to four months during which they do fit-outs, and get a lease period of nine-odd years.

According to the same source, Mumbai-based Inorbit Malls has committed to spend Rs 12 crore on fit-outs and interiors on H&M’s upcoming stores in Mumbai, Hyderabad and Bengaluru. Inorbit’s public relations agency did not want to comment.

“They (H&M) say they follow a standard format in signing deals across 4,100 stores worldwide. If a mall developer is not comfortable on the terms, they are ready to search for others,” said the source. An H&M spokesperson said: “We never comment on rumours or future expansion plans.”

Yogeshwar Sharma, executive director at Select Citywalk, which houses both H&M and Zara, says they gave a rent-free period of six months as H&M was new to the country and it would help the brand to settle down. However, he denied the mall spent money on fit-outs and interiors.

Sharma said the mall had given a rent-free period of four and a half months to Zara when it opened in the mall. “Indian brands do not enforce longer rent-free periods,” he said. Adding that in the longer view of the mall, they sign 30-35 year leases with global brands.

A Zara spokesperson said: “We cannot comment on our commercial relations.” Sources said H&M had worked out a special revenue sharing deal with Phoenix Mills for two of its upcoming stores in Mumbai. Though there is a buzz that Phoenix Marketcity in the Kurla area had paid for fit-outs of Zara, Rajendra Kalkar, president-west at Phoenix denied this. 

Recently, Future Group’s Big Bazaar vacated its premises in High Street Phoenix and H&M is set to open its 30,000 sq ft space on the same place.

“We give the same treatment for all good brands and there is no preferential treatment for any,” Kalkar said, adding every deal was based on commercial negotiations and different from each other.

Added Mukesh Kumar, senior vice-president at Infinity Malls: “International brands ask for capex on fit-outs and interiors. Some agree to it and some do not.”

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, said international marquee brands are seen as crucial anchors that can drive high footfall to malls.

According to estimates, footfall at malls are down 20-25 per cent in the past couple of years, due to economic downturn and onslaught of e-commerce. Correspondingly, occupancy costs have also come down by about 15 per cent.

“Zara and H&M have already demonstrated the excitement they are able to generate, not only at launch but the traffic they are able to sustain over time,” Dutta said.

As far as recovering the income lost during rent-free periods or co-investment in initial store fit-out, developers would be working that into their commercial mix, and looking to recover that from other tenants or to amortise it over a period of time, he added.

Susil Dungarwal, chief mall mechanic at  Beyond Squarefeet Advisory, a Mumbai-based mall management company, said despite the terms and conditions, global brands were choosy about where to go. “They go to a mall only where the latter adds value to the brand,” he said

Mall owners, he went on, believe they’d be able to recover the investment on fit-outs and interiors in a few years, as the new brand will add value to its tenant mix and offer customers a new brand, impacting in better rental realisation from other tenants, too.

Many malls had shut down in Mumbai, Bengaluru and other cities in the past couple of years, due to low footfall and business. Beside Nirmal Lifestyle in Mulund, Neptune Magnet Mall in Bhandup and Centre One in Vashi, malls that have closed in Mumbai include City Mall and Mega Mall in Andheri, and Dreams Mall in Bhandup. Kohinoor Mall in Kurla is yet to become functional.

Eva Mall on Brigade Road and Sigma Mall on Cunningham Road in Bengaluru have shut shop. Navi Mumbai has seen Gold Souk Mall, Wedding Mall and Palm Beach Galleria converted into office complexes or showrooms for automobile companies.

(Published in The Economic Times)

Alibaba in investment talks with Delhivery and Xpressbees Logistics

Aditi Shrivastava &Madhav Chanchani, The Economic Times
Bengaluru, 14 June 2016

Alibaba Group Holdings is looking to buy, or invest in, an Indian logistics company specialising in deliveries for online retail players, and towards this end has held talks with Delhivery and Xpressbees Logistics, according to two people aware of the development.

The Chinese company is also chalking out a plan to get Paytm to spin off its marketplace business and plans to top it up with more capital, said a third source. Alibaba and its affiliate Ant Financial together own about a 40% stake in the Noida-based company.

These moves are part of an effort by Alibaba to build what founder Jack Ma calls the “iron triangle” of businesses in ecommerce, payments and logistics, and position it to challenge dominant incumbents Flipkart and Amazon.

Paytm and Xpressbees, which is based in Pune, declined to comment. Sahil Barua, the CEO of Gurgaon-based Delhivery, did not reply to an email seeking comment.

Times Internet, a part of the Times Group which publishes this newspaper, is an investor in Delhivery along with Tiger Global Management and Nexus Venture Partners. In response to questions from ET, Alibaba said in a statement that it sees “tremendous opportunities” in India. “We are absolutely committed to developing in this market for the long term,” it said.

Alibaba is likely to buy a majority or a significant minority stake in a logistics company, which will give it a major say in operations, said one of the sources cited above. The investment will be decided in 4-6 months, once Alibaba is ready to launch its horizontal marketplace platform in India.

Both Delhivery and XpressBees already work with Paytm’s marketplace as third-party logistics and eKYC partners. 

Securing control over logistics is important because infrastructure comprising roads, storage and vehicular assets, as well as skills, regulations and systems are relatively under-developed in India, said Devangshu Dutta, CEO of retail consultancy Third Eyesight.

“Major players such as Amazon, Alibaba, Flipkart have to take direct or indirect control to ensure that their logistics capabilities evolve ahead of their own business growth curve,” he said. 

Top executives from Delhivery and XpressBees have met the team which Alibaba has set up for the India entry. This group is led by Alibaba’s Global Managing Director K Guru Gowrappan and Bharati Balakrishnan, the first top executive hired by Alibaba to build a consumer-facing business in India. Alibaba executives currently work out of Paytm’s headquarters.

Delhivery was estimated to be valued at Rs 2,000 crore during its last funding round. SAIF Partners and IDG Ventures are among the investors in Xpressbees, whose valuation is not known.

“They are putting their strategy in place. Fundamentally, they will buy and start with Paytm’s online retail business, because a deal with Flipkart is not happening right now as they feel it is very expensive. They will get a logistics partner to build a network like Amazon, which is very critical,” said a source briefed about Alibaba’s plan.

Besides owning a stake in Paytm, Alibaba owns around 5% of Delhi-based online marketplace Snapdeal. It held investment talks with Flipkart, but the two companies were not able to reach an agreement on valuation and terms. Alibaba and Paytm are working out the contours of the corporate structure of the marketplace entity, where 100% foreign direct investment is allowed as per regulations announced by the government in March.

“All payments will be moved to the payments bank and ecommerce will be a separate entity which Alibaba will invest in again. We will see some announcements over the next three to six months,” said a person briefed about the plan. As India becomes a crucial battleground for the world’s two largest online retailers, they are deploying contrasting strategies in an ecommerce market that Internet and Mobile Association of India estimates will be worth Rs 2.1 lakh crore by December 2016. While Alibaba has made strategic investments, Amazon India is growing organically.

Amazon ended 2016 with net sales of $107 billion. Alibaba closed its financial year in March 2016 with revenue of $15.7 billion.

Winning in India has become critical for Amazon, after it lost out in China to Alibaba. Last week, Amazon founder Jeff Bezos announced that his company will invest another $3 billion in India, taking the total commitment to around $5 billion, putting the spotlight on Alibaba’s India plans.

Alibaba is also entering India at a time when funding options for local players have dried up, and sales growth is flattening as online retailers pull back on discounts. This gives it an opportunity to cherry-pick assets in the country. India is also important for Alibaba’s push to globalise its customer base, as it looks to get half of its revenue from overseas by 2020 as compared 20%. In April, Alibaba acquired a majority stake in Southeast Asian online retailer Lazada for $1 billion when it was reportedly running out of money.

(Published in The Economic Times)

Amazon’s $5 billion investment to take it past combined capital raised by Flipkart, Snapdeal

Madhav Chanchani, The Economic Times
New Delhi, 8 June 2016

Amazon founder & CEO Jeff Bezos said that the company is planning to invest an additional $3 billion in its India operations, coming nearly two years after the Seattle-based online retail giant announced plans to pump in $2 billion. The announcement takes total investment commitment in India by Amazon, which is competing with market leader Flipkart for the top spot, to $5 billion.

The $5 billion investment will take Amazon India past the combined capital raised by both local rivals, Flipkart and Softbank-backed Snapdeal. While Flipkart has raised over $3.2 billion till date, Snapdeal has mobilised around $1.5 billion.

After losing out to Alibaba in China, winning the Indian market has become critical for Amazon and the latest move underlines that it has a blank cheque for the market.

“We have already created some 45,000 jobs in India and continue to see huge potential in the Indian economy,” said Bezos. “Our team is surpassing even our most ambitious planned milestones, and I’m pleased to announce today that we’ll invest an additional $3 billion on top of the $2 billion that we announced in 2014, bringing our total investment in India to over $5 billion.”

The announcement by Bezos was made during Prime Minister Narendra Modi’s visit to US. The PM also presented Bezos with U.S.-India Business Council (USIBC) Global Leadership Award along with Sun Pharmaceutical founder Dilip Shanghvi. USIBC is a lobbying group for businesses in the two countries.

Amazon has been stepping up its investments in India since the start of 2015, and has picked up momentum in the last two quarters, as ET reported earlier this month.

The main India unit, Amazon Seller Services, has received Rs 8,618 crore since beginning of 2015 and over Rs 9,600 crore since it was set up. In March Amazon also made its intention clear to keep pumping in more capital, as it filed to increase its authorised capital from Rs 8,500 crore to Rs 16,000 crore.

Since Jeff Bezos made the announcement of investing $2 billion in India in 2014, Amazon Seller Services has received Rs 9,029 crore. Till the time of announcement in July 2014 the unit had received Rs 600 crore.

The infusion underlines how Amazon India is ramping up its cash burn rate at a time when local rivals like market leader Flipkart, and Snapdeal are conserving capital and focus more on unit economics.

Last week, Amazon also completed its three year anniversary in India, gaining market share from rivals who have been in business much longer than it has. Flipkart which began by selling books as an online retailer in 2007 and counts Tiger Global as its largest investor, is the market leader in India’s online retail industry.

ET reported in April that Amazon India has already overtaken Snapdeal in terms of number of shipments, and is moving close to leader Flipkart’s market share.

The firm has implemented learning from the China market in India, Bezos said at the Code conference last week.

Amazon started India operations in June 2013 with cash on delivery, the preferred mode of payment, and also leveraged local Kirana stores for delivery of goods. It has also introduced a slew of initiatives for merchants like AmazonTatkal, which enables small businesses to get online in less than 60 minutes.

Amazon India has also built its own logistics network in India, which includes 21 fulfillment centers (FCs) owned by company and 50 owned by its sellers.

But recent norms on foreign investments in online marketplaces are widely expected to put a short term pause on Amazon India’s aggressive gains on market share on local rivals, even though many expect that it still has a long term advantage both in technology and capital available.

Government guidelines expected to pause Amazon’s advance include the cap of 25% that a seller can account for sales on an online marketplace, and if a marketplace can “directly or indirectly influence sale price of goods or services.” Both these factors were proving to be significant in Amazon’s advance in India.

Amazon Inc runs a joint venture with NR Narayana Murthy’s Catamaran Ventures- Cloudtail India Pvt Ltd- which is one of the biggest sellers on the Amazon marketplace in India. While Amazon has never directly acknowledged existence of this entity, on January 29, 2016 it acknowledged it as one of the risks for the first time to its international operations in regulatory disclosures in US.

“In India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities……..we hold an indirect minority interest in an entity that is a third-party seller on the marketplace,” said , Inc filing with Securities & Exchange Commission (SEC) on January 29, two months before Indian government unveiled FDI regulations on online marketplace.

Amazon has also sought clarifications on how to market discounts from the government after the recent regulations came in force, as ET reported earlier.

Before the new regulations were announced, Amazon’s growth has outpaced both its rivals Flipkart and Snapdeal. Amazon India’s shipments in 2015 increased by 250% over the prior year, while Snapdeal revealed that it has seen a growth in its gross merchandise value of 90% between FY15 and FY16.

Flipkart has not disclosed its GMV or growth numbers for 2016. The e-tailer was targeting GMV of $10-12 billion (Rs 64,000-76,000 crore) by June 2016, more than double the $4 billion it achieved in 2014-15 but is expected to have widely missed the target.

But Amazon has continued growth momentum in 2016, having increased 150% in the first calendar quarter from a year earlier. It added 90,000 new products daily between January and March. Now, Amazon India has 55 million products listed on its platform while Flipkart has more than 40 million and Snapdeal has 35 million.

Both Flipkart and Snapdeal have been on the defensive mode in 2016 as they look to extend their runways and monetise existing customers. There is also not much clarity on their next round of financing after pitching to multiple investors since end of 2015. And both these organisations are likely to see more challenges going into the year.

“During the last 12-18 months, with funding tightening up, companies have started looking at margin more seriously. Not only are marketing spends are being refocussed, many senior management exits have happened and more organisational turmoil is likely in the coming months,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. 

(Published in The Economic Times)

Amazon invests additional Rs 1,350 crore in its India unit to accelerate growth

Madhav Chanchani, The Economic Times
Bengaluru, 2 June 2016

Amazon has invested an additional Rs 1,350 crore (about $200 million) in its India unit this year, stepping on the pedal as it seeks to accelerate the momentum gained in the past 18 months.

The latest investment in Amazon Seller Services, disclosed in regulatory filings on May 31, takes the total capital infused into the main India unit since early 2015 to Rs 8,618 crore. The money came in March, a few weeks before India introduced discounting and vendor-related restrictions for online marketplaces.

The investment underscores Amazon India’s determination to spare no expenses to fuel growth, outspending rivals that are having to slash budgets and focus on squeezing more revenue per customer. The money will now also be needed for additional compliance-related expenses, said experts.

Amazon this week will complete three years in India, in which time it has bitten off significant market share from domestic rivals who have been around longer. The Seattle-headquartered company in March edged past Soft-Bank-backed Snapdeal in shipments, or volume market share, ET reported in April.

Flipkart , which began by selling books as an online retailer in 2007 and counts Tiger Global as its largest investor, is the market leader in India’s online retail industry.

For Amazon, after losing ground to Alibaba in China, winning in India, the world’s fastest-growing major economy, has become critical. The company in October said it expected India to overtake Japan, Germany and the United Kingdom to become its second-largest overseas market in a few years.

“We have done much more local market customisation in India than we did in China,” Amazon chief executive Jeff Bezos said on Tuesday at the Code/Media conference in California when asked what lessons the company had learnt from China.

Amazon began its India operations by allowing buyers to pay by cash, a novelty for it, and recently has leveraged neighbourhood stores for delivery of goods.

It has introduced a slew of initiatives for merchants including Amazon-Tatkal, so small businesses can get online in under 60 minutes.

Amazon India has also built its own logistics network, which includes 21 delivery or fulfillment centers owned by it and another 50 owned by its sellers. But Bezos also said the Indian and Chinese markets are different, taking a dig at investors who have ploughed sizeable capital into Amazon’s domestic competitors expecting similar successes as seen in China.

“I think some of the investors in India in the early days thought that India might be a replay of China and they have found out that it hasn’t gone that way,” Bezos said at the conference.

Tiger Global and SoftBank have invested about $1billion each in Flipkart and Snapdeal, respectively.

Experts tracking online retail said it wasn’t alien for Amazon to outspend rivals to dominate a market. Amazon in January made its largest single capital infusion into in its India unit atRs 1,980 crore, a month after it sunk inRs 1,696 crore.

“This is only the tip of the iceberg,” said Kartik Hosanagar, professor at The Wharton School of the University of Pennsylvania. “While Flipkart and Snapdeal are struggling to attract new capital, the strategic commitment from Jeff Bezos gives Amazon India a huge advantage.”

Amazon India, however, has to deal with the new guidelines that bar any single merchant from accounting for more than 25% of the sales on an online marketplace and disallow any discounting led by the online platforms.

“The FDI policy has clear implications for Amazon’s growth,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “It cannot depend on Cloudtail (Amazon’s leading merchant) to develop its presence beyond 25% of projected revenues, so it does create a huge push for other merchants and brands. This will need significant spending on more manpower, more dispersed delivery infrastructure and higher marketing spends as well. long-term horizon in India.”

A spokeswoman for Amazon India said in an email, “We have witnessed tremendous growth in three years of our operations in India. In 2015, we grew by more than 250% (year-on-year, in terms of shipments) and by over 150% y-o-y in the first quarter of 2016 despite a larger base.”

For all this, however, Flipkart CEO Binny Bansal says he is not worried by Amazon’s pace.

“The more we make quality products affordable and available, that’s the only way to maintain our leadership,” he said in an interview last week when asked if Flipkart was confident about remaining the market leader in 2017. “I am certain that we will remain the largest player by far.” 

(Published in The Economic Times)