Sagar Malviya, The Economic Times
Mumbai, 3 November 2014
Online retail seems to be rapidly coming of age in India — in the financial year ended March, Flipkart’s sales challenged those of its nearest brick-and-mortar rivals, according to filings with the Registrar of Companies, although the segments that they operate in aren’t strictly comparable.
Meanwhile, the marketplaces operated by both Flipkart and Amazon posted losses. Amazon, which entered India a year ago, logged a net loss of Rs 321 crore while Flipkart saw this more than double to Rs 400 crore, according to October 31 filings.
Due to curbs on foreign investment in selling directly to consumers, Flipkart and Amazon run their websites as marketplaces. Hence, the figures relate to commissions from sellers and revenue from advertisements on ecommerce sites. In this respect, Amazon Seller Services posted revenue (commissions) of Rs 169 crore while Flipkart Internet, which manages the portal, had a total income of Rs 179 crore.
However, Flipkart India Pvt Ltd, the website’s wholesale arm, said sales amounted to Rs 2,846 crore in the year ended March, more than double the Rs 1,180 crore a year ago.
Rival Shoppers Stop posted revenues of Rs 2,713 crore through its 73 department chain stores that mostly sell apparel and lifestyle products.
On a consolidated basis though, including electronics chain HyperCity, sales amounted toRs 3,771 crore. The Kishore Biyani-run Future Lifestyle Fashion posted total income of Rs 2,743 crore from its department store formats Central and Brand Factory besides its own labels such as Indigo Nation and John Miller.
Amazon Wholesale didn’t disclose a comparable total. It posted a total income of Rs 1.4 lakh with a net loss of Rs 3.71 crore for the six months ended March. CEO Jeff Bezos had said previously that it exceeded gross merchandise sales of more than $1 billion within a year of launching in India.
Online retailers typically burn through cash as they battle to acquire customers by offering goods at cheaper rates.
"At this moment, most companies are building market share rather than having a phase of harvesting their business model. Lots of money is being spent on building share and cost of acquiring customers has certainly gone up since last year," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "In addition, online players are investing by building supporting infrastructure, which in turn affects profitability."
According to a report by consulting firm Technopak, the $2.3-billion e-tailing market is expected to swell to $32 billion by 2020 and account for 3% of the total Indian retail sector.
With Snapdeal reportedly posting a net loss of Rs 264 crore, the combined loss, along with Amazon and Flipkart, now stands at more than Rs 985 crore for the last fiscal.
Both Amazon and Flipkart didn’t respond to email queries. India’s largest online retailer expects to start making profits in a few years.
"With further expansion and emphasis on white-label products, your company has derived better margins which in turn shall help company to turn profitable in coming years," Flipkart said in its annual report.
Online retailers have been aggressive about winning customers through discounts but that has led to a backlash from traditional retail.
Flipkart’s Big Billion Day sale prompted brick-and-mortar store owners to lobby the government against what they said was predatory pricing. The government in turn promised to look into the policy regarding online retail.
A key reason for the surge in promotional activity was Amazon’s
entry with an intent to spread itself across many product areas
quickly in India, threatening the turf of market leader Flipkart.
The US company has announced it will invest $2 billion in India.
Flipkart has raised over $1.2 billion this year while Snapdeal
has received about $850 million, including funding from SoftBank
(Published in The Economic Times)