 "Amazon steps on gas when rivals run out of steam")
Amazon is expected to step up investments in India as local rivals struggle to raise fresh funding to keep up in the war for market share. The e-commerce giant still has over half of $5 billion that it has committed to invest in the country.
The US online retailer had committed $2 billion to grow its business in India in mid-2014 and since then has grown its war chest with another $3 billion. The company is expected to make a loss of $1 billion by the end of the current financial year, with spending being ramped up in order to beat market leader Flipkart.
Amazon's bet on India seems to be paying off with the company's largest seller Cloudtail, a joint venture between Infosys Co-founder N R Narayana Murthy's Catamaran Ventures and Amazon.com, surpassing the revenue of the country's biggest large format retail chain in the year that ended March 2016.
The investments will be routed towards spending on discounting, setting up more warehouses, growing its logistics reach and investing in captive sellers.
Cloudtail showed revenues of Rs 4,591 crore in the twelve months that ended March 2016, as compared to Rs 1,145 crore in the year-ago period, according to documents filed with the Registrar of Companies (RoC). In comparison, Shoppers Stop, the country's largest offline retail store posted revenues of Rs 4,582 crore during the same period.
Amazon, like its Indian rival Flipkart, has set up a complex structure to route investments into Cloudtail and WS Retail respectively. Flipkart is now planning to have multiple large sellers in order to get around the government's restrictions on marketplaces not being able to own any inventory.
"One shouldn't read too much into whether Cloudtail is doing Rs 4,500 crores in revenue. Effectively speaking, the turnover of Amazon is way ahead of any listed or non-listed retailer and that's a milestone that was crossed last year," said Arvind Singhal, chairman and managing director at Technopak. "Online is already ahead as a single entity compared to any single entity in the offline format."
The government's directives with regard to foreign direct investments (FDI) in e-commerce marketplaces which were introduced in March this year limits a single seller from contributing more than 25 per cent of the marketplace's overall sales. This has forced Amazon and its rivals to rejig their seller strategies — Cloudtail doesn't sell smartphones anymore but sells Amazon's own private label products.
Smartphones make up close to 50 per cent of the gross merchandise value (GMV) of products sold on e-commerce platforms in India. It is to be seen what sort of effect the seller rejig at Amazon, and the lack of smartphone sales has on Cloudtail's revenues in the current financial year. Some experts say Cloudtail could become profitable since margins on smartphones are usually very low.
Cloudtail showed a loss of Rs 30.2 crore in the year that ended March 2016.
While online marketplaces Flipkart and Amazon may have overtaken their offline counterparts in terms of turnover, experts say their planned offline presence will not be something offline retailers should be scared of. At best, only a tiny fraction of an online retailer's business will be driven offline.
"Even though Amazon might want to experiment with offline stores, don't expect more than 5 per cent of their revenue to be driven through that. That's the case with Flipkart's Myntra as well. They're talking about specific brands such as HRX for which they want to open physical stores, but that doesn't mean they're going offline."
