<p>ETailers have emerged as the largest spenders on television, print and the Internet. They account for a sizeable chunk of the country’s total ad-spend market of Rs 49,000 crore, including the Rs 3,500-crore digital spend, according to advertising giant GroupM.<br><br>India’s top three eTailers -- Amazon India, Flipkart and Snapdeal – between them account for 50 per cent of the total digital ad spend, and this expenditure is estimated to grow 37 per cent in 2015.<br><br>The trio’s combined annual ad budget for print and television is worth more than Rs 550 crore. Together with their online spend, the individual spend of each on advertising and marketing activity touches nearly Rs 1,000 crore every year. Clearly, it shows up in their losses.<br><br>There is little these eTailers can do to curb such expenditure though. After all, theirs is a fledgling industry and it is necessary for them to play the visibility game to acquire customers. However, this is also where the levee breaks when the cash dries up.<br><br>Thanks to the high cost on account of heavy discounting and reverse logistics, the eTailing companies are required to continuously raise money in their quest to acquire customers. Retail, in expansion mode, is a cash burning business and on average it takes 10 years to generate cash from operations.<br><br>While the 10-year rule may not apply to Amazon India (its parent Amazon has a 20-year history), the home-grown retailers like Snapdeal and Flipkart have no option but to go on raising cash from investors. But to what extent can these eTailers go on raising cash and for how long?<br><br>BW|Businessworld believes that these businesses will be sold to large private equity players or a hedge fund, like Bridgewater or JP Morgan, who can keep them alive. However, financial experts believe that with the SEBI coming up with new preliminary guidelines for listing, the first e-commerce entity to tap the bourses will be Snapdeal because the company is structured in India. The listing itself will depend on final guidelines, which will be out by the end of the year.<br><br>What about Flipkart? The company will have to list abroad because its financial structure has been created in Singapore. The bet is on Reliance’s broadband play and the burgeoning sales of smartphones – according to Gartner, there will be more than 100 million by 2018 – which will help add a million new customers.<br><br>Globally, online sales are still 20 per cent of the retail market. In India, online sales account for less than 1 per cent of the Rs 3,00,000 crore market, although they are growing at more than 100 per cent in categories such as books and electronics. The hunt for customers has to go on; e-commerce companies have to triple their customer base from the 36 million at present. If Snapdeal and Flipkart have to survive, they need to go out there and get long-term capital.<br>— Vishal S. Krishna<br><br>(This story was published in BW | Businessworld Issue Dated 27-07-2015)</p>
