Alibaba Adds Fuel To Flipkart-Amazon Fire

Foreign e-commerce major Amazon is trying hard to wipe off its desi rivals Flipkart and Snapdeal from the Indian e-tailing market, which is projected to touch $80-100 billion by 2020.

Flipkart was the clear market leader in 2015 with a 35-37 per cent share followed by Snapdeal with 21-23 per cent share, and Amazon with 17-19 per cent share, according to a report. However, Amazon surpassed Snapdeal in March this year. “Amazon grew aggressively with growth driven by both fashion and electronics categories and continued spending on discounting and advertising,” the report cited.

Amazon chief Jeff Bezos has taken an aggressive stance on India by recently increasing the company’s total investment in the country to $5 billion, from $2 billion earlier. With Amazon’s deep pockets and its proven capability in quickly raising funds, local players will have to differentiate in terms of strategy.

Amazon says it is going to open six new fulfilment centres (FCs) across India to meet the growing demands of its fast-growing seller base. The new FCs will be set up in Chennai, Coimbatore, Delhi, Jaipur and Mumbai, taking the total count to 26 across 10 states. Amazon continues to have the largest storage space for an e-commerce company in India covering a total of close to 2.5 million sq. ft with a storage capacity of 7.5 million cubic feet of space. Rival Flipkart has 17 FCs with warehouse capacity of about 5.5 million cubic feet.

“FCs fulfil important needs of small and medium enterprises that seek markets and customers located all over India as they lack resources to create their captive distribution networks; local entrepreneurs seeking opportunities to provide goods and services; qualified and educated young workforce in remote and rural areas seeking employment and skill development. Apart from these benefits, the FCs will also enable faster and quicker delivery of products to consumers across the region,” says Akhil Saxena, V-P, India Customer Fulfilment, Amazon India.

Winning Metrics
In terms of gross merchandise value (GMV), the industry seems to be heavily skewed towards electronics with fashion accounting for only 20 per cent. But revenue rather than GMV is the most critical metric and interestingly, as per the RedSeer report, fashion category ranks highest contributing 37 per cent of the total revenue, followed by mobiles/tablets at 28 per cent, and consumer durables at 25 per cent.

Therefore, e-tailers would need to diversify a greater chunk of their sales to high-margin categories like fashion and home to move towards profitability.

Flipkart tried to get into the high-margin business by buying fashion e-tailer Myntra, which indeed fits in well with the company’s portfolio. However, leadership exits, the unsuccessful decision to go app-only, and excessive dependence on private labels led Myntra to lose money. It also has to grapple with its permanently discounted merchandise, without which it runs the risk of losing consumer loyalty. Returns and cancelled orders further add up to its woes.

In an effort to reach its customers in poor network zones, Flipkart last year launched Flipkart Lite, which is a Web application that offers a mobile app-like experience. “You can easily add the Web app to your homepage and the home screen icon lets you access it with one touch, without having to type in a URL every single time,” Flipkart said in its blog.

In July 2016, Snapdeal took the market by surprise by announcing its market-first strategy to launch various services, including flight and bus ticket bookings, hotel reservations and food ordering — all of which can be accessed through its android and iOS apps. To provide the services, it has partnered with market leaders in each domain — Zomato, Cleartrip, UrbanClap and redBus.

Says Rohit Bansal, co-founder, Snapdeal: “Online services is an industry potentially worth $100 billion by 2020 and is poised to play a huge role in driving habit commerce in India. As we build the country’s most reliable and frictionless commerce ecosystem, the introduction of services on Snapdeal is a big leap forward in catering to nearly all the consumption needs of our customers.”

The Next Phase
The industry is in a dilemma whether funds are drying up so everyone’s suddenly talking about breakeven and profitability. However, experts say there are enough funds still in the well for companies that can demonstrate sustainable metrics, innovation, and strong leadership. The Indian e-commerce industry is still in its nascent stages and this is just the beginning, not the end. Therefore, players need to set their strategies right to win the war and not just focus on winning the battles along the way.

Indeed, Amazon is giving stiff competition to its desi rivals but itself feels threatened by Chinese e-commerce major Alibaba. As the Chinese market is slowing down, Alibaba is aggressively trying to enter the Indian market through the acquisition route.

Paytm, in which Alibaba has a majority stake, is reportedly planning to spin off its marketplace business in India, which will allow Alibaba to organically expand in India. Alibaba already owns about 5 per cent in Snapdeal. Media reports have also suggested that it is in talks with Indian logistics startups, Delhivery and Xpressbees Logistics in an attempt to complete the ‘iron triangle’ of businesses in e-commerce, logistics and payments.

The desi versus foreign war in the e-commerce sector will continue. Earlier it was just America versus India, but now China is posing the biggest threat. The Indian market, however, is still in a nascent stage what you see now is just the tip of the iceberg!

ayushman@businessworld.in