The dust has settled after the festival season, and it couldn’t be clearer that Amazon poses a real threat to Indian e-tailers Flipkart and Snapdeal. Its easy returns policy has won over customers. Amazon puts cash back into the customer’s bank account, while its rivals have been giving only virtual store credit. As Amazon closes in on rivals, industry pundits predict that ongoing price wars and the race for customers will lead to two of the top three Indian e-tailers merging in order to take on the remaining one and Amazon. The American giant has already pumped more than $2 billion into its marketplace business.
One scenario is that in 16 months we may see Snapdeal merge with Paytm to take on Flipkart. The combined entity would have more streamlined processes, and access to resources to stay in the discounting war for the long haul. With Paytm’s payment banking licence, the merged entity could add consumers when it offers banking services. The combined valuation of these merged businesses could be over $7 billion.
Flipkart will need to raise more money to maintain its pole position. If FDI rules allow, it could wait for a large global retailer – Walmart, for example – to buy it out.
The data suggests that Amazon India is catching up. According to Internet and mobile data companies AppAnnie and comScore, Amazon India was neck and neck with Flipkart in terms of the number of page views, and only a few million smartphone downloads behind Snapdeal after Diwali. In terms of Android downloads, it was just 4 million away from Snapdeal, while Flipkart, at 41.5 million downloads, was leading. Of course, these reference points do not reflect revenues.
Industry sources say festive sales skyrocketed for e-tailers. Flipkart, which usually delivers 5 million products a month, sold 19 million units in just 45 days. Sources in Amazon estimated they delivered 10 million units by 12 November. Snapdeal had sold 13.5 million units. By the end of the festive season sale, the estimated combined net revenues of the three e-tailers were Rs 6,500 crore.
This puts them close on the heels of brick-and-mortar retailers such as Shoppers Stop, Lifestyle, Arvind Retail and the Future Group. Brick-and-mortar retailers, too, are implementing a mobile channel strategy. By January, three retailers will launch smartphone apps that sync with their brick-and-mortar stores, and revamp their supply chain to fulfil orders and facilitate returns.
So far, e-tailing has been about valuations, and entrepreneurs who bet on mobile-based consumption seem vindicated. Company sources say that two-thirds of all orders came from mobile, and not the website. They have beaten even brick-and-mortar retailers by focusing on mobile.
Ernst & Young pegs the size of the retail industry at $600 billion, of which e-commerce accounts for just two per cent. Organised brick-and-mortar retail is around seven per cent.
Unlike the brick-and-mortar business, e-tail in other countries has been dominated by just one or two companies – for example, Amazon in the US and Alibaba in China. India seems set for a big merger.
(This story was published in BW | Businessworld Issue Dated 14-12-2015)
