Why Flipkart should be afraid. No, really.

With the eCommerce mammoth, Amazon aggressively expanding its business in India since its launch last June, Sachin Bansal, the CEO of the indigenous big daddy, Flipkart, has reasons to worry. Flipkart’s $300 million worth acquisition of another local etailer Myntra a couple of days back have simply reinforced the increasing aggression between the international enterprise and its local rivals.

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Let’s look at this from the beginning to know why we think the Flipkart-s of the nation have reasons to worry,

2013 – With over 130 million internet users and a relatively unexplored market, the Indian eCommerce industry provides one of the largest opportunities for online business. Existing local e-retail biggies like Flipkart, Myntra and Jabong enjoy a sporadic growth as the industry expands at a growth rate of 50% annually. Local e-retailers have spend millions of dollars in technology, advertising and customer service over several years to convince the conservative Indian to perform online transactions. The efforts are finally paying off. According to Forrester Research, the Indian market is estimated to grow at a CAGR which is higher than any other market in the Asia – Pacific to reach $8.8 bn in 2016.

June 2013 – Enter Amazon, the world’s largest online retailer. (with $75 bn in revenues) Bound by the FDI regulations in multi brand retail, Amazon launches its marketplace model in India.

•Learning the ways of the local market in India, Amazon India has ‘glocal’ features like cash on delivery, simple return policies and subsidised or free shipping, all the features which the local e-retailers have developed after years of hit and misses with the sceptical Indian consumers.
•Amazon India’s marketplace mode allows the company to incur lower selling costs as opposed to direct selling. This helps Amazon to make profits faster.
•Amazon India attacked Flipkart at its strongest foothold by launching books, movies and TV category first and providing introductory offers like free shipping, discounts on purchase and higher commissions on referrals. Over 7 million book titles and 13,000 movie titles were available for purchase.
•The incumbent, Flipkart, defended itself, increasing its burn rate and pushing its profit churning deadline in the process. Amazon’s investment in India, on the other hand, is minuscule compared to its financial resources.

June 2013 – Present Day: The Amazon India trajectory.
In less than 11 months of its stint in the country, Amazon India, has become the largest e-retailer in the country in terms of number of products choices offered for sale.

•Amazon India with its product choice of 15 million products has overtaken Flipkart who has 10 million products. Snapdeal offer 4 million products while eBay has around 1.5 million products.
•Launched initially with 2 categories Amazon has aggressively expanded its offering to 20 categories in 10 months.
•Currently over 75% of the units shipped in India are fulfilled by Amazon.
•Amazon India is already the largest store in certain categories like books, music, toys, home and kitchen appliances, video games, bags , luggage and fashion jewellery.
•Amazon India has more than 165,000 products available for next day delivery.

May 2013 – Flipkart acquires Myntra in a $300 million handshake
Flipkart acquired the country largest fashion retailer Myntra giving Flipkart a stronger standing in the growing online fashion industry. Also, the deals helps Flipkart consolidate and scale up. This will be needed to compete against the global giant, Amazon.

However, everything said and done, the question we should ask ourselves is, can we really keep Amazon from being Amazon?

Here are few things in retrospect,
•Chakpak, Trivone, Sher Singh, LetsBuy, Myntra and Flipkart are funded by the same Venture Capitalist, Accel Partners. Infact, Myntra, Flipkart and LetsBuy have a second investor in common, the New York hedge fund Tiger Global.
•At the time of the Myntra acquisition by Flipkart, the founders of both the companies held very less shares of their respective company, majority shareholding being that of the VCs.
•Given the above facts, the buyout looks more like a consolidation of like funded businesses to lend stability to the firms and less of a business opportunity.

Well, there are not many options left in the investors’ portfolio for FlipKart to consolidate to gain stable ground as Amazon with its robust financial backbone goes all out to strengthen its operations in India. It is likely to run out of funds. The only option being public listing. The fact that Flipkart is still losing money after raising nearly $600 million will not allow the Company to be listed in India. Recently, the Company shifted base to Singapore and is probably looking at listing at the US Exchange.

Till date, only two new age Indian companies have been listed in the US exchange – MakeMyTrip and Rediff and none of them have done particularly well. Given the rivalry between Flipkart and Amazon India, the support Flipkart is likely to receive in the US market is questionable.

Several analysts have put forth a theory which is known as the BRIC curse. According to the theory, Brazil, Russia, India and China will have their own local counterparts of the global biggies – Google, Amazon, Twitter, eBay and Facebook. Russia’s VKontakte and China’s RenRen, for instance replace Facebook. The Google of Russia is Yandex and that of China is Baidu. JingDong and Weibo are China’s Amazon and Twitter respectively.
This theory however does not hold true for India. Google with a market share of over 95% is, in fact India’s Google and so are Facebook and Twitter. Unlike Flipkart, Amazon has deep pockets and does have venture capitalists to hold account to.

Ecommerce in India is been majorly riding on discounts at the cost of investor’s funds. With giants like Amazon in the picture, with virtually bottomless resources, such a business model might not be enough. With the country’s huge English speaking internet base, Amazon might just turn out to be India’s Amazon in the not so distant future.

Related Readings:

http://www.business-standard.com/article/companies/amazon-builds-india-business-quietly-114040300984_1.html

http://in.reuters.com/article/2014/05/21/uk-online-retail-india-idINKBN0E117D20140521

http://www.hindustantimes.com/business-news/flipkart-jabong-ready-to-battle-amazon-invasion/article1-1222296.aspx

http://forbesindia.com/article/big-bet/amazons-perfect-timing-for-india/35517/1

http://qz.com/212775/the-amazon-of-india-is-not-flipkart-its-amazon/

http://businesstoday.intoday.in/story/flipkart-strategy-to-tackle-competition-from-amazon-india/1/202612.html

 

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