Amazon's $1 billion loss to further take shine off India's e-commerce industry

Amazon's huge investment of $80 million a month didn't win it favour over customers during the festive season, with rival Flipkart selling more goods, reports Alnoor Peermohamed from Bengaluru.

Amazon's India rivals Flipkart and Snapdeal, in the last one year cut costs, shelved resources and focused on improving efficiency.
Photograph: Brendan McDermid/Reuters.

Amazon's losses in India are expected to swell to $1 billion by the end of the fiscal as the company burns money on expanding its service to beat market leader Flipkart.

The US retailer is spending up to $80 million a month to acquire customers and grow its market share, nearly a four-fold increase compared to last year, according to a BusinessLine report.

In the three months that ended September, Amazon's international losses swelled to $541 million, with the biggest sap on earnings being the company's investments in India. Analysts said losses in the quarter spiked due to preparations for festive sales that took place in October.

"By far the biggest individual thing is the investment in India that we continue to make and very excited about  the initial reaction in India from both the customers and also sellers," said Brian T Olsavsky, chief financial officer at Amazon, during a call with analysts last month.

However, Amazon's huge investments didn't win it favour over customers during the festive season, with rival Flipkart selling more goods of higher average value.

While both companies claim leadership, the local company continues to have a bigger user base, which hit 100 million earlier this year, and has a higher proportion of sales of fashion, that earns it better margins than electronic goods.

However, in the last one year local rivals Flipkart and Snapdeal cut costs, shelved resources and focused on improving efficiency and eyeing profits. At the same time, they have been matching discounts and incentives of Amazon to retain their existing customers and grow their businesses.

For fiscal 2014-15, Indian e-commerce firms reported losses of over Rs 5,200 crore (Rs 52 billion), with Flipkart leading the pack with Rs 2000 crore (Rs 20 billion) loss as it expanded rapidly, hiring expensive resources from Silicon Valley, and making investments that it had to pull back eventually. Financial details for 2015-16 are not available yet.