Amazon has committed over $5 billion to grow its business in India so far and says it will pump in more capital as and when needed, a big worry for rival Flipkart which has been struggling to raise funds over the past couple of months, reports Alnoor Peermohamed from Bengaluru.
While Flipkart has been spending heavily on discounting, advertising and growing its logistics reach, rival Amazon is matching and even beating it. Photograph: Reuters.
Flipkart Internet, the marketplace unit of India's largest e-commerce player Flipkart, reported a loss of Rs 2,306 crore (Rs 23.06 billion) in the year that ended March 31, 2016, as it battles a cash flush Amazon to retain leadership in the country.
The company's losses more than doubled from Rs 1,096 crore (Rs 10.96 billion) in fiscal year 2015, as Amazon too stepped up spending and closed the gap between itself and Flipkart. Earlier this year, Amazon’s aggression was seen when it overtook number two player Snapdeal.
While Flipkart's losses grew, so did its revenue. The Indian firm reported a revenue of Rs 1,952 crore (Rs 19.52 billion) during FY16, nearly 153 per cent increase over the Rs 772.5 crore (Rs 7.72 billion) it reported in the previous 12-month period. While revenue growth was strong, analysts had noted that Flipkart's share in the market during 2015 had remained largely flat.
While Flipkart has been spending heavily on discounting, advertising and growing its logistics reach, rival Amazon is matching and even beating it. The US retailer posted a loss of Rs 1,724 crore (Rs 17.24 billion) in FY15 and that figure is only expected to have gone up in FY16.
According to a recent Hindu Business Line report, Amazon’s losses in India in the year 2016 could hit $1 billion, a four-fold increase from the previous year.
The drain India is putting on the company surfaced for the first time in Amazon’s international earnings when the company said its international losses swelled to $541 million in the quarter that ended in September, largely due to spending in India.
Amazon has committed over $5 billion to grow its business in India so far and says it will pump in more capital as and when needed, a big worry for rival Flipkart which has been struggling to raise funds over the past couple of months.
The company reportedly caught the eye of Walmart for up to a $1 billion investment, but talks apparently fell through.
While Flipkart has made several changes to its organisation structure with a big reshuffle in its top management, the company still requires capital to burn and stay in the game with Amazon. A focus on profitability might keep investors who're looking for exits happy, but if the company isn't able to boost efficiency to continue undercutting the cost of products for customers, it could lose the game.
There has been some glimmer of hope in recent months for Flipkart, with the company vastly outperforming Amazon during the Diwali sales in October.
While Flipkart sold just 0.5 million more units than Amazon, the company's earnings were still estimated to be far higher than its rival, thanks to high-margin fashion units Myntra and Jabong.