Companies

How Amazon’s entry is forcing consolidation

Priyanka Pani Mumbai | Updated on November 24, 2017


If there is one event that changed the Indian e-commerce space, then it is the entry of Amazon.com Inc last year. The deal between Myntra and Flipkart is a direct fallout of the impending threat from the world’s largest online marketplace.

Over the last one year, there has been a flurry of activities with e-commerce players such as Flipkart, Snapdeal, HomeShop18 and eBay announcing fund-raising, acquisitions, public offerings or expansion plans to gear up for increased competition. Some companies even reworked their business models and moved to become a marketplace, a model that Amazon opted for in India.

Market place

A marketplace does not own any merchandise, but merely acts as an aggregator to all the retailers who wish to exhibit their products on the website.

Amazon’s entry also forced other players to dole out special offers and discounts, burn cash on promotional and marketing initiatives and focus more on improving customer satisfaction and on-time delivery, a mandate that Jeff Bezos, founder of Amazon, gave to his Indian team. Another mandate was to invest and grow big.

Healthy growth

While Amazon, a publicly listed company in the US, does not share its country-wise revenue figures, experts tracking e-commerce in India believe it is already among the top three players and has been able to garner a neat 20 per cent market share. Compared to players like Flipkart, which has a 50 per cent market share, Amazon’s growth is hailed as “healthy” by industry watchers.

Swati Bhargava, founder of cashback and coupon site cashkaro.com, said “Amazon’s growth in India has been fast, aggressive and certainly caused a lot of stir. Within a year of operations, it has already become one of India’s top 5 sites in the current $3.1 billion e-commerce market.”

Arjun Basu, CFO at deals site Mydala.com, said Amazon had a huge brand recall much before it entered the country.

“Consumers were waiting for it and they (Amazon) came at the right time when consumers were really talking the e-commerce language and the market was expanding. I think they have studied the market well and are making the right moves to become the number one player.” To begin with, Amazon.in started with just two categories — Books and Movies — but within a year, it expanded to 25 categories, selling about 15 million products, a feat which India’s top two firms Flipkart and Snapdeal couldn’t achieve in the first three years of operation. Amazon, in the very first year, focused on consumer satisfaction and also worked on creating a trustworthy platform for sellers by charging zero listing fees and a pay-as-you-go fulfilment service.

Convenient electronic payments mode, cash-on-delivery, easy returns policy, customer service with 24x7 support were the focus areas from day one. Besides, the company was trying not to repeat some of the mistakes it made in China, a market very similar to India but five years ahead in terms of e-commerce.

Challenging journey

However, for Amit Agarwal, Country Manager, Amazon India, not everything is rosy. “The journey has been exciting but equally challenging as the company is allowed to operate only as a marketplace as the Indian laws prevent foreign online retailers from having a fully-owned Indian arm selling directly to consumers.

“Our vision is to become a trusted and meaningful sales channel for retailers of all sizes across India, enabling them to succeed and grow their business online,” he said. The Seattle-based e-commerce giant had started exploring the market much before its official entry, with the acquisition of price comparison site Junglee.com in 2012.

It has been first in to introduce guaranteed next-day-delivery to tying up with India Post for delivering into deeper pockets.

Still, the company is finding hard to compete with players such as Flipkart and Snapdeal, which are already billion dollar companies, doing 60,000-70,000 transactions a day. Amazon does 10 to 20 per cent of Flipkart, according to sources.

It is trying to get an edge over these players and is lobbying hard with both the US and the Indian governments to allow FDI in e-commerce. Amazon in India cannot sell directly to consumers like it does in the other markets.

However, till that happens, which depends a lot on the new government, Amazon is working to cash in on the growing mobile buzz. “We are looking at facilitating mobile internet shopping, as it’s an important factor for technology investments for us,” Agarwal said.

Long-term plan

Amazon, which took eight years to break even in the US, is hopeful about the Indian market. “We just want to grow. It’s not a one-year or two-year game. It’s long term,” Agarwal added.

Amazon generated $2.25 billion in cash in 2012 (₹13,770 crore at that time) and invested $3.6 billion back in the business, according to sources.

Arvind Singhal, Chairman at retail advisory firm Technopak Advisory, said in the past year, Amazon had focused on laying the foundation and putting up an efficient distribution system. “The company has had a confident and determined progress in building operations. However, the next 12 months can be challenging as we see a lot of big Indian players entering the system,” he added.

“The race has just begun.”



Published on May 22, 2014

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