E commerce War
Headlines have been dedicated to e-commerce websites like Flipkart and Amazon this year. Especially after Flipkart raised $1 billion (~6,000 crores) worth funds from investors, quickly followed by an announcement by the US-based retail major Amazon to investing $2 billion (~12,000 crores) in its India business.
Suffice to say, e-commerce has had one super year so far. Leading the battle for marketshare are Flipkart and Amazon. And the war between the online retailers is only gathering strength.
Here are five things to know:
- Why is India hot: First things first, the Indian e-commerce market has exploded onto the scene. A key reason being its explosive growth over the past three years, sales are growing at the rate of around 50% on a yearly basis, according to estimates by Crisil. The analytics and ratings agency adds that the Indian online sales market is on track to reach $8.3 billion by 2016. This year, the e-commerce market is expected to rise by 47% to Rs 460 billion, according to the Internet and Mobile Association of India. All this is despite the fact that only 11% of Indians have access to the Internet. This internet base is likely to widen over the next 7-8 years to at least 15 crore online buyers from the current 20-25 mn online buyers. As a result, the number of Indians shopping online is -going to grow to 30% over the period. This means the e-commerce market has scope to grow by leaps and bounds.
- Flipkart’s focus on Last Mile Delivery: The India-based Flipkart is one of the leaders of the e-commerce market. It is going head-to-head with domestic rivals like Snapdeal and Infibeam as well as foreign names like Amazon and Ebay. Flipkart has grown significantly in the last few years. Today, it earns Rs 6,000 crore or $1 billion in revenue, according to research reports. However, it has not made profits. In fact, its losses widened to Rs 281. This is because it has been investing extensively to expand its reach in the country. It also plans to double its staff over the new few years. Flipkart follows the business model where companies control inventory and delivery. According to a report in the Times of India, over 7,000 of Flipkart’s 12,000-strong employee base work in last-mile delivery. It means a significant chunk of the staff focuses on delivery. This shows that Flipkart is focusing on getting its logistics right.
- Amazon’s Brand Value & Experience: The US based retailer is emerging as the biggest competitor for Flipkart. Yet it differs from the Indian retailer. The biggest difference is the business model. Amazon follows the market place model, where cost-savings are significant. This is because, investment in warehousing and logistics are significantly lower. The delivery cost is borne by the seller. This helps keep costs of products low for consumers. The other big advantage Amazon has over Flipkart is its experience. It has to its credit rich existing software that helps collect data about user experience, technological prowess like patents, and most importantly – brand value. Flipkart is also a small fish in comparison with the $100 billion-worth US company. Currently, Amazon is concentrating on ‘building the largest book store in India’. This is likely to be followed by expansion in the cameras and mobile phones categories – all of which are currently dominated by Flipkart.
- Financing needs: The Bangalore-based Flipkart has another Achilles heel – financing. Unlike Amazon, which has deep pockets as well as the ability to burn money for years, Flipkart is dependent on external investors. Moreover, India currently does not allow foreign investment in e-commerce. While the government has spoken about easing these rules, no new changes are in sight as of now. This could work onto be a big challenge for Flipkart in the future.
- Key challenges: The Indian e-commerce market is in its nascent stages. It faces problems unique to the market. These can become key challenges to the e-commerce players. For example, just about 12% of Indians have debit or credit cards. This means online retailers will have to work on the payment systems. Currently, to tackle this problem, cash payments are offered as a way out. However, the downside is, it takes time to get the payments as delivery may take time in the large country. The logistics and distribution system in India is another big challenge as India lacks efficient infrastructure and transport systems. What’s more, the Indian consumer is known to be picky about prices, meaning price wards are imminent. This could affect profit margins – if ever the companies turn profitable.