Bengaluru: In the last week of September—days before the beginning of this year’s landmark Diwali sales season—Amazon’s India chief Amit Agarwal told employees across the company’s Bengaluru offices not to spend time worrying about a certain rival’s flagship sales event, according to at least two employees.
Agarwal went on to express his confidence that Amazon would easily triumph during the Diwali sale and dwarf all its Indian competitors if it continued with its recent momentum, the employees said. Both of them requested anonymity.
The rival in question was obviously Flipkart.
And the event in question was Flipkart’s popular Big Billion Day (BBD) sale, which, with each passing year, is becoming something of a landmark event for Indian online shoppers.
Agarwal and his India team had good reason to be confident. Amazon had, after all, beaten Flipkart in July and August in terms of monthly sales—a remarkable achievement, given that Amazon started operating in the country as recently as 2013, while Flipkart has been around for nearly a decade.
When, however, the dust settled after the first round of the biggest showdown in Indian e-commerce history, Flipkart proved to be the pluckier of the two rivals.
The local giant took Amazon completely by surprise, generating about Rs3,000 crore of gross sales during the five-day (2-6 October) BBD period—a figure that was higher than what Amazon raked in during the five-day Great Indian Festival from 1-5 October, according to at least three people familiar with the matter. Gross sales are net of discounts, but before product cancellations and returns, which tend to jump during sale events.
Mint couldn’t confirm the sales value of Amazon India (Amazon Seller Services Pvt. Ltd) but half-a-dozen e-commerce executives said Flipkart’s numbers were far ahead of Amazon’s. Flipkart’s numbers include those of its fashion portals Myntra and Jabong.
Such was Flipkart’s resurgence during that period that it shocked executives at Amazon, according to an Amazon executive who requested anonymity.
Flipkart sold 15.5 million units during the BBD sale. Amazon sold 15 million units during the first leg of its Great Indian Festival sale.
That’s how closely and hard-fought the battle was between the two arch-rivals. And it indicates that the fight for the top spot in Indian e-commerce is far from over and points towards a long-drawn-out battle for dominance in the world’s last remaining major Internet economy.
Amazon’s Agarwal indicated as much in an interview on Monday. “This is just the beginning,” said the 42-year-old, who was recently inducted into Amazon.com Inc. founder-CEO Jeff Bezos’s elite S-team of leaders.
What went right for Flipkart?
With the Diwali sale now winding down, the most obvious question everybody is asking is whether Amazon underestimated Flipkart during the first half of the festive sale.
At least half-a-dozen e-commerce executives from both Amazon and Flipkart—all of whom requested anonymity—seem to think so.
Flipkart, which has consistently conceded market share to Amazon over the past 12 months, came back with a smarter strategy that was executed to the tee.
And that strategy was masterminded by former Tiger Global Management executive Kalyan Krishnamurthy, who heads the company’s marketplace, retail and advertising operations. Insiders at Flipkart vouch for Krishnamurthy and say BBD would not have been half as successful had it not been for him.
So, what went right for Flipkart?
A bunch of things—most importantly, a savvy marketing campaign, exclusive tie-ups with brands such as LeEco, VU TVs and BPL (many of which Krishnamurthy personally spearheaded), and an aggressive pricing strategy that undercut Amazon at every turn.
Since Krishnamurthy took over in June, he has pulled up top executives at the firm and pushed them to aggressively meet targets, appointed trusted lieutenants at the helm of key categories and infused much-needed operational discipline across ranks.
The marketing campaign, in particular, was an unprecedented success.
Flipkart managed to get maximum bang for its buck, spending about half of what rivals such as Amazon and Snapdeal did in promoting their recent sales events, the executives mentioned above said.
In an interview, Flipkart marketing chief Samardeep Subandh said three things worked wonders for Flipkart: a large-scale e-commerce awareness campaign that began in July, an advertising campaign that echoed past successful campaigns, exclusive tie-ups with top smartphone and apparel brands and the use of tools such as Facebook 360.
Facebook 360 is the social media giant’s mobile app feature that allows users to create a video with a camera system that simultaneously records all 360 degrees of a scene.
“For the first time, we used Facebook 360 and gave people access to our offices through Facebook 360 and told them to go find out where the offers are. And the more people found the offers, they would get offers. That worked brilliantly—we got more than a million views. And that was surprising—to get that kind of scale with an idea like that... Finally, we had exclusives with a lot of top brands, especially in apparels and smartphones, and that gave us a clear edge,” said Subandh.
Amazon strikes back
Amazon has, however, managed to wrestle some momentum back from Flipkart.
Like last year, it launched a “wave” of sale events through October. And while it lost out in Wave 1, the company clawed back lost ground in the last two Waves, the executives mentioned above said.
Amazon launched an even more aggressive pricing strategy, bet big on its Prime loyalty programme for consumers and launched exclusive products through tie-ups with top appliance brands.
“October this year for us was 2.7 times of last year’s October—which is incredible because last year was four times the October before. So, after having grown four times, we are growing 2.7 times year over year, especially in the context of a lot of the conversation around the landscape being flat to negative,” Agarwal said on Monday, 31 October.
Such was the intensity of this Diwali’s e-commerce sales showdown, that the two rivals even resorted to taking barbs at each other through interviews and statements issued to the press.
It was Flipkart that fired the first salvo.
On 6 October, the day the Indian e-commerce poster boy concluded the BBD sale, Flipkart issued a media statement that openly mocked Amazon’s sale numbers, which chief executive officer Binny Bansal later echoed in selective interviews with some sections of the media. “(Flipkart’s) total units sold include only physical goods and do not include virtual membership and low-cost items like churan, hing, candy, detergent bars and eggs!,” a Flipkart spokesperson had said in an emailed statement to Mint.
That was in response to Amazon’s statement that its single highest-selling product in its Great Indian Festival sale was the Amazon Prime subscription, and groceries were among its other big sellers.
Amazon was quick to return the favour.
A few days later, Amazon’s Agarwal responded to the put-down by saying that the company had accomplished in three years what Flipkart hadn’t despite launching much earlier and acquiring several companies including Myntra and Jabong. Agarwal said he was proud that customers were shopping for everyday items, such as hing (asafoetida) and churan (digestive powder), as well as for mobile phones, televisions and other products.
High stakes battle
“We’ve grown 135%, on average, year-over-year in every quarter (this calendar year). That compares with flat or negative growth for the overall market and for other players. And we continued that momentum (by recording three times sales growth in the sale week). It’s exciting that in a little over three years we have done and we’ve led the pack for what e-commerce should be, what others in 10 years and with multiple acquisitions have not come close to doing. I’ll take this any day,” Agarwal said in an interview on 9 October.
The war of words between Flipkart’s Bansal and Amazon’s Agarwal highlights just what’s at stake: the future of e-commerce not in terms of its popularity (which is undisputed), but insofar as which company is best positioned to dominate India’s online shopping market.
If Amazon is able to retain shoppers who bought everyday items on its platform during the sale, its strategy to focus on delivering whatever customers wanted rather than pushing only high-value products will have been validated.
The stakes are high for both Flipkart and Amazon.
Flipkart, for its part, cannot afford to lose the battle to Amazon—if Flipkart loses out to Amazon, it will force a major shakedown in India’s e-commerce industry and the chances of investors such as Tiger Global and Accel Partners getting reasonable exits will diminish considerably.
Winning a breather
If Flipkart fails, it would also have broader ramifications for India’s start-up ecosystem, where global investors such as SoftBank Group Corp., Tiger Global and Naspers Ltd have poured billions of dollars in investments and are betting that India turns out to be the next China.
The fact that Flipkart ended up generating bumper sales during the BBD event has given the company considerable breathing room and has proved to be a major victory for Krishnamurthy. And while the company is still a long way from an initial public offering (IPO), its chances of raising fresh funds at a desired valuation have gone up significantly.
“So, from the structure perspective, which I’m used to delivering, we’re well on our way to being prepared. Now, the preparedness also has to come from a business perspective. That’s where the company will still take some time before it goes on the IPO journey,” said Sanjay Baweja, the outgoing chief financial officer of Flipkart, in an interview last week.
Flipkart now plans to hit the market to raise a new, large round of funds before the end of the year, Mint reported on 8 October.
The e-commerce “unicorn”—as start-ups valued at $1 billion or more are known—will look for new investors to lead the next round and look to raise up to $1 billion in fresh funds.
According to e-commerce executives and experts tracking e-commerce, if Flipkart continues on its current trajectory under Krishnamurthy’s stewardship, the company has a good chance of reclaiming ground that it has conceded to Amazon.
“What you have to also take into account is the fact that Flipkart would anyway have a larger base as compared to Amazon in India—Amazon has been around for only three years, but they are catching up fast. Now it remains to be seen how long Flipkart can maintain this lead—and whoever has the strongest back end, technology, the ability to process a large number of orders, returns and can deliver consistently on that scale, will end up winning the battle in the long run,” said Kiran Khalap, co-founder and managing director at Chlorophyll Brand and Communications Consultancy Pvt. Ltd.
For Amazon, too, the stakes are high. The Jeff Bezos-led company lost out in a big way in China to local rival Alibaba and cannot afford to lose in India if it plans to make good on its global ambition of being the largest e-commerce player on the planet.
No slowing down
“In the end, the fact remains that Amazon has the deeper pockets of the two. They can afford to outspend Flipkart at every turn, even if it proves to be drag on their margins. Bezos will go to any lengths to conquer India after losing out to China ,” said a prominent Indian angel investor, who declined to be named.
And while its India investments have proved to be a drag on global margins, the company has no intentions of slowing down in India.
Amazon’s Agarwal indicated as much on Monday, 31 October. He said the e-commerce giant’s journey in India was still at a “very early stage” and it would take a long time and lots of investments over the coming years to conquer the all-important Internet economy, hinting at a long-drawn-out battle for supremacy with Flipkart.
“Not at all,” said Agarwal, when asked whether Amazon would slow down investments towards India. “In fact, we are so excited about the momentum that we see in India that we committed an additional $3 billion, taking our India investments up to $5 billion. India is very early in its e-commerce trajectory, Amazon is very early in its e-commerce trajectory in India—to transform how India buys is going to take a long time, this is a long journey, it will take a lot of investment and it will take a lot of investment for many years. And we are completely committed to investing (in India.) This is just the beginning.”
Agarwal’s words would dispel any faint hopes that rivals such as Flipkart may have harboured of a slowdown in Amazon’s India strategy and serve as a timely warning for the Indian e-commerce poster boy, which now cannot afford any slip-ups in the near term if it wants to maintain its position at the pinnacle of Indian online retail.
The fight for the peak of Indian e-commerce is far from over.