3 min read.Updated: 25 Jan 2016, 08:03 PM ISTMihir Dalal
The numbers highlight both Amazon India's rapid expansion as well as its heavy spending on discounts, advertising and logistics
Bengaluru: Online marketplace Amazon India reported a six-fold jump in sales to ₹ 1,022 crore even as losses soared to ₹ 1,723.6 crore for the year ended 31 March 2015, highlighting both the company’s rapid expansion as well as its heavy spending on discounts, advertising and logistics.
In the year ended March 2014, Amazon Seller Services Pvt. Ltd, the Indian unit of the world’s largest online retailer, had reported a loss of ₹ 321.3 crore on sales of ₹ 168.9 crore.
Amazon India generates sales in three ways—collecting commissions from third-party sellers; providing marketing services to other Amazon-controlled firms; and, wholesaling of Kindle e-book readers and accessories.
Amazon didn’t respond to an email seeking comment.
Amazon’s results again illustrate the speed at which it is catching up with local rivals Flipkart Ltd and Snapdeal (Jasper Infotech Pvt. Ltd). The three companies are engaged in an expensive battle for India’s e-commerce sales, which are expected to exceed $50 billion by 2020, according to a report by UBS, a financial services firm.
Because of that huge market potential, investors are pumping in billions of dollars into e-commerce companies to win and retain customers.
Flipkart, Snapdeal and Amazon are offering deep discounts through the year, spending heavily on television and print advertisements, setting up large warehouses and hiring thousands of people to win over customers.
The massive losses posted by the trio show just how expensive the battle for market share is.
Two main entities controlled by Flipkart, India’s largest e-commerce firm, reported a collective loss of about ₹ 2,000 crore in the year ended March 2015, up from a loss of ₹ 715 crore in the previous year. Sales at Flipkart Internet Pvt. Ltd and Flipkart India Pvt. Ltd tripled to ₹ 10,390 crore last year, show documents filed with the Registrar of Companies (RoC).
Snapdeal reported a loss of ₹ 1,328.01 crore for the same year, compared with ₹ 264.6 crore in the previous year, RoC documents show. It didn’t disclose revenue numbers but its largest investor, SoftBank Corp., said last August that Snapdeal had seen a four-fold jump in gross merchandise volume, or value of goods sold on the site, for the year ended March 2015.
The numbers reported by Amazon, Flipkart and Snapdeal can’t be directly compared as the three companies have set up complex holding structures to comply with regulations, which ban foreign direct investment in online retail, but allow it in marketplaces.
Still, Amazon’s losses show its eagerness to become the dominant e-commerce firm in India.
The company started its marketplace business only in June 2013, but its losses have already exceeded those of Snapdeal’s main entity and aren’t too far behind those reported by Flipkart’s two main entities.
Snapdeal also owns recharge and payments provider Freecharge, while Flipkart owns online fashion retailer Myntra.
Amazon India spent ₹ 743.9 crore and ₹ 661.6 crore on advertisement and sales promotion, respectively, last financial year, RoC documents show.
Amazon India has now received ₹ 5,699 crore since July 2014, when co-founder and CEO Jeff Bezos promised to invest $2 billion in India over time, according to RoC documents.
In comparison, Flipkart and Snapdeal have raised $2.1 billion and $1.3 billion, respectively, from investors in that period.
Separately, in the RoC documents, Amazon said it appointed independent consultants last year for conducing a transfer pricing study to determine whether transactions with associated enterprises were undertaken at an “arm’s length price". Amazon India had financial dealings with 16 other Amazon-controlled entities in the last financial year, the documents show.
“The management believes that all domestic and international transactions with associate enterprises are undertaken at negotiated contracted prices on usual commercial terms and believes that there should be no material adjustments on completion of the study," Amazon said in the documents.