Flipkart, Amazon to restart discount war this month3 min read . Updated: 04 Aug 2016, 02:22 AM IST
Flipkart and Amazon will go head-to-head in a discounting war starting with the Independence Day sale that both companies plan to advertise heavily
Bengaluru: Online retailers will again start discounting in earnest this month, as they look to bounce back after two quarters of falling sales—the first such in recent memory for many of them.
Online retail sales dipped to an annualized $12 billion in June, compared with $13 billion in March and $15 billion in December, according to estimates by research and advisory firm RedSeer Management Consulting.
A combination of cost cutting by Flipkart Ltd and Snapdeal (Jasper Infotech Pvt. Ltd), two of India’s largest e-commerce firms, and new government rules prohibiting discounts curbed the growth of e-commerce over the past seven months. Monthly sales at Flipkart and Snapdeal were at lower levels in June, compared with December, said two people familiar with the companies’ finances, asking not to be identified.
Analysts say the fall in sales is worrying for a market such as India where e-commerce is still at a nascent stage. It again confirms the view that when discounts are pulled and sales events aren’t extensively advertised, Indian shoppers are unwilling to spend freely on buying online, they add.
In the June quarter, sales growth at Amazon India (Amazon Seller Services Pvt. Ltd), too, slowed sharply, according to a person familiar with the company’s performance who spoke on condition of anonymity. The slowdown was primarily because of foreign direct investment (FDI) rules introduced in March that ban online marketplaces from influencing prices (read that as offering discounts), the person added.
After the rules were announced, all three online marketplaces put sales events on hold temporarily; they re-started sales in late June with the end-of-season fashion sale after figuring out new ways of offering discounts.
Now, Flipkart and Amazon will go head-to-head in a discounting war starting with the Independence Day sale that both companies plan to advertise heavily, said the people cited above.
Amazon has already announced a “Great Indian Sale" between 8 August and 10 August.
Unlike the fashion sale, the Independence Day sale and other sales these companies will launch this year will include all kinds of products including laptops, furniture, large appliances and most importantly, smartphones, the single largest product category for e-commerce firms.
“This time, Flipkart and Amazon will pull out all stops," said Harminder Sahni, managing director, Wazir Advisors. “However, brands across the board have been asking marketplaces to cut discounts as they don’t want to hurt their offline business. It will be interesting to see how the marketplaces manage this conflict with brands."
The coming festive season—September to January, when most Indian festivals are concentrated—is a good time for most consumer product companies; for online retailers, it is the most important festive period in years. The performance of Flipkart, in particular, over the period may help determine the company’s future, said the analysts.
After changing its chief executive in January, Flipkart is scrambling to maintain its No.1 position in the face of an onslaught from Amazon.
Flipkart has struggled to revive growth this year and the company’s sluggish sales are reflected in the decline of the entire industry.
“This festive season is make or break for us," said one of the three people cited above, a Flipkart executive.
“There is pressure to cut costs, but the most important thing is now to get growth back to an acceptable level."
A Flipkart spokesperson declined comment. Amazon and Snapdeal spokespersons didn’t respond to emails seeking comment.
While until the beginning of this year, it was a three-way fight between Flipkart, Snapdeal and Amazon, analysts and investors say the battle now is primarily between Flipkart and Amazon—at least for now.
Snapdeal has been forced to slash spending on discounts, advertising and other things as it looks to conserve cash amid a funding crunch. Unless Snapdeal raises a large new round of funds, the company is likely to be left behind by its two cash-rich rivals.
The festive season sales will also prove to be the first test of Amazon’s newly launched Prime service, which the company expects will be one of the key drivers of its growth in India.
Last week, Amazon launched its global Prime membership programme in more than 100 cities in India, offering one-day and two-day delivery on hundreds of thousands of products for a fixed price of ₹ 499 initially.