Flipkart losses show difficulty of catering to discount-crazy Indians | Mint

Flipkart losses show difficulty of catering to discount-crazy Indians

Redseer had forecast this festival season to be the most lucrative ever for e-commerce players.
Redseer had forecast this festival season to be the most lucrative ever for e-commerce players.

Summary

  • Shifting the Indian online shopper's mindset away from discounts might be the ultimate challenge in achieving profitability

It has been a record festival season for India’s e-commerce players, particularly arch rivals Flipkart and Amazon. Together, these two platforms recorded a staggering 186 million customer visits within the initial 48 hours of their sales. Walmart-owned Flipkart expects a gross merchandise value (GMV) of 36,000 crore, more than a third of the over 90,000 crore GMV projected by Redseer Strategy Consultants for the month-long spree, which kicks off just before Navratri and ends with Bhai Dooj after Diwali.

Redseer, which tracks around 100 e-retail platforms and claims to have a fix on 90% of online sales, had forecast in a report released last month that this year’s festive season shopping spree will be the biggest on record, with shoppers expected to spend 20% more than they did during last year’s festival season.

So far, Redseer appears to be dead on target. The first week of the month-long sale – which concluded on 15 October – had already clocked 47,000 crore in GMV sold, up 19% year-on-year. Flipkart has so far stayed ahead of rival Amazon, grabbing 25% of orders, as customers jostled to bag high-priced mobile phones and appliances at record discounts. According to an estimate by Counterpoint research, Apple alone sold more than 1.5 million units of its iPhone range in the first week of the sale.

While these eye-popping numbers might suggest that e-commerce has finally turned the corner in India, the balance sheets tell a very different tale. More than 15 years after it started operations in India, Flipkart, which Walmart acquired for $16 billion in 2018, is yet to make a paisa in profits.

Flipkart has reported increased consolidated loss to 4,890.6 crore in FY23, according to a Reuters report citing business intelligence platform Tofler. India’s most valued e-commerce company net losses widen a 44% increase year-on-year (YoY), even as net income rose over 9.4% to 56,012.8 crore in FY23.

Amazon is no better off. A decade into its India play, Amazon Seller Services, which runs the Amazon India marketplace, reported a loss of 3,649 crore in FY22, albeit 23% down from a loss of 4,748 crore in FY21. For the second quarter ended 30 June 2023, Amazon’s international operations reported a loss of close to $0.9 billion.

In fact, the only e-retailer to have made a profit is Meesho, which focuses on apparel, home furnishing, jewellery and personal care. “Thrilled to announce that Meesho has achieved a historic milestone —profitability (Ebitda and PAT profitable) as of July 2023, making us the first horizontal e-commerce company in India to do so," Meesho’s CEO Vidit Aatrey said in a post on X (formerly Twitter) in August, though the company is yet to disclose official numbers.

Niche retailers like Meesho and Nykaa are in fact just one of the challenges faced by wide-spectrum platforms like Flipkart and Amazon in their quest for profitability. Apparel, personal care, beauty and budget jewellery are some of the fastest moving items on e-commerce platforms. While most have a low average selling price, niche retailers, by focusing operations and using leaner structures (Meesho fired 15% of its staff in May this year) have managed to turn profitable, or at least sharply cut cash burn.

They have also had to battle policy roadblocks. In 2018, the ruling BJP government, which counts millions of small traders as its followers, changed the rules, forcing e-tailers to turn into marketplace platforms, while capping the volume of sales which could be channelled through their own e-retailing subsidiaries on their platforms.

There is also the growing competition from deep-pocketed rivals like Mukesh Ambani’s Reliance Retail and the Tata Group, both of which have made substantial forays into the e-commerce space. And then there is the strong push back from offline retail, particularly in metros and large towns, where Flipkart and Amazon have seen most of their growth come from.

Offline retailers added 4.73 million square feet of space in the January-September 2023 period across the top 8 cities in India, according to real estate consultancy CBRE. This is a 46% rise over last year, signifying renewed confidence in the return of offline shopping. According to the CBRE report, over half this increase was accounted for by fashion, apparel, home and department stores.

E-retailers appear to be riding a tiger they cannot get off easily. The massive surge in volumes is backed by huge investments on creating the necessary logistics infrastructure to cater to a sub-continent-sized market – Amazon alone has announced investments of $15 billion over the next seven years – even as the volumes necessary to make these infrastructure investments viable is fed by deep discounts.

That’s the reason that the four weeks of the current festive season sales are expected to account for over one third of the entire year’s sales for Flipkart and Amazon. But for how long will their investors put up with the cash burn to build volumes? Clearly, weaning Indian e-shoppers off their discount habit will be their biggest challenge to attaining profitability.

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