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Flipkart, Amazon continue to incur losses even as they expand business

E commerce players driving growth through innovative propositionsThough two of India’s online retail behemoths Amazon and Flipkart are still posting losses, these have narrowed now and revenues have been increasing over the last four financial years starting from FY 16. For instance, Flipkart Internet’s revenues increased from Rs 1,951.7 crore in FY 16 to Rs 4,234.crore in FY 19. Losses have declined from Rs 2,305.7 crore in FY16 to Rs 1,625.7 crore in FY 19.

Similarly, Amazon Seller Services’ revenues increased from Rs 2,275.4 crore in FY16 to Rs 7,594 crore in FY 19. The combined revenue of both businesses from their India operations (marketplace and wholesale) has trebled in size over the last four years. Though overall losses made by both companies appear huge, as a percentage of the overall revenues, these losses have been steadily declining. This has been largely possible due to their efficiency of scale and the inroads that the ecommerce industry has made into India’s retail industry.

Growth of e-commerce in smaller citiesFlipkart Amazon continue to incur losses even as they expand business

Over the last four years, Indian e-commerce industry has made a strong foray into the Tier II cities and beyond. This was particularly evident during recent festive sales when both Flipkart and Amazon received positive traction from smaller cities. Flipkart reported a huge response from Tier II and other small cities during the ‘The Billion Days’ (TBBD) sale 2019 while Amazon reported a huge turnout from these places during its ‘Great Indian Festival’ sale. Both companies recorded around $3billion in sales during this period which spanned between September 29 and October 4.

Cutting down on the discounts

Both Amazon and Flipkart operate two entities: marketplace and wholesale divisions. Satish Meena, Senior Forecast Analyst, Forrester reveals though wholesale businesses of both are doing well their marketplace business are likely to suffer losses for the next three to four years. They are now planning to cut down customer discounts largely due to newer regulations put in place by the government.

As per the government’s new notification passed in February, online marketplaces are prohibited from entering any exclusive deals for selling products on their platform. More importantly, they cannot have a single vendor who will supply more than 25 percent of the inventory, besides, the curbs on deep discounts.

The notification forced many ecommerce companies to rework their existing business model. They put several restrictions on these companies and offered lesser room to maneuver. However, despite this, the ecommerce industry continues to expand in the country though the losses incurred by these companies are also growing.

Expansion fuels investments

Some of these losses are linked to the expansion of supply chain and distribution network of these companies. As these ecommerce marketplaces need to expand their customer base, they also will require continuous investments. This results in mounting losses for these e-commerce companies who continue to spend a lot on aggressive advertisements and discounts. This period of sustained losses is unlikely to continue as long their investments continue.

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