According to various reports, India has the highest store density of approximately 11 per 1000 people. In fact, the retail industry in India has vendors selling from anywhere between one single product to a multitude of entities, ranging from selling door to door to promoting in public transport to selling online. The Indian retail industry is expected to be about 780 billion USD by 2016-17 according to an estimate by IBEF whereas the share of the e-commerce industry is in the tune of 13 billion USD at present.
The entry of the world’s largest e-retail player Amazon has been a quiet one so far in this country. The original mode of entry in India for Amazon was through a price discovery site Junglee.com, which it had acquired in 1998- however it made its debut only in February 2012. It is still not clear why Amazon made such a delay in launching it in the Indian market. Was it waiting for the market to mature to a point where urban consumers are no longer reluctant to spend online? Or was it waiting for 100% FDI in online retail in the country?
The strategy to launch Junglee has paid a rich dividend for Amazon so far as it enabled it to test the Indian market and establish relationships with vendors and suppliers without considerable upfront investment. The entire registration period for a vendor takes less than a day to begin selling on its platform, a process that takes anywhere from four days to couple of weeks in other online portals. Furthermore, it helped Amazon to build up an insight into consumer preferences in a country where only 10 percent of the population is having access to the internet. In its response to Junglee, Flipkart decided to open its platform for third party vendors- so far Flipkart was only selling its own merchandise through its portal.
The Indian site of Amazon was launched in June 2013, almost a year and half after Junglee, notching up 10,000 orders on the first day of their launch. In the course of the following one year, Amazon has focused on building its warehousing capabilities and targeting vendors who can work with a quick response time frame. The result: it now promises delivery in a day for a significant number of categories on its portal, a time frame that is so far unmatched by any other Indian player. Its most prominent rival in the Indian scene, Flipkart promises delivery in 2-3 days- a clear advantage for Amazon in the coming years. The advertisement showcasing this delivery time of one day was strategically launched during the ongoing IPL 7 to garner maximum eyeballs.
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Flipkart.com
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Snapdeal.com
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Amazon.com
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Year of Start
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2007
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2010
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1994
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Revenues
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200 million USD (2012-13)
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100 million USD (Estimated in 2013)
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74.45 billion USD (2013)
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So how can Flipkart compete in this space with Amazon? It has started forging exclusive partnerships with Mobile phone manufacturers (Motorola for instance) to sell their handsets through its portal. With large number of handset players, most notably, Xiaomi set to enter the Indian market this year; this might prove to be an interesting area for Flipkart to grow in. However can a company which is losing money year-on-year really compete with a giant like Amazon? Flipkart reportedly lost around INR 250 crores in the last financial year 2012-13 and is largely funded by PE funds which will look for a profitable exit sooner rather than later. However, this has not deterred its plans to expand aggressively in other categories, possibly to appear as an attractive acquisition target or for an oversubscribed IPO (at a premium) as it looks to get itself listed in the Indian stock market. With Amazon setting up its business model in India quite aggressively- it seems unlikely that it will be willing to acquire a company deep in the red.
The problem with competing with a company like Amazon is that it cannot be purely categorized as a pure-play online retail player. We are all aware of the success that it has enjoyed with Kindle readers and has transformed the paperback book publishing industry so much that several players have had to file for bankruptcy or play in the same field(like Nook reader). There are also wide scale reports in tech blogs, that Amazon is due to come out with its own mobile handset built on its own OS- can it repeat the Kindle story here? As it already operates a mobile app store, this seems to be a natural integration. Amazon has also launched other products like unmanned aerial vehicles for delivery at door steps and its recently launched Amazon dash, which records all the things you want to buy so that you do not forget any item while placing the order. It is also revamping its operations in the US as it sets up warehouses in the cities and suburbs to compete directly with Wal-mart’s network of Physical store, promising same day delivery in some cases. In a country like Brazil, Amazon has adopted a completely different model by starting traditional kiosks to sell its kindle devices- will it repeat such an initiative in India? How will the likes of Big Bazaar and Pantaloons be affected if it extends its low cost model to physical stores in India?
So far the quiet approach adopted by Amazon stands testimony to the fact that it has been less than a year since its formal launch in the country. Wal-mart is also reported to be launching its e-commerce venture soon in India, resulting in a possible Wal-Mart vs. Amazon clash in the Indian market much sooner than anticipated. Can any Indian player challenge Amazon till then? Can Flipkart retain its leadership of the Indian e-commerce market? The positive for the various players is that the market is still in an expansionary phase, so there is still some time to go before it enters into a consolidation phase.
Food for thought: Can Flipkart be a possible acquisition target for Wal-Mart in India?
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