Flipkart and Amazon, the top two players in the e-commerce players, in India are always in the news. Flipkart, which is the largest player in India e-tailing space, faces fierce competition from its rival Amazon which is making an outright effort to topple it from the leading position. Flipkart very recently made news when it acquired Jabong from Global Fashion group through its unit Myntra. Whereas, Amazon made news when it further expand its business in India and announced new fulfilment centres in the country. It also announced the launch of its globally popular Amazon Prime membership program in India in over 100 cities of the country. Through this programme customers will be able to get unlimited free one-day and two-day delivery on lakhs of eligible products from Amazon India.
There have been tough times in the e-commerce industry especially with Flipkart facing multiple challenges. The company has been on an reorganisation mode with a spate of exits hounding the company. Very recently senior managers in the form of Lalit Sarna, who was the payments product lead, and Sunil Gopinath, the product lead for Flipkart’s marketplace division, quit the company. Earlier, Flipkart’s chief product officer Punit Soni had quit in April. Besides this, Flipkart’s another move had backfired as it had shut down its fashion brand Myntra’s website with a belief that people prefer apps and thus went on for an app-only business. As per market sources, post the app-only-mode the Myntra's business went down and the desktop website was restored in June this year.
Despite this, Flipkart’s expansion plans are just not slowing down and the latest acquisition of Jabong says it all. "Both Flipkart and Amazon will continue to pump in more investments in the market and will keep pushing ahead and there is no way back. If you stop moving ahead, all the investment made so far is lost. Fashion (especially women’s fashion) is a top category on e-commerce platforms in terms of transaction volume and growth, and also one of the most competitive due to presence of lots of brands and manufacturers. The acquisition of fashion platforms is a move for Flipkart to not only further penetrate into the red-hot category, but also maintain its leadership position in the market and keep Amazon at bay. We expect major players to keep acquiring niche and smaller players to expand into more product categories, demographics and geographies, and add new functionalities to their offerings," Sandy Shen, research director at gartner, told THE WEEK.
The competition seems to be neck to neck. According to Forrester’s Consumer Technographics Asia-Pacific Online Benchmark Survey, 2016, Amazon surpassed Flipkart as the preferred online retail destination for consumers in India’s metropolitan areas. There were also reports earlier this month that Amazon had beaten Flipkart to become the most downloaded app on Google and Apple app stores in the first quarter of this year. Amazon India also invested in six new fulfilment centres with an aim to expand its infrastructure for the upcoming festive season. With a total storage capacity of close to 7.5 million cubic feet, the fulfilment centres (FCs) will meet the growing needs of its growing seller base in the country. These centres will be set up in Chennai, Coimbatore, Delhi, Jaipur and Mumbai. With this launch Amazon is claiming that it will have the largest storage space for an e-commerce company in India with its FCs operational across 10 states covering a total area of close to 2.5 million square feet with a 1.5 times growth in storage capacity, which is 7.5 million cubic feet of space.
"We remain committed to investing in our fulfilment and logistics capability to enable and empower sellers to serve customers nationally at lower costs. It stands testament to our larger commitment of making deep investments in the country. The FCs will also enable faster and quicker delivery of products to consumers across the region," said Akhil Saxena, vice president, India Customer Fulfilment, Amazon India. Ever since Amazon launched its services in India, it has introduced many initiatives for the sellers like an education and skilling program called Seller University, Fulfilment By Amazon, Easy Ship (an assisted shipping service that makes it easy for sellers to ship products across India), Amazon Tatkal (a service-on-wheels to help SMBs get online within 60 minutes) etc. It needs to be recollected that Amazon founder and CEO Jeff Bezos had committed an additional investment of $3 billion towards its India operations to take its investment in the country to over $5 billion.
Before the acquisition of Jabong, Flipkart had announced that it aims to build its own digital payments business and is investing over Rs 600 crore in it. The company wanted to expand its presence in the online payments market and had acquired PhonePe, a payments startup, earlier this year. This seems to be in response to Amazon India which had acquired Emvantage to eye the digital payment market.
Many experts say that the intense competition amongst the top players such as Flipkart and Amazon is here to stay at least for the next three years. "The top players in the e-commerce space are competing head-to-head with strong funding and commitment. The market is big enough to accommodate multiple players. So the outcome of such a competition is that consumers will benefit as they reap the benefits of lower prices, more choices and better services. We will continue to see more investments in the market as it is still emerging and the winners in this long race are far from defined. Some niche and smaller ones may get acquired if they fill a gap of major players. I do not see consolidation among big ones for now as the market is big enough to accommodate at least three major players,” explained Shen.
Though there has been correction in the valuation of companies, such as Flipkart, the level of competition against other players has not come down. "User adoption for e-commerce is growing at a healthy growth pace. While the number of players in the market have shrunk, the competitive intensity between e-commerce players has not correspondingly diminished. The shift from ‘sell at any cost’ is now giving way to strategic discount that are aligned to long term customer life time value.
There is a greater focus on merchandise planning and promotion profitability. While it was always anticipated that investor risk appetite will diminish, the changes are happening at a pace that is not aligned with how fast e-commerce players can shift gears. It is in this context that players who can tap into their own sources of funds, like Amazon, will have a natural advantage to thrive and survive," said Alok Shende, managing director and principal analyst at Ascentius Consulting.
Analyst further point out that there would be continuos consolidation in the market and many of the niche players will continue to get acquired by large players such as Flipkart and Amazon. “There will be consolidation in the market just in the coming years as well . At the same time though many small players will fade away or get acquired, many of the niche players or ones with differentiated value proposition with continue to grow. It will not be the Indian customers which will make these e-tailers profitable, they need to become profitable from the Ecosystem. For instance, setting up of a fulfilment centre will help in enhancing overall customer experience and provide better control in the overall supply chain. But to get better profits, they need to work along with other ecosystem partners to reduce their overall cost of service," said Sreedhar Prasad, partner, e-commerce, KPMG in India.
Experts also feel that though the top players in the e-commerce space will continue to attract investment, their pace and rate of investments will slow down and the spending by the top e-commerce players will also slow down if they continue with their acquisition drive as they will need these investments to acquire new smaller players.
Industry experts predict that growth will continue in the e-commerce space in the country and Flipkart and Amazon's fight will only intensify. "Consolidation and acquisitions in the industry will bring in more synergies, generally speaking, amongst players such as the acquisition of Jabong by Flipkart will bring in a network of more customers for Flipkart from different regions and also the logistics network of Jabong. At the same time, Jabong will get a better piece of management skills under the Flipkart banner. Both India and China have very similar demographic pattern and other characteristics as far as the e-commerce market is concerned. Though the Chinese market is dominated by predominantly Ali Baba, India will see several of the e-commerce players survive in horizontal and verticals for the coming few years as there is still huge untapped potential in the Indian market," said Sandeep Ladda, partner and national leader of technology and e-commerce sector practice at PwC India.