Thursday, 30 March 2017

eCommerce majors post huge losses

Amazon's entry in India in mid-June 2013, the party ended prematurely for home-grown companies like Flipkart and Snapdeal. The global giant has quickly amassed a good share of the growing Indian ecommerce market - mostly at the expense of Snapdeal. While Amazon has got deep pockets, the Indian companies like Flipkart and Snapdeal need to depend on other strategies to fight it.

Flipkart being a first mover, have spent a lot in converting offline shoppers to online, but 10 years later (Flipkart was founded in 2007), it seems to be a case of diminishing returns. Flipkart’s valuation was down to just $5.54 billion, from its peak valuation of $15 billion.

One reason ecommerce companies make losses is because CoD is an expensive option for these companies. Product returns have been a cause of worry for the ecommerce players with both Flipkart and Amazon making multiple changes in their return and refund policies to bring down the number.

With the battle intensifying, the top three players in the Indian ecommerce arena, Flipkart, Amazon and Snapdeal, their combined losses are mounting at an alarming pace. Snapdeal recently posted a loss of Rs 2,960 crore (2015-16),  Flipkart's Rs 5,223 crore and Amazon's Rs 3,571 crore, the combined losses are colossal at Rs.11,754 crore. 

Last year, the combined losses were Rs.6,031 crore (Amazon: Rs 1,724 crore, Flipkart: Rs 2,979 crore, Snapdeal: Rs 1,328 crore). 

While keeping up the fight is bleeding all the players and with coexistence not an option, it is time for the Big Three to change track before mounting losses bury them all. 

In Feb 2017, Snapdeal has laid off 500-600 employees.The founders also declared that they had decided to forego their salary. It will leave the company with a permanent workforce of around 1,000 employees. Company’s founders admitted to making mistakes. Snapdeal CEO said that the company would turn profitable in the next two years. As part of our overall path to profitability we will be reorganizing the company into a lean, focused, and entrepreneurial one by combining teams, reducing layers, eliminating non-core projects and strengthening the focus on profitable growth. 

Crisis is never communicated. 
It has to be gauged from the tell-tale signs that lie just about everywhere.

My View:
There is no space for too many players in eCommerce arena in India. Amazon with deep pockets is going to stay. Flipkart and Snapdeal with cash fast running out, will extinguish if they don't do anything. They best they can do is to amalgamate or merge into one entity, streamline and compete with Amazon. The innovative & efficient one will make profits and the other will just survive.

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