Deep-pocketed Amazon looks to pip Flipkart in festive season
16 Sep 2016
Amazon India is strengthening its moves to grab a larger share of the market in the coming festive season and steal a march over rival Flipkart in the somewhat sluggish market for online retail in the country.
The Seattle-headquartered company, which is expected to outspend rivals, is relying on a larger array of products and bigger network of merchants to boost sales in what it terms will be "its biggest shopping season ever" in India, according to an Economic Times report.
"I don't think we have been in a stronger position in India in our lifecycle," said Amit Agarwal, managing director of Amazon India referring to his company's track record since it began operations here in June 2013.
He said offering the widest selection to consumers and competitive prices for both buyers and sellers backed by fast and reliable deliveries are the three areas of focus for the company. "On all those dimensions we have been leaders for a while, which has converted into traffic," he said.
He declined to specify when his company would launch its mega festival sale or how much it will spend. For online retailers, the period October to December is critical as it provides 35-40 per cent of total annual sales
This year, the season is seen as even more critical as gross sales in the once booming industry are estimated to be slowing. In the second quarter of 2016, the total value of goods sold on online marketplaces shrank by nearly a tenth, dropping to $13 billion from $ 14 billion in the previous quarter. In the same period last year, sales had grown 21 per cent to touch $11.5 billion from $9.5 billion according to research firm RedSeer Consulting.
Agarwal, however, refrained from commenting on what experts deem as slowing growth in online retail.
"It's very early" days for online retail in India, he maintained. "The momentum and growth we (Amazon) are seeing, there is no slowdown."
To be sure, the vantage point for Agarwal is very different, the ET report points out. In June, founder Jeff Bezos said the Indian arm would have access to $5 billion in investment. This means that the capital available with Amazon India is more than the total raised by two of its biggest rivals here: market leader Flipkart, which has raised $2.3 billion and SoftBank-backed Snapdeal, which has pooled about $1.5 billion.
AS reported earlier this week, Amazon India will pre-empt rival Flipkart's Big Billion Day (BBD) event, which starts on 3 October, by launching its Great Festival Sale on 1 October. It will also outspend rivals on marketing and advertisement with a budget of Rs125-130 crore, sources told ET. Such a strategy has worked well for Amazon in the US when it took on local rivals online shoe seller seller Zappos and Quidsi.
"Initially Amazon did not spend much on marketing and discounts, as they were building warehouses and infrastructure to support their operations while Flipkart and Snapdeal were spending heavily," Satish Meena, an analyst with Forrester Research, told ET. "Now the local rivals need to spend as Amazon will continue to spend heavily till next Diwali, by when they will be betting on beating the Flipkart-Myntra-Jabong combine," he said.
Market leader Flipkart currently is ahead on the back of its strong presence in the online fashion space, where it also owns portals Myntra and Jabong. The gap between the two players in terms of gross merchandise value (GMV) is closing, with investors and analysts estimating it to be around 15-20 per cent.
A recent report by Bank of America Merrill Lynch said it expects Amazon's GMV market share to improve to 37 per cent by 2019 from 21 per cent in 2015 and expect it to be a close No 2 behind Flipkart, which it expects will have a 44 per cent market share.
"Based on our estimates, India could potentially generate 21 per cent of Amazon's International GMV; $81billion in GMV and $2.2 billion in operating profit by 2025," said the report dated 13 September.
When asked if Amazon India is taking away market share from Flipkart and Snapdeal, Agarwal said, "I look at it as customers are choosing us because they feel our experience is better."
