Amazon plans to invest Rs 1,155 crore to build its presence in India,
a move that comes barely three months after the American e-commerce company raised Rs 610 crore, indicating the need to have deep pockets to survive intensifying competition in a market that has been driven largely by massive discounts.
In a filing with the Registrar of Companies (RoC) last week, the company said that it is raising the money through a rights issue to its parent. This will be Amazon’s largest tranche of investment in India since it entered the country in 2013.
“We continue to invest in infrastructure and logistics, to enable our sellers to service customers across the country at low operating costs; and in technology, especially mobile, to enable easy, anywhere, anytime access for our customers and sellers,” said an Amazon India spokesperson.
While Amazon had in July last year announced a $2 billion (about Rs 12,500 crore) investment in the country without giving a time frame, it has invested Rs 2,500 crore since then, including the latest fund infusion.
Ruchi Sally, director at retail consultancy firm Elargir Solutions, said: “With Flipkart having the first mover advantage, Amazon had to invest heavily to gain market share and propel itself into a competing position. While initial discounting strategy was easy, Amazon is now rapidly investing to grow its reach and logistics to avoid any teething problems later.”
Amazon runs its websites as marketplaces — connecting buyers and sellers. Most online firms typically suffer losses for years as they battle to acquire customers by offering goods at cheaper rates.
“Most of the money has been spent on building logistics, supply chain and infrastructure apart from acquisition of customers in the form of discounted merchandise and freebies resulting in heavy cash outflows,” said Rakesh Nangia, founder and managing partner of Nangia & Co, a tax and transaction advisory firm. “Hence, Indian consumer behaviour is highly tilted in favour of bargain prices rather than loyalty to a particular site or a seller.”
This disruption strategy adopted by the online retail industry has resulted in successful sales with e-commerce players clocking sales amounting to $5.3 billion (about Rs 33,000 crore) last year. But Amazon and Flipkart have also posted net loss of nearly Rs 1 crore each day on average, last fiscal.
Amazon India, which entered India a year ago, had a net loss of Rs 321 crore while Flipkart’s losses doubled to Rs 400 crore in the year ended March 2014. Last year, Amazon launched over two dozen new stores on its portal, increasing its selection to more than 19 million products with a seller base of more than 16,000 vendors. Flipkart, in comparison, says it sells 20 million products, and gets 10 million visitors daily, in its eight years of existence.
According to a joint report by Boston Consulting Group and Retailers Association of India, online retail market in India is expected to quadruple to $60-70 billion (about Rs 3.72-4.34 lakh crore) over the next five years.
Increasing internet access through affordable smartphones and efforts by online retailers to develop payment channels — such as cash on delivery, mobile wallets — and streamlined logistics infrastructure is expected to boost e-commerce growth in the country.