Flipkart Versus Amazon
What’s At Stake Here
The battle between the homegrown Bansal boys and the global giant with the surname Bezos has been simmering for a while. Ever since Bezos’s Amazon started selling products in India last June, its dramatic growth had turned the small but booming Indian e-retail market into a pressure cooker. In April, Sachin Bansal tweeted: “Am I the only one who is sick of start-up gurus, Indian VCs and US internet firms telling Indian start-ups what we can and can’t do?” Three months later, Bansal got what he wanted–$1 billion in funding—crucial fuel for an Indian firm to go for the Holy Grail in the internet shopping space.
Within hours of Flipkart’s announcement, Amazon’s country head Amit Agarwal got off an airplane from the US with a message from his boss—“A big ‘thank you’ to our customers in India—we’ve never seen anything like this”—and $2 billion to take on Flipkart and other players. The swords have been drawn for a Flipkart versus Amazon showdown on battleground India. In the last few months, the two giants have matched each other’s move, to give customers a better deal. Better prices and free one-day delivery, to count a few. In fact, the joke on Twitter is that Flipkart and Amazon will soon start a price war “so huge that it will one day lead to the customer getting Cash on Delivery!” Sure, there’s no comparison between the two companies on a global scale—Amazon has a global valuation of $148 billion against Flipkart’s $7 billion. Even so, the latter has been quietly building up scale in India over the last 18 months. Foreign fund investors have been backing it religiously despite its losses. Its valuation has left even India’s retail king Kishore Biyani’s Future Group behind. Flipkart wants to be a $100-billion firm like its role model, Chinese e-commerce behemoth Alibaba. But e-commerce in China is highly regulated, and foreign players are not allowed in.
On an encouraging note, there is a visible change in consumer behaviour here as Indians, led by the affluent younger generation, are finally going online to buy everything—from cellphones, cameras to clothes, furniture and even grocery, helping establish this mode of shopping. In the last couple of years, online retailers have moved from single-digit to double-digit growth. “Personally, I have been a loyal Amazon.com customer for ages and also have deep respect for what Flipkart has achieved in a relatively short span,” says Deep Kalra, founder and CEO, makemytrip.com. “The Indian e-commerce market is huge and I don’t think it’s a question of either/or between these two companies.”
Actually, everyone recognises e-retail is now officially a goldmine. It is also a political landmine. Amazon, along with other global e-retailers, is lobbying with the BJP government to allow FDI in e-commerce in India. This move has been opposed by Indian merchants as well as by firms like Flipkart. It is a powerful domestic lobby. Many Indian brick-and-mortar retailers like Reliance and the Aditya Birla Group are entering the e-retail fray while the Future Group is also making yet another attempt to tap the online retail pie.
It helps Flipkart that the incumbent government is not favourably inclined towards FDI in multi-brand retail. Concerns have been raised about Flipkart being eventually “gobbled up” by Amazon. The latest bit of muscle-flexing by Amazon has brought forward the question of the “survival of the Indian challenge in online retail” as Flipkart readies itself to fight a company that has successfully belittled local players via its fully controlled inventory model. The only exception, as mentioned earlier, has been in China where homegrown Alibaba controls 80 per cent of the Chinese market.
Carton channel The Flipkart collection centre at Daryaganj in Delhi. (Photograph by Sanjay Rawat)
This remains, however, a fluid state of affairs. The UPA had last year floated a discussion paper on FDI in e-retail to garner public opinion. The issue has not died down even after the election thanks to hectic lobbying by global online retailers who have been applying constant pressure on the government to open up this sector. That explains why PM Narendra Modi urged traders to “embrace technology”. Though opposed to FDI in retail, his government has been soft on the issue and is open to the idea in the “larger interest” as it is actively seeking FDI in other sectors. An inkling of its intentions showed in the budget when it allowed the manufacturing sector to sell its products on e-commerce platforms.
This, say some analysts, stems from the funding of some e-retailers like Flipkart, which are almost entirely by foreign investment. According to reports, both Flipkart and Myntra have received notices from the enforcement directorate regarding this. This also probably explains why most e-retailers, including Flipkart, follow a marketplace model where the company acts just as a platform for buyers and sellers, a model allowed for players with foreign investment. This is against an inventory-based model where the online players own the products and warehouses and sell them directly to buyers (here foreign investment is not allowed).
Most players in the Indian e-retail sector today operate on the former model, which Amazon follows in India, unlike in the US. Many of them, like Snapdeal, Jabong, Naaptol and Yebhi, have come to embrace the marketplace model. Flipkart too moved from a mass merchant model to a marketplace one in 2013, the year Amazon dropped anchor in India. The latter model accounts for 27 per cent of the US market, and over 90 per cent of China’s.
It’s an emotive issue with the BJP’s core constituency: the trader and shopkeeper community. Says Praveen Khandelwal, general secretary, Confederation of All-India Traders (CAIT), “If FDI is allowed, today it is just Amazon, tomorrow we will have others like Wal-Mart who will come in and capture the Indian market and consumers will move to these players at the cost of Indian traders.” As big Indian e-tailers will back these moves, it remains to be seen if the BJP will bite the bullet and open up the sector a few months down the line.
There’s the opposing view, of course. Some online players feel nothing is going to change. Says K. Vaitheeswaran, e-commerce consultant and founder, Indiaplaza, “It will make no difference in India as all the players are already here. It is not that if FDI is allowed, Amazon, Wal-Mart and eBay are going to take away 50 per cent of the retail market in India.” Retail analysts also feel the government’s stand on FDI is illogical. Says Arvind Singhal, head, Technopak, “The government’s stand on FDI is inexplicable. India needs capital and if foreign capital is allowed, it will create huge opportunity using e-commerce, front-end and benefit the entire ecosystem.”
So where does the Indian consumer stand in all this and what does she gain? For one, online retail has given her access to many products not available in smaller towns and a choice not readily available in physical retail. Most importantly, it has given her much better prices as e-retailers compete with each other to attract buyers. With two e-retail behemoths now fighting in the open, the deals and options will only get sweeter. As long as the fight lasts.
That is because Amazon India gets backing from Amazon Inc which has deep pockets and can sustain the fight longer. Though e-retail hasn’t turned handsome profits even globally, Amazon Inc is supported by robust, profitable offline businesses. Flipkart, in contrast, has a presence only in online retail and depends entirely on foreign funds. Right now, it has investor confidence and the rope is being extended liberally, but at some point questions may be asked and the taps shut off.
Globally, the silent arrival of Amazon with its range and reach can be a kiss of death. French Booksellers Union, which had been voicing concerns about Amazon’s practice of offering free shipping of discounted books, went to court and in 2007 got a verdict in their favour as the threshold of discounts is fixed under French law. Predatory pricing can only be proved post facto—if they kill competition and later jack up prices, says Prof Asis Zameer of the Fore School of Management. “I don’t think Amazon is a case of predatory pricing as it is more a case of volumes and more efficient supply chain management.”
Last month, German book publishers filed a complaint with the country’s anti-trust authority against Amazon, accusing it of violating competition laws. Amazon is in a similar tussle with Hachette Publishers in the US. As the German Publishers and Booksellers Association admitted in its complaint, it is “indispensable” for publishers to be listed on Amazon given its wide platform.
As of now, is bracing for a bruising battle that will shape the market of the future—the contestants will do everything to win, including gobbling up smaller players to build scale and size. Already, the ring has got concentrated to three or four players, including Amazon, Flipkart and Snapdeal where another global giant, eBay, has invested over `800 crore. One round of consolidation happened in 2013 when Snapdeal took over Shopo.in; Myntra, which was eventually acquired by Flipkart, acquired Fitiquette; and Zovi, Inkfruit.
As we go forward, many of the single vertical e-retailers as well as cross-vertical players are expected to be on the sale block. Says Suchi Mukherjee, CEO and founder, LimeRoad.com, “The money invested by Flipkart and Amazon shareholders will eventually wipe out ‘me-too’ smaller players and will help build-out the market for bigger players who offer the best platform experience.” But do Indian consumers have anything to complain in any of these developments? As long as the prices are lower and investors have faith in Flipkart’s long-term prospects, they’ll continue to gain. Until, that is, this David versus Goliath battle continues in India.
Don’t Flip That Kart Yet: Know Your E-Tailer
All what you wanted to know about e-shopping in India
Find Big e-shops... (Beyond Flipkart & Amazon)
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Footwear & Lifestyle products
Offline players in online business
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Outlook ordered a product each from Flipkart, Amazon and Snapdeal to get a first-hand feel of the entire experience of buying products online and their delivery. Here is what we found:
By Arindam Mukherjee with Lola Nayar
Apropos Wholesale War in the E-Tail (Aug 11), it would be great for consumers—and the broader economy—if these battles are fought in the marketplace, with no one seeking to tilt the level playing field by seeking restrictive government policies, as happened so often in the past with FDI. On a lighter note, kyonki...Amazon bhi kabhi Flipkart tha!
Ashok Lal, Mumbai
Foreign players like Amazon should source locally. Already our market is flooded with cheap Chinese merchandise. Any FDI inflow should enable new job creation through adding capacity or starting greenfield projects. They should not desist from grabbing well-run Indian corporates.
N. Ramamurthy, Chennai
After Flipkart’s promoters found investors, they have deferred their plan to offer the company’s share through an ipo. We will have to wait a while before we can assess their comparative strengths. Their investments in infrastructure and aggressive marketing plans and strategy indicates that they are both confident of making money and are ready to fight for increasing their marketshare. This is welcome news for consumers. One only hopes these companies would help us get value-added products at competitive prices as well as assure us prompt after-sales service and not try to fleece us.
Narendra M. Apte, Pune
Online commerce giants have been good news for India so far. I have bought several books from them and find their service quick and efficient. It has been bad news for physical retailers, however, for whom huge rents and operating costs were always a burden, now it's sounding a death knell. Also, all this noise about stopping organised retail has been exposed as nonsense. All that this has done is let outdated supply chains exist and let them waste food. In fact, one reason they let grains rot in open godowns is that it gets our netas cheap raw material for their liquor factories.
Dinesh Kumar, Chandigarh
Very soon, old books is all you will find in book shops. The new books will sell only on Amazon. It can also continue to offer discounts because it has no running costs. Small stores will shut shop.
Shelly Rahman, London
Some of these online sites are like faceless creatures who appear, sting and vanish. I say this going by my experience with eBay India.
Rajneesh Batra, New Delhi
He who satisfies his customer best—in terms of price, quality and service—will be king.
M.C. Joshi, Lucknow
I read the story on Flipkart (Wholesale War in the Retail, Aug 11) with interest. Ever since I got to know Flipkart about five years ago, I have found them to be efficient, trustworthy and capable. Once I wanted to buy the South Asia Cyclopedia, to which I had contributed some entries. The publishers OUP said they couldn’t trace it. But Flipkart did, and delivered it to me at a discounted price. I found Amazon to be good too, but found Snapdeal to be a tad disappointing.
Flipkart needs to lift its game if it has to compete with Amazon. Flipkart at the moment do not deliver items outside India where they can have far bigger market as compared to India. They will have to match service standards of Amazon. At the meoment they are nowhere near them. Flipkart has to improve it's return policy.They have no policy for items lost in transit. I still remember the incident where I ordered 4 books but I received only three. Flipkart refused to deliver the lost book because according to them the order was complete. It was extremely rude. If Amazon comes to India I will use Amazon because of their service standards.
e-tailing is a very interesting phenomenon and it is very difficult to predict how it will change the business retailing. Even in the developed world etailing is a work in progress. While brick and morter retailers are building their online offerings to compete with pure etailers, the etailers are investing more on physical infrastructure to improve customer service.
Digital shopping certainly has not made physical shopping obsolete in the US, although growth of physical retailing industry is affected by etailing. But note that in spite of doomsday predictions of etailers killing physical retailers for many years now, in reality the physical retailers are still very much in competition, and their online offerings instead of cannibalizing their physical offers are actually boosting their revenues.
In India it is important to allow FDI in both offline and online retail to expand the retail industry and make it more efficient becase of competition. Expansion of shopping mallls in cities did not kill traditional retail storess, although competition forced many of the the traditional outfits to be more customer friendly and tech savvy. Several Indian owned retailers have introduced stores and retail formats that add to convenience of shoppers. Even traditional sellers of kurtas and sarees are advertizing on local TV channels and online. Indian consumers today have the choice of buying cheaper groceries from the traditional vegetable markets and paying more for buying groceries at a more comfortable retail outlet. That's how markets expand and everybody benefits.
It is quite foolish to predict and sneer at the fate of etailers looking at the number of PC based internet connections today in India. Future is very different from the present. Today's tech savvy Indians cannot believe how the left in 1980s fought introduction of computers in offices fearing job losses. The TV addicted Indian nation cannot imagine that the government was criticized for introducing color TV in a poor country in 1980s. When cellphones were introduced as luxury items ( the calls used to cost Rs. 16/minute in late 1990s), people complained why India was introducing cellphones instead of shifting focus on improving the pathetic status of landlines. Today even the poor in India own cellphones thanks to the earlier push. As smartphones are getting cheaper, soon more Indians will have access to smartphones and mobile internet irrespective of lower penetration of PCs and PC based internet. Mobile internet apps and mobile payments will drive online sales. That explains why investors are excited about Flipkart and why Amazon is pumping more money in India. Cynics will realize that in due course.
Very soon you will find only old books in the shops. For new books, Amazon will do the job. Amazon will sell the books with discount even as they have no running cost. manu small shopw will shut their doors.
Madarasas are doing what they are meant for?
The teacher was reportedly compelled to adopt the religion of a minority community in a madrasa in Hapur district, then taken to Muzaffarnagar and kept in confinement in a house there for three days.
The 20-year-old woman reportedly managed to escape from the clutches of the abductors. She reached Kharkhauda on Sunday and narrated her tale to her family. She also alleged that she was gang-raped.
A case was lodged against a madrasa official, the village pradhan and their aides who allegedly plotted the conversion plan.
Online commerce giants operating in India is very good for the consumer. I have bought several books from them and find their service quick and efficient. This however, is not good news for physical retailers, who have found their models getting out of fashion quickly. Huge rents and operating costs were always a burden, now they are death knells.
It is however, bizarre that the government should not allow FDI in such ventures. As far as I know, they are not threatening the security of the country. The government remains, as always, the spoilsport. If somebody is bringing in money, what is the problem of our out of date netas?
Secondly, all this noise about stopping organised retail is also exposed as nonsense. All that this has done is to let outdated supply chains exist and let them waste of food. I think the netas still want pre-historic supply chains in the country so that they can benefit out of collecting amounts from small traders to facilitate trade. For example, one reason that they allow grains to rot in open godowns is that they get cheap raw materials for their liquor factories.
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