Amazon and eBay’s India plans may get a boost from an unexpected source: the implosion of their chief rival.
Mint reports that Flipkart, India’s largest online retailer, lost seven top managers over the last four months. The exodus was blamed on differences between the founders Sachin Bansal and Binny Bansal, and the managers. The exits come after Flipkart’s chief financial officer Karandeep Singh stepped down in February, citing personal reasons.
Meanwhile, international e-commerce giants like eBay and Amazon are stepping up their India presence, even as Flipkart faces a probe by India’s Enforcement Directorate, the government agency that regulates foreign exchange transactions and money laundering, for alleged violations of foreign direct investment norms.
The company has struggled to navigate India’s restrictions on foreign investment, which until recently did not allow Indian companies that used a direct-sales business model (meaning companies that take on inventory and sell merchandise directly, rather than acting as a platform for third-party vendors) to accept foreign investment. As a result, the e-retailer is scrapping its tried-and-tested direct online retail model in favor of a marketplace model. (Lucky for eBay and Amazon, they already follow the marketplace model.)
Flipkart’s new model will be cheaper, pushing inventory and storage costs onto Flipkart merchants. But it may undermine the company’s efficient delivery systems, since it will no longer control all elements of the supply chain. The speed of its delivery system had given Flipkart a leg up against the less locally-attuned Amazon and eBay.
Flipkart is also struggling to find new sources of growth: it shut its digital music store Flyte in May, just 15 months after it was launched. Apparently, Indians who love to download music don’t like to pay for it, thanks largely to new music streaming services. The retailer has also shuttered its consumer durables division because shipping large items like refrigerators and TVs is prohibitively expensive and risky (a lot of the stuff breaks).
The cost of acquiring new online customers in India is also very high, eating up almost 70% of the revenues of most e-retailers. And the industry is still nascent: online retail currently accounts for less than 1% of the $500 billion retail industry, according to industry body Federation of Indian Chambers of Commerce and Industry. To rein in costs, Flipkart recently laid off 250 employees or about 10% of its workforce, according to the Economic Times.
All the better for Amazon and eBay, who are hoping to use deeper pockets and years of experience to their advantage.