E-tailers in Asia’s third-largest economy are in fix.
With investors demanding results after pouring in millions worth of funding, companies such as Flipkart and Amazon have resorted to aggressive advertising and discounting to attract customers. But while that has paid off in terms of sales, with many online retailers seeing huge jumps in revenue for the financial year that ended on March 31, 2016, losses have mounted.
Amazon, for instance, reported a loss of Rs3,572 crore ($525 million) in India for the 2016 fiscal—more than double the amount it lost last year. The reasons are clear: the Seattle-based firm is spending heavily on infrastructure and technology in India, which is touted to be Amazon’s second-biggest market after the US.
The firm’s rival in India, Flipkart, is bleeding too. Its losses also doubled in the 2016 fiscal as it ramped up spending on advertising, logistics, and discounts to maintain its top position in the country, which has the world’s fastest-growing e-commerce market.
Several other online retailers, such as eBay, Shopclues and Firstcry, have also witnessed a similar trend of increasing revenues and losses in 2016.
While not all online sellers have reported their financials yet, here’s a snapshot from some of the top companies in India who have reported their numbers to the Registrar of Companies. The numbers in brackets indicate the times change over the last fiscal:
Experts say it could take time for these firms, many of which are unicorns valued at over $1 billion, to turn profitable. But that’s not the biggest concern.
“I am not really disturbed about these losses,” said Sanchit Vir Gogia, chief analyst and CEO of advisory firm Greyhound Research. “What I am really concerned about is the quality of products these firms sell, and how they are managed. For instance, I’d be very worried if their product returns have increased, which pull up their costs and in turn result in losses,” he added.
For Gogia, product returns at an online seller shouldn’t exceed 10% of sales. Anything beyond that would result in even bigger losses to come.
Analysts are also concerned about the growth of e-commerce overall in 2016. The industry was expected to be valued at between $60 billion-$100 billion by 2020, but these estimates look ambitious now. Some of the reasons for the drop in growth are demonetisation and the limited growth of the user base for electronic transactions and digital payments, Rutvik Doshi, director at the India arm of Inventus Capital Partners, told the Mint newspaper.
“It’s difficult to see a quick recovery, since everybody will be feeling the impact of demonetisation till at least April-May next year,” Doshi added.