Indian Economy News

Amazon Inc, Flipkart India to invest Rs 2,300 crore to acquire more customers

Mumbai: Amazon Inc and Flipkart India will invest nearly Rs2,300 crore in the near term as they slug it out to acquire more customers in the country's fast-growing online retail market that's mostly driven by deep discounts.

"We will invest in technology, creating infrastructure and logistics services, and specifically on the mobile platform to enable our sellers to deliver to customers across the country a wide selection of products very quickly and reliably," said a spokeswoman at Amazon India. The company said in a Registrar of Companies (RoC) filing last week that it was raising Rs 610 crore through a rights issue to its parent. Amazon had in July announced a $2-billion investment in the country without giving a time frame.

Flipkart, the country's largest online retailer, approved plans to raise Rs1,300 crore through a rights issue to its Singapore -based parent and borrow up to Rs400 crore from Kotak Mahindra Bank at a board meeting last week. Two weeks ago, Flipkart's parent company raised $700 million in fresh funding from existing as well as new investors, pegging its valuation at $11 billion.

Flipkart and Amazon run their websites as marketplaces — connecting buyers and sellers.

They typically burn through cash as they battle to acquire customers by offering goods at cheaper rates. While this strategy has rattled brick-and-mortar store owners who have accused online retailers of predatory pricing, it has also resulted in both making losses and requiring fresh funding. Amazon India, which entered India a year ago, had a net loss of Rs321 crore while Flipkart's losses doubled toRs400 crore in the year ended March.

"Funds are spent on building logistics and supply chain infrastructure. In addition, a substantial amount has been spent on customer acquisition in the form of discounted merchandise, which may have actually gone a long way in drawing customers to ecommerce sites, resulting in heavy cash outflows," said Rakesh Nangia, founder and managing partner of Nangia & Co., a tax and transaction advisory firm. Amazon India and Flipkart have both grown aggressively as they compete with each other and chase customers. In 2014, the second year of operations, Amazon launched 24 new stores, increasing its selection to more than 19 million products, and expanded its seller base to more than 16,000 vendors. Flipkart, in comparison, says it sells 15 million products and gets 80 lakh visitors daily.

Online sales are booming in India. In the year ended March, Flipkart generated revenue of Rs2,846 crore, more than doubling the year-ago figure and overtaking both its largest offline rivals --Shoppers Stop and Kishore Biyani-owned Future Lifestyle Fashion. While Amazon India's exact sales are not known, company's founder and CEO Jeff Bezos had said it exceeded gross merchandise sales of more than $1 billion within a year of launching in the country. Analysts expect ecommerce to continue its surge, eroding sales of brickand-mortar stores even further. "We see ecommerce channel taking share from traditional brickand-mortar players and posing a significant risk to growth of organised retailers and malls, especially in the electronics and apparel category," said a recent JP Morgan report. The Indian online retail market is estimated to more than quadruple to $14.5 billion (Rs88,000 crore) from $3.5 billion (Rs21,000 crore), according to research and consultancy firm RNCOS.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.