Two of the largest e-commerce players in India announced they would be making big money investments in the country. While Flipkart has raised a further $1 billion in funding, Amazon India announced that it would pump in a further $2 billion to expand its activities in India. With these new rounds of investments, Amazon and Flipkart have left their closest competitors far behind, which raises the question—Is India becoming a two-horse race?
Currently, the Indian e-commerce sector has Flipkart, Snapdeal and Jabong as the major players with international brands like eBay and Amazon also having a significant presence. Of all these, Flipkart, and Snapdeal are almost neck-to-neck when it comes to sales figures, while Amazon, which opened shop in India just over an year ago still has some catching up to do. For example, in March this year, Flipkart announced that it has crossed $1 billion in gross merchandise, a year before the target date of 2015. Snapdeal still has to cross this milestone, though founders Kunal Bahl and Rohit Bansal have reportedly told media that they expect to do that in 2014.
Jabong is a different case. Though it is one of the most popular e-commerce destinations in the country (it has an Alexa ranking of 12, ahead of Amazon.in and Snapdeal and behind Flipkart’s rank of 7) it is not a direct competitor of Flipkart or Snapdeal. As a fashion and lifestyle brand, Jabong’s direct rival is Myntra, which was acquired by Flipkart earlier this year. In fact, it is Flipkart’s acquisition of Myntra, which perhaps first started talks of the Indian online retail sector (which is expected to reach $8-9 billion by 2016 according to some reports), being in for a consolidation.
In fact, in an earlier interview with exchange4media, Jabong’s co-founder Pravin Sinha had suggested that consolidation would not necessarily mean the exit of smaller players. When asked for his opinion after last week’s developments Sinha maintained that there was a positive way of looking at it. “With so many investors showing interest and ready to put in money, we will also see investments in new ideas and players that could not take off due to lack of funds,” he said.
Investments will remain the key factor
At face value, it looks like the Indian online retail space might end up being dominated by the likes of Amazon and Flipkart, if their potential spending power is anything to go by.
Praveen Sengar, Principal Research Analyst at Gartner said, “We will be seeing a lot of consolidation in the Indian e-commerce market. One of the key differentiators will be logistics and supply chain and we will see a lot of investments being made in these areas.” This is where, players who are not able to raise large funds to make these investments will fall off the wagon, said Sengar.
To take the example of Snapdeal, in its four years of existence, has raised around $340 million in funding; while there have also been talks of it launching its own IPO in the next couple of years. If it has serious aims of competing with Amazon’s deep pockets and Flipkart’s aggressive strategy, it might have to look at raising bigger investments since all three will essentially be competing on the same fronts—improving mobile presence through acquisitions, scaling up supply chain operations and investing in technology development.
“There will be a challenge to general merchandisers like Snapdeal. When it comes to us, we will definitely see more aggression in the market and it is something that we need to be ready for,” said Jabong’s Sinha.
However, investors are unlikely to be shy to shell out money considering the potential of the Indian e-commerce sector, says Paresh Parekh, Tax Partner (Retail & Consumer Products) Ernst & Young. “Investments will continue to take place as these are done on the basis of future expectations but we will see the top couple of players buying out the others as seen in other geographies,” he added.
Will niche players survive?
This is a topic on which there seems to be no consensus. Priyesh Jain, Founder of Shopuli.com and Jabong’s Sinha believe there is always room for niche players who do things differently. Parekh too opined that unlike mass market entities, niche players will be able to survive more easily. He pointed to the situation in the US as an example.
“Once the e-commerce market reaches $10-20 billion, you will see niche players coming up,” said Sinha.
However, Sengar had a different take on this issue. “The pure play players will be the first ones to go. The market is going to pick up momentum and everyone, from retailers to manufacturers will jump in and set up their own shops. The pressure on pure play players, who deal in niche categories, will build up and they will be the first to be acquired as the market consolidates,” he said.
Changing business expectations
Currently the focus of the major e-commerce players in India has been on rapid expansion rather than profitability. To capture the market, the likes of Flipkart et al have been playing off volumes against price but this, says Sengar, is not a sustainable business model. “We will see profitability concerns coming up now. The current business model is not sustainable and e-commerce players will need to shift their focus on other factors like customer segmentation,” he said.
Similarly, Parekh feels that the likes of Flipkart, Amazon and Snapdeal will need to differentiate themselves. “Does Flipkart keep doing what it does by saying that I understand India better or does Amazon keep betting on its global knowledge? These are the decisions that they will have to make,” he said.