Layoffs, freezing projects and reducing payouts: e-commerce giants sharpen their cost-cutting strategy

2017 is turning out to be a dark year for ecommerce giants with large scale layoffs, high-profile management exits and cuts in valuation spilling in. Every player is sharpening its strategy to reduce costs and conserve cash with the sole objective to rake in profits

e4m by exchange4media Staff
Updated: Mar 6, 2017 8:06 AM
Layoffs, freezing projects and reducing payouts: e-commerce giants sharpen their cost-cutting strategy

2017 is turning out to be a dark year for e-commerce giants with large scale layoffs, high-profile management exits and cuts in valuation spilling into it. Most of them are sharpening their respective strategies to reduce costs and conserve cash with the objective to rake in profits. For instance, Snapdeal looks to lay off 600 employees across its e-commerce, logistics arm Vulcan Express and digital payments business Freecharge with its founders Kunal Bahl and Rohit Bansal going for a 100 per cent salary cut. Freecharge CEO Govind Rajan has also reportedly quit nine months after joining the company.

Last month Flipkart CEO Kalyan Krishnamurthy had reported to set the target to cut costs in a big way. According to media reports, he has instructed a freeze on some of the firm’s moonshot projects, while Flipkart’s logistics unit Ekart has also shut its customer-to-customer service and hyperlocal delivery offering. To add to its problems the homegrown player Flipkart recently got another markdown from one of its largest mutual fund investor Morgan Stanley, putting its valuation at $5.37 billion. This is the fifth consecutive markdown by Morgan Stanley in Flipkart. Earlier this year the US-based mutual fund investor T Rowe Price pegged Flipkart’s worth at $9.9 billion, down by 4 per cent over its September 2016 figures. Then again in January, Fidelity marked down the e-tailer’s valuation by 36.1 per cent to $5.56 billion. On the bright side, its current monthly burn rates have come down to $50 million from its $80-90 million last year.

Snapdeal also witnessed a similar markdown last November. Softbank, which is one of the largest shareholders in Snapdeal, with close to a 33 per cent stake, wrote down as much as $555 million in two of its biggest investments in India — Snapdeal and cab hailing service, Ola.

These valuations definitely don’t go down well in the ecommerce industry. And at the same time consumers’ days of enjoying discounts are also coming to an end with Snapdeal suspending an incentive programme for the former that it previously employed through affiliates to conserve cash. This affiliate network comprises coupons, deals and cashback channels and blogs. Snapdeal pays commissions to affiliates based on the number of people who end up doing transactions on the marketplace.

Flipkart too is using all means to conserve cash. In 2015 it had agreed to take up two million sq-ft of office space in 2015 but now is negotiating to reduce it to just 900,000 sq-ft, according to media reports. It has now cut down its forward-shipping fees by at least 10 per cent and the fixed fees it charges merchants for selling on the platform by more than 30 per cent. These changes will bring down the overall cost of doing business through Flipkart by about Rs 30 per unit (of 500 gm shipped in the same zone or state) on an average, according to media reports.

Meanwhile Snapdeal was earlier reported to cut its salary and bonus costs by 60 per cent and looking to merge some of its major categories such as mobiles and electronics under one to save costs. Early February it pulled the plug on Shopo, an online marketplace for quirky and handicraft products after a year and a half of operations.

Amazon India, which appears to be in a better place, has also taken certain measures like cutting down the number of mobile phone 'Platinum Sellers' on its platform by 70 per cent for the same prerogative. The online shopping giant had reduced the discounts it was offering on its mobile phones by 6-10 per cent after demonetisation, as mobile phone sales slipped by 60 per cent, according to media reports.

Its logistic arms Amazon Transport Services has reported to reduce payouts to corner stores that double up as delivery partners to control costs and consolidate its network. The stores act as pickup points, receiving deliveries on behalf of Amazon’s customers. Started as a pilot project in 2015 to increase its logistics reach, it has nearly 13,000 stores across 65 cities as part of its network. Amazon plans to consolidate this because of the huge costs associated with managing a vast network of stores and regional logistics partners, as per media reports. But having said that, one has to keep in mind the focus of Amazon (with its deep pockets) is growth in India and not profits, something that Indian players cannot afford to do till they break even.

Let’s not forget the losses that have been piling up in this space. Snapdeal posted a loss of Rs 29.6 billion (2015-16); Flipkart revealed losses of Rs 52.23 billion and Amazon a loss of Rs 35.71 billion, summing to a mammoth figure of INR 117.54 billion. So the homegrown players have realised that raking in profits is the only key to stay in the game in the long run.

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