1. Ecommerce in India awash in losses; Amazon Flipkart, Paytm contribute 70% of total loss of Rs 10,670 cr

Ecommerce in India awash in losses; Amazon Flipkart, Paytm contribute 70% of total loss of Rs 10,670 cr

Losses at e-commerce players piled up last year as they blitzkrieged their way to consumers pockets. Although revenues rose sharply, the costs — discounts, advertisements and expenses on employee — skyrocketed.

By: | Updated: December 28, 2016 2:02 PM
e-commerce players, Online retailers, e-commerce losses, Paytm, Flipkart, Amazon India Losses at e-commerce players piled up last year as they blitzkrieged their way to consumers pockets. Although revenues rose sharply, the costs — discounts, advertisements and expenses on employee — skyrocketed. (Source: IE)

Losses at e-commerce players piled up last year as they blitzkrieged their way to consumers pockets. Although revenues rose sharply, the costs — discounts, advertisements and expenses on employee — skyrocketed. Worryingly, the increase in revenues in FY16 matched the growth in FY15, suggesting no great buoyancy in the business.

For a clutch of 14 companies, which included e-retailers, furniture sellers, travel portals and food ordering and delivery players, losses ballooned 138% to R10,670 crore, according to Kotak Institutional Equities. Between them Amazon India, Flipkart, and Paytm contributed 70% of the total losses during the year; losses at Paytm went up fourfold.

Not surprisingly, Amazon India reported the highest advertising spend of R2,163 crore — the American firm has been going all out to gain market share and has committed $5 billion to the Indian market. Paytm’s tab was R1,115 crore as it spent a fair amount on advertising its marketplace. Flipkart ran up a more modest bill of R923 crore.

While the number of online shoppers is estimated at 35 million and buyers do recognise the convenience of having goods delivered to their doorsteps, purchases on the Internet, it would appear, have been driven by discounts and freebies. This is probably true even for the payments business.

With few businesses showing a smaller cash burn, investors appear to be reluctant to fund ventures at what are undoubtedly lofty valuations. Between January and November, just $3.7 billion has been invested in these ventures, about half the $7.5 billion which came in during the comparable period of 2015, data from Tracxn Technologies shows. KIE reports funding for e-commerce ventures from PE and VC firms is down 72% year-on-year between April and November to just $1.2 billion.

The consolidation in certain spaces following shutdowns and mergers may lead to smaller losses for some firms in FY17 and thereafter, KIE believes.

Peppertap, for instance has shut down its grocery delivery business, PayU has acquired Citrus Pay and Ibibo is merging with Makemytrip.

However, sector experts point out, FY17 has been a tough year so far given the economy has been sluggish. Moreover, e-retailers have been hamstrung by the government’s regulations on price discounts. In late March, department of Industrial Policy and Promotion ( DIPP) issued guidelines for players that were funded by foreign direct investment (FDI). These allowed marketplaces to function with financial support from FDI. However, marketplaces are disallowed from influencing prices on the platform. Moreover, an e-commerce marketplace should not allow a single seller to contribute more than 25% of the total sales on the platform.

  1. M
    M.Kuriakose
    Dec 28, 2016 at 3:56 pm
    OMG
    Reply
    1. Merlin V
      Dec 28, 2016 at 5:20 am
      Whether it is online or physical shopping discounts and freebies are the main things considered to drive more customers. New policies that have been framed earlier in this year has actually restricted e-commerce players from influencing prices on their websites. Hope recent shutdowns and mergers may lead only to smaller loss for some firms in the upcoming year.Merlin from Ecbilla
      Reply
      1. Tejas Desai
        Dec 29, 2016 at 5:17 am
        Foreign capital obtained at near zero rate dumped in India to capture retail market at any cost. India's retail market gives employment to nearly 23 crore small retailers. What will happen to them? We are heading for jobless growth(?). Even the growth is questionable.
        Reply

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