In­dia a Ma­jor Cost Cen­tre, but Ama­zon has Long-term Plans

With Alibaba en­ter­ing In­dian ecom­merce, the US etailer’s fo­cus on pro­mo­tions and dis­counts is un­likely to go away any time soon

The Economic Times - - Companies: Pursuit Of Profit - Payal.Gan­guly@ times­group.com

In 4th quar­ter

In 3rd quar­ter, pri­mar­ily due to spends in In­dia Loss re­ported in pre­vi­ous 4th quar­ter Ben­galuru: US-based on­line re­tail gi­ant Ama­zon con­tin­ued to re­port sig­nif­i­cant losses in in­ter­na­tional busi­ness for the quar­ter ended De­cem­ber as it con­tin­ued to spend ag­gres­sively for lead­er­ship in the In­dian on­line re­tail mar­ket.

The com­pany said losses in the in­ter­na­tional busi­ness unit were $487 mil­lion in the fourth quar­ter, over four-fold more from $108-mil­lion loss in the same pe­riod last year.

Net sales for the in­ter­na­tional busi­ness went up by 18% to $13.96 bil­lion dur­ing the fourth quar­ter. In the third quar­ter of 2016, Ama­zon’s in­ter­na­tional unit had re­ported a $541 mil­lion loss pri­mar­ily due to spends in In­dia.

That was the big­gest op­er­at­ing loss that Ama­zon's in­ter­na­tional busi­ness has re- ported in its his­tory, ac­cord­ing to com­pany fil­ings re­viewed by ET. Ag­gres­sive pro­mo­tions and spends on de­vel­op­ing ex­clu­sive con­tent for its Prime ser­vice were other rea­sons that saw Ama­zon Inc’s rev­enue fall short of ex­pec­ta­tions. This caused Ama­zon’s shares to fall by 4% dur­ing the day.

Dur­ing the earn­ings call, the com­pany in­di­cated that of the fac­tors af­fect­ing the muted guid­ance for growth by the com­pany in­clude in­vest­ments in In­dia. The in­vest­ments in the mar­ket “con­tin­ues to be a rather large in­vest­ment,” ac­cord­ing to CFO Brian Ol­savsky. The Jeff Be­zos-owned com­pany, which op­er­ates the on­line mar­ket­place Ama­zon.in, is es­ti­mated to have lost about ₹ 9001,000 crore to woo cus­tomers with spe­cial of­fers and dis­counts in the fes­tive sea­son in Oc­to­ber. Its av­er­age losses per month are es­ti­mated to be about ₹ 600 crore ($90 mil­lion), ac­cord­ing to two sources briefed on the mat­ter.

With Alibaba en­ter­ing In­dia’s e-commerce land­scape, Ama­zon’s long term strat­egy and fo­cus on pro­mo­tions and dis­counts is un­likely to go away any time soon.

“Glob­ally, Ama­zon’s strat­egy has been to make ecom­merce a nat­u­ral choice for shop­ping, through as­sort­ment such as ex­clu­sive mo­bile phones, dis­counted items which the mar­ket­place can pro­vide due to no cost of dis­tri­bu­tion and bring­ing on­line the in­stances when peo­ple don’t want to buy off­line, like gro­ceries. They will con­tinue to do this in In­dia,” said Anil Ku­mar, CEO of e-commerce re- search firm RedSeer Con­sul­tancy.

The other fac­tors in­cluded Ama­zon Inc’s push in dig­i­tal mar­ket­ing, de­vel­op­ing con­tent for its Prime video pro­gramme, and Ama­zon Now and Ama­zon Fresh.

“Ama­zon’s strat­egy in In­dia is for the long-term. While their burns are sig­nif­i­cantly higher than do­mes­tic players, Alibaba en­ter­ing the In­dia mar­ket will not have a sig­nif­i­cant im­pact on their strat­egy. Ama­zon is push­ing Prime sub­scrip­tions, FMCG and bet­ter cus­tomer ex­pe­ri­ence, which is fa­cil­i­tated by Prime. GMV is not an im­me­di­ate con­cern for them,” said Anil Ku­mar of RedSeer Con­sult­ing.

Ama­zon Seller Ser­vices, the main In­dia unit of Ama­zon In­dia re­ceived ₹ 7,000 crore over a 12 month pe­riod in 2016 from the par­ent com­pany. Ama­zon In­dia mar­ket­place has been in­volved in a neck to neck com­pe­ti­tion with ri­val Flip­kart for mar­ket­share in the e-commerce space which saw a slow growth due to fac­tors in­clud­ing shrink­ing dis­counts and de­mon­eti­sa­tion. The com­pany de­clined to com­ment on the im­pact of de­mon­eti­sa­tion on its In­dia busi­ness.

Ol­savsky called In­dia an early mar­ket, adding that, “We are en­cour­aged with the ini­tial re­sponse. We have de­vel­oped new func­tions for the coun­try in de­liv­ery and ser­vices -- we launched Prime last sum­mer and launched Prime video re­cently (as part of a global launch). We will con­tinue to build our busi­ness there. We are bullish on In­dia longer term.” Ama­zon an­nounced in June that there will be ad­di­tional $3 bil­lion in­vest­ments routed to the In­dia op­er­a­tions, mak­ing it one of the most heav­ily funded e-commerce mar­ket­places in the coun­try when do­mes­tic players like Flip­kart and Snapdeal have been fo­cused on re­duc­ing burns over the last one year.

LOSS RE­PORTED

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