Ama­zon In­dia cuts costs, dis­counts in bid to turn prof­itable by 2019

Mint Asia ST - - News - BMY IHIR D ALAL & A NIRBAN S EN

The

Indian unit of Ama­zon.com Inc. may soon face the same prob­lem that has dogged In­ter­net start-ups in the coun­try over the past 18 months: how to cut losses with­out sac­ri­fic­ing sales growth.

Ama­zon In­dia (Ama­zon Seller Ser­vice Pvt. Ltd), which un­til re­cently had been spend­ing freely to win mar­ket share, has been qui­etly try­ing to re­duce losses to reach its tar­get of get­ting on to a path to prof­itabil­ity by 2019, four peo­ple fa­mil­iar with the mat­ter said on con­di­tion of anonymity.

Ama­zon came up with this cost-cut­ting ini­tia­tive called “Get Fit” around the time that chief ex­ec­u­tive Jeff Be­zos com­mit­ted an ad­di­tional $3 bil­lion to­wards ex­pand­ing the In­dia busi­ness in June 2016. This came on top of the $2 bil­lion in­vest­ment Be­zos had an­nounced in July 2014.

The ini­tia­tive in­volves cut­ting pack­ag­ing costs, in­tro­duc­ing more au­to­ma­tion in ware­houses and de­liv­er­ing prod­ucts more ef­fi­ciently. Ama­zon has also started re­duc­ing mar­ket­ing spend­ing and dis­count­ing from 2016 lev­els, the peo­ple cited ear­lier said, adding that these costs will con­tinue to fall over the next two years.

Get Fit is one of the two big­gest ini­tia­tives at Ama­zon In­dia—the other one is called “Get Big”, which is about mak­ing the company the largest on­line re­tailer in the coun­try, the peo­ple said.

A cen­tral piece of both the large ini­tia­tives at Ama­zon In­dia is Prime, its an­nual mem­ber­ship pro­gramme that of­fers cus­tomers fast prod­uct de­liv­er­ies, ad­di­tional dis­counts, video stream­ing and other ben­e­fits. The firm launched Prime in July 2016 at a 50% dis­counted an­nual price of Rs499. Since then, mil­lions of cus­tomers have signed up for Prime, which has be­come a key dif­fer­en­tia­tor for Ama­zon in its fight with arch-ri­val Flip­kart Ltd, re­ports have shown.

Prime sub­scribers spend more than the av­er­age cus­tomer, they or­der more fre­quently, spend less on ri­val plat­forms and have higher sat­is­fac­tion lev­els, re­search shows. All of this helps Ama­zon sell more and bring prices down as economies of scale kick in and it doesn’t have to rely only on dis­counts to sell prod­ucts.

Since its launch in June 2013, Ama­zon In­dia has spent more than $2 bil­lion to rapidly ex­pand in the last big un­con­quered In­ter­net mar­ket in the world. Ama­zon has been run­ning neck-and-neck with Flip­kart for more than a year but at the same time, its un­prece­dented spend­ing spree has been ques­tioned by an­a­lysts.

Ama­zon In­dia’s loss soared to Rs3,572 crore in the year ended 31 March 2016 from Rs1,724 crore in the pre­vi­ous year. Dur­ing the same pe­riod, Ama­zon re­ported rev­enue of Rs2,275 crore, com­pared with Rs1,022 crore in the pre­vi­ous year. In 2014-15, Ama­zon had re­ported a six­fold jump in sales to Rs1,022 crore even as losses soared to Rs1,723.6 crore.

In the past two quar­ters, the In­dia busi­ness has been specif­i­cally called out as one of the big­gest loss driv­ers in Ama­zon.com Inc.’s in­ter­na­tional busi­ness.

“There’s al­ways been a strug­gle be­tween Get Fit and Get Big. This be­ing Ama­zon, the Get Big pro­gramme will al­ways tend to have the up­per hand,” one of the peo­ple cited above said. “When the $3 bil­lion was com­mit­ted, the US head­quar­ters had sent a clear mes­sage to the In­dia team that it has to show the path to prof­itabil­ity within three years. It can­not al­ways be spend­ing un­lim­ited money to win here. But it’s true that if Flip­kart starts be­com­ing more ag­gres­sive, Ama­zon will match it.”

De­spite the Get Fit ini­tia­tive, Ama­zon In­dia may be forced to in­crease its spend­ing over the next year given that Flip­kart has raised nearly $3 bil­lion from in­vestors since April. With the fresh cap­i­tal, the e-com­merce firm is ex­pected to en­ter new cat­e­gories such as gro­ceries and ex­pand cat­e­gories such as fur­ni­ture and large ap­pli­ances.

“In­dia is strate­gic for us and we are com­mit­ted to in­vest for long pe­riod of time with the vi­sion of trans­form­ing how In­dia buys and sells,” an Ama­zon In­dia spokesper­son said in re­sponse to ques­tions sent to the company.

ANIRUDDHA CHOWD­HURY/MINT

Prof­itabil­ity goal: The ini­tia­tive in­volves cut­ting pack­ag­ing costs, more au­to­ma­tion in ware­houses and de­liv­er­ing prod­ucts more ef­fi­ciently.

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