Bezos bets US$5bil that Amazon can win India
BENGALURU: It’s mere weeks to the festival of Diwali, the season of lavish, reckless consumption, and in a cavernous warehouse minutes from the Hyderabad airport, hundreds of workers are furiously sorting mountains of everyday items.
There are sunglasses and shaving creams, sewing machines, vegetable slicers and microwave ovens, all lined up by Amazon. com Inc to sate the shopping frenzy that’s India’s Black Friday and Christmas combined.
The windowless 400,000-sq ft facility is fitted with 500km of cables and 16,000 fire sprinklers. Sellers pour in with their wares precariously balanced on two-wheelers, or in autorickshaws and pickup trucks.
It’s Amazon’s largest and newest – such center in the South Asian country, and it offers a view into the company’s ramp up in this crucial market ahead of a festival sale collision this week with local rival Flipkart Online Services Pvt.
The Indian investments show the Seattlebased retailer using a strategy similar to the US, where a vast network of warehouses allowed it to offer quick, cheap delivery and distinguish itself from competitors like Ebay Inc.
The e-commerce giant has a lot riding in the country after its washout in the world’s other large market, China, where Alibaba Group Holding Ltd and other local players have prevailed. Amazon has said its international loss grew over fivefold from a year ago to US$724mil in the quarter ending in June.
Part of that can be attributed to its investments in India, including additions to storage capacity. “Fulfilment centers are extremely critical for the success of our Indian operations,” said Amazon’s India head Amit Agarwal, using company-speak for warehous- es. “We have doubled our storage capacity in the last one year to meet our rapid growth in India.”
Bangalore-based Flipkart still has a lead in the Indian e-commerce market. But Amazon is also expanding at ripping speeds, and in the last year alone has roughly doubled size on several metrics. Warehouse capacity has risen to 13 million cu ft, sellers to over 225,000 and products to more than 160 million.
During the lead-up to the annual holiday, Amazon and Flipkart have played a cloakand-dagger game, each waiting for the other to announce sale dates. Recently rejuvenated with an added US$3bil in cash after fresh funding from big name investors including Tencent Holdings Ltd, Microsoft Corp and SoftBank Vision Fund, Flipkart is preparing to launch its own holiday blitzkrieg.
When the domestic player finally went public with its timetable, Amazon responded by timing its four-day Great Indian Festival Sale to exactly overlap with Flipkart’s Big Billion Days Sale. The buzz of activity at the warehouse would only quicken when the Amazon sale opened yesterday.
Flipkart, meanwhile, says it’ll triumph by doubling sales over its own numbers last year and trounce competition by quadrupling shipments of smartphones. “Our Big Billion Days sale is not about discounts alone, but about exclusive selections on a plethora of products in mobile, fashion and appliances that rivals do not have,” the company said in an e-mailed statement.
It’s also boasting of industry firsts such as monthly payments against purchases charged to debit cards and hundreds of thousands of personalized video promotions on social media during the sale days. On warehouses, the company said it doesn’t share numbers. Diwali is the time when annual bonuses are paid in India, and families do their heaviest shopping. The festival extends over several days, starting Oct 17 this year.
“Amazon and Flipkart are more evenly matched today than ever before and it’s a lot tougher to predict who’ll be the winner in this year’s peak selling season,” said Mrigank Gutgutia, engagement manager at researcher RedSeer Consulting Pvt. “With the war chests they have, both are building up warehouses and logistics infrastructure.”
Within miles of the new Hyderabad storage hub, is one of Amazon’s largest global customer service centers as well as one of its biggest software development facilities in the world. All of these are hidden from public view - except on rare occasions like this warehouse visit. They are all testimony to chief executive officer Jeff Bezos’ aggressive Indian expansion that is backed by a US$5bil budgetary allocation.
Amazon’s 41 warehouses in India are vital in a country where the largest online retailers are marketplaces without any inventory of their own in accordance with foreign investment rules for e-commerce. Their locations are crucial because the nation’s logistics networks can be unreliable. They have to be close to sellers and with easy access to a density of buyers.
Those in the real-estate trade alert rivals to each other’s warehouse searches, and competition is intense. Alibaba-backed Paytm E-commerce Pvt is the newest competitor in the fray and just beginning to build capacity. “On-ground superiority can give an edge to the players, bringing down supply chain costs, optimizing shipping and providing premium customers the fastest delivery,” said Gutgutia, the analyst.