22 Nov 2016 14:26 IST

Amazon India headed for $1 b loss in FY17

A result of spending overdrive to wrest market share from rival Flipkart

Amazon India’s losses are likely to rise to $1 billion by the end of this fiscal (FY17) even as the e-commerce behemoth continues to pump in millions of dollars into the Indian market in an all-out effort to wrest market leadership from Flipkart.

“Amazon is playing the market-share game in India. The internal directive to employees is not to bother about customer acquisition costs but to single-mindedly pursue growing market share to gain market leadership.

“To achieve this, Amazon is expecting to incur losses of $1 billion at the close of FY17 at the rate of about $80 million a month, which is almost four times the $261 million loss it incurred in FY15,” said sources.

The FY15 figures are the latest officially quoted numbers.

The losses are expected to be as a result of the spend on marketing, advertising, ramping up of seller initiatives/incentives, expansion of stock selection across categories, expansion of fulfilment centre network, investments in digital content and additional Prime membership benefits.

An Amazon India spokesperson said: “We do not comment on rumours and speculation. India is a key growth region for us and we are investing in the country with a long-term horizon to transform the way India buys and sells.”

While rival Flipkart focussed on high-value items such as mobile phones, TVs and home appliances by forging exclusive partnerships with top brands during the festival season sales last month, Amazon not only did the same but also offered attractive deals on low-ticket items such as daily essentials and continues to push them aggressively with daily deals.

As a result, the average selling price on Amazon is ₹1,600, lower than Flipkart’s ₹2,000, said an e-commerce analyst who did not wish to be identified.

In a previous interaction with BusinessLine, Amit Agarwal, VP and Country Manager at Amazon India, had said: “We invest for long-term sustainability and will invest whatever it takes to ensure growth. Customers everywhere in the world care about three things — selection, great prices, fast and reliable delivery. We are focussed on executing on these three dimension in India.”

Recent comments from Amazon’s top executives indicate massive investments in India, its key growth market. In its Q3 2016 earning call last month, Brian T Olsavsky, Senoir VP and CFO, Amazon.com, told analysts that the drag in margins in its international retail business was due in large part to its investments in India and that the company will continue to invest in India.

Amazon has committed a total investment of $5 billion in India — $2 billion was announced in 2014 and founder CEO Jeff Bezos announced an additional $3 billion in June at the annual USIBC (US-India Business Council) gala, which was attended by Prime Minister Narendra Modi.

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