Amazon India Tops E-Commerce Sales In July: What Does This Mean?

Amazon (NASDAQ:AMZN) nudged past homegrown market leader Flipkart to become the largest e-commerce player in India in July in terms of gross merchandise value (GMV). Amazon’s GMV rose to slightly above $300 million last month while Flipkart’s sales were slightly below that figure; third largest player Snapdeal registered gross sales of around $90 million in the month. ^[1] It is important to note that Flipkart’s GMV does not include sales from its wholly-owned fashion retailer arms – Myntra and Jabong – and Snapdeal’s GMV does not include sales from its payments arm Freecharge. Nonetheless, this is a noteworthy landmark for Amazon considering it only started operations in the country about 3 years ago. Below we look at the reasons behind Amazon’s fast-paced rise in the Indian e-commerce market.

Amazon’s $5 Billion Investment Commitment

The Indian e-commerce market has witnessed several twists and turns in the last 3 years, and Amazon has adapted well to comply with evolving Indian regulatory standards and create a user-friendly ecosystem for sellers as well as buyers. Amazon has also benefited from its ability to spend heavily in the country when its competitors are struggling to raise capital. The company committed an additional investment of $3 billion in India in June, taking its net investment to over $5 billion in the country.

Indian e-retailers have been burning a lot of cash in the last few years to attract customers and gain market share. However, their ability to raise further capital has diminished, with investors demanding a clear roadmap towards profitability. It was recently reported that both Flipkart and Snapdeal had been unsuccessful in raising funds at their asking valuations of $15 billion and $6.5 billion, respectively. This could have been impacted by Morgan Stanley drastically lowering the value of its holding in Flipkart by 27% in February this year, valuing it at around $11 billion. ((Have Flipkart, Snapdeal hit a valuation wall?, Livemint, April 14 2016))

Faltering Competitors

Amazon also benefited from the strategic decision by Flipkart (and Myntra) to go app-only and shut down its PC website. Flipkart reversed its decision later, but the move alienated some of its customers. Flipkart’s transition from an inventory-based seller into an online marketplace (following directions by Indian regulators) in May/June also had its issues, which Amazon took advantage of. At the end of the first quarter, Amazon had the highest brand recall and overall awareness with Indian sellers, according to a study of 1,100 sellers by Nielsen. ^[2] Amazon is also ahead of its competition in terms of product listings, with more than 65 million products offered on its platform compared to 40 million on Flipkart and 35 million on Snapdeal. ((Has Flipkart lost No 1 slot to Amazon?, Livemint, Aug 23 2016))

Amazon also recently introduced its Prime service in India, which is expected to improve customer loyalty and spend per customer going forward. The service is free for the first two months, and carries a discounted price tag of ₹499 (~$7.50) a year thereafter. Reports now suggest that the company is investing $300 million in creating original video content for Prime Video. This could act as the differentiating factor between Amazon and its competitors and therefore act as a catalyst to drive Prime Memberships in the country.

E-Commerce Potential In India

With an estimated current market size of $38 billion, e-commerce in India is expected to grow to about $120 billion by 2020, which presents a massive growth opportunity for Amazon. ^[3]

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

1. Has Flipkart lost No 1 slot to Amazon?, Livemint, Aug 23 2016 [↩]
2. For Indian sellers, Amazon clicks better than Flipkart and Snapdeal, Quartz India, June 13 2016 [↩]
3. Ecommerce Landscape of India [2016], ASSOCHAM India, Feb 26 2016 [↩]