Amazon is lagging arch-rival Flipkart in India on several key metrics and struggling to make inroads in smaller Indian cities, according to a scathing report by investment firm Sanford C. Bernstein.
The US e-commerce giant’s 2021 gross merchandise value in the country where it has over $6.5 billion deployedwas between $18 billion and $20 billion, trailing Flipkart’s $23 billion, analysts said in a note to clients on Tuesday obtained by TechCrunch.
India is a key overseas market for Amazon, where it competes with Mukesh Ambani’s Reliance Retail, which launched grocery shopping on WhatsApp this weekWalmart-owned Flipkart and social commerce startups Backed by SoftBank Meesho and Globally powered by Tiger DealShare. So far, Amazon has offered “a weaker proposition in the ‘new’ trade” in the country, the report added.
Betting is one of the last big growth markets in the world. E-commerce spending in India, the world’s second-largest internet market, is expected to double to over $130 billion by 2025. Amazon is trying to increase its presence in India through stakes in local firms and also aggressively explored partnerships with neighborhood stores.
The company tried to acquire Future Retail, India’s second largest retail chain, but was outwitted by Ambani’s firm. (Amazon blamed the estranged Indian partner and Reliance for newspaper advertisement fraud.)
Amazon’s recent spending on growth in India has also made the local division’s profit-making prospects “elusive,” the Bernstein report added.
The e-commerce group did not immediately respond to a request for comment Tuesday night.
“Amazon has struggled to scale volumes in higher-margin categories such as fashion and BPC (beauty and personal care), while the inability to operate a 1P (inventory-driven) model has limited private label availability relative to competition, further pressuring margins. Amazon’s management attrition has also increased recently, potentially signaling difficulties in achieving the desired scale,” said Bernstein, whose reports are highly influential and widely cited.
Amazon, like Walmart’s Flipkart, operates a marketplace business in India due to local regulatory requirements. It faces a wide range of other regulatory pushbacks in the South Asian market. Marketplaces cannot have a controlling interest in sellers on their platform. Amazon and Flipkart reduced their stakes in their biggest sellers. Amazon had a controlling stake in Cloudtail and Appario, but it has reduced it to 24%.
A single seller cannot have more than a 25% share in a foreign online marketplace. No e-commerce marketplace can authorize a seller/brand to sell exclusively on the platform. “It also curbed deep discounts,” the report added. Furthermore, a new guideline proposed by the central bank of Indiaif imposed, it would affect Amazon’s buy-now, pay-later offering, the report added.
Other conclusions from the report:
- Amazon is less competitive in the grocery and beauty and personal care categories.
- Amazon’s India Prime membership offering is almost identical to the US in terms of entertainment availability, but the size of its logistics network pales in comparison (13m sq ft vs 375m sq ft), limiting available SKUs to half a day delivery.
- Amazon lacks in terms of engagement metrics and download share. Flipkart was the leader during the festival season last year with a 62% share, while Amazon had a 27% share.
Image Credits: Sanford K. Bernstein