Racing against Flipkart, Amazon pumps record capital into India

BENGALURU: Amazon has pumped record capital into its main India unit this financial year, adding crucial firepower with its latest infusion of Rs 1,950 crore as the global online retail giant accelerates efforts to race past larger domestic rival Flipkart.

Overall, Amazon Seller Services has received Rs 8,150 crore, or about $1.3 billion, so far in 2017-18 from its US parent, as per filings submitted with the Registrar of Companies. The latest capital infusion is the fourth since Flipkart raised $4 billion (about Rs 25,380 crore) around the middle of last year.

The frequent capital infusions indicate Amazon India’s increased spending, or cash burn, towards acquiring new customers and growing market share. The online marketplace is burning through $120 million every month — $75 million on ecommerce and $45 million on its subscription service Prime, higher than its average monthly cash burn rate of $80-100 million in 2016, according to people familiar with the company’s numbers.


“Amazon’s (cash) burn is increasing due to push in three categories — smartphones, fashion and grocery,” said Satish Meena, senior forecast analyst at Forrester Research. “As its burn increases, it will see more infusions. In fact, 2018 will see both Flipkart and Amazon spending a lot on offline strategies.”

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In November, Amazon pumped in Rs 2,900 crore into Amazon Seller Services, making its single-biggest capital infusion into its India marketplace. Amazon has committed to investing $5 billion in its India unit and so far has pumped in Rs 19,790 crore, or about $3 billion, into Amazon Seller Services. Amazon India’s subsidiaries — Amazon Wholesale, Amazon Pay, Amazon Transport and Amazon Data Services — have received a combined Rs 2,868 crore since 2016.

Amazon’s previous highest annual capital infusion into its India marketplace was Rs 7,463 crore in 2015-16, when it was taking away market share from Snapdeal. In 2016-17, that number plunged to Rs 2,010 crore. “We remain committed to our India business with a long term perspective to make ecommerce a habit for Indian customers and to invest in the necessary technology and infrastructure to grow the entire ecosystem,” a spokesperson for Amazon India said in an emailed statement.

Flipkart’s total investment in its marketplace, Flipkart Internet Services, pales in comparison at Rs 8,349 crore so far. The domestic ecommerce giant, in fact, hasn’t made any recent infusions into its marketplace. Instead, it seems focused on catching up with Amazon on the logistics side, given that Amazon has extensively increased the number of its delivery, or fulfilment, centres to 41 across 13 cities in India.

The SoftBank-backed company recently invested $257 million in its logistics arm eKart, after pumping in $147 million into the unit in September. Apart from Flipkart and Amazon India that are jostling for market leadership, Paytm Mall, which received $200 million from Chinese ecommerce giant Alibaba last year, is also increasing its spending.

“Spends on customer acquisition have gone up, so you could say the burn has increased,” said Paytm Mall chief operating officer Amit Sinha. The company is in the market to raise another Rs 4,000 crore from both new investors and Alibaba. Unlike Flipkart and Amazon India, which have focused on a controlled inventory model, Paytm Mall is betting on an online-to-offline model of collaborating with local stores. “Large capital is at play. India is too important a market to be ignored or given away by anyone. That said, more and more focus of spends is to target new customers, new geographies, and new categories,” Sinha said.

One category where competition is expected to intensify in 2018 is grocery, where Amazon India has established a beachhead with Amazon Pantry and hyper-local delivery service Amazon Now. Flipkart has said it will expand its grocery service to six cities, outlining this as a major focus area, while Alibaba and Paytm Mall are in the final stages of completing an investment in BigBasket, India’s largest online grocer. The aggressive spending by these three large online retailers is likely to affect business significantly for smaller ecommerce platforms, say analysts.

“I expect that in 12-16 months, many (online retail) companies will fold up unless they can get more capital,” said Arvind Singhal, chairman of retail consultancy Technopak Advisors, adding that Amazon India and Flipkart have reached a scale where their overall cash burn will reduce vis-a-vis their total revenues.