In FY 2015-16, Indian ecommerce industry’s revenue remained more or less the same as FY 2014-15 but the losses increased by 138% as per Kotak Institutional Equities’ report. The report studied financial data of 14 ecommerce players, right from online food ordering firms to marketplaces. 70% of the total losses jointly belong to etailers Flipkart, Amazon and Paytm.
The Past: 2015-16
All the big names witnessed a surge in revenue as well as losses. eBay India’s sales increased 3X but its loss climbed up from Rs 172 crore in FY2015 to Rs 262 crore in FY16. Flipkart’s losses increased by 110% and revenue increased by 153%. Amazon India’s losses and revenue both doubled.
The factors that contributed to these heavy losses in FY16 are:
High advertising spends
Funding discounts and freebies
Rising employee expenses
Expansion cost (building warehouses, investing in technology, seller initiatives etc.)
The Present: 2016-17
FY 2016 is long gone and we are in the last quarter of FY 2017. And according to industry experts, the present FY’s financial report card would also be filled with heavy losses. The contributing factors would include the abovementioned points such as deep-discounting model and marketing expenses. But implementation of revised FDI in ecommerce rules and demonetization would also lead to negative revenue.
FDI forced etailers to find new ways to dole out discounts to customers and also change their business structure. Before FDI, ecommerce biggies could freely advertise about their sale events and offer heavy discounts. But in this FY, they had to urge sellers to offer these discounts. Etailers with their own seller entities like Flipkart-WS Retail and Amazon-Cloudtail had to change their business strategies and bring in more seller entities.
Demonetization would also dominate the last two quarters’ sales figures in FY17. The cash crunch has temporarily affected the ecommerce sales but its impact would reflect in current FY’s total revenue and overall growth.
The positives in the report card could be low cash burn due to the pressure from investors, a good festive season, alternate sources of revenue like advertising & private labels, revised business model (PepperTap) and consolidation/acquisition (Flipkart-Myntra-Jabong).
The Future: 2017-18
The aftershocks of the demonetization drive would also be felt in FY18. But the game-changer might be GST, which is expected to roll out on 1st April 2017. Plenty of roadblocks and opportunities lie ahead for the Indian ecommerce companies in the coming year. Reluctant investors would also add to etailers’ woes. Let’s see how the players navigate through the various complicated mazes of the ecommerce industry.