Ecommerce companies can’t afford to be mindless spenders anymore. Government bodies and tax authorities are coming hard on those who fund discount war and investors are tightening their purse strings & demanding ROI.
Therefore, Indian etailer Flipkart has decided to cut down on expenses with gross profit in mind. Especially since after 4 months, the 2016 great Indian festive season will start.
Kartik Hosanagar, Professor of Technology and Digital Business at The Wharton School of Business asserted,
“It is a much-needed move. A lot of the investors in Flipkart are concerned by the amount of money the company is bleeding and everyone is seeking a path to being break-even positive. Flipkart’s recent valuation markdowns reflect both the margin issues and competitive pressure.”
Measures taken by the ecommerce biggie
The company has decided to slash its cash burn rate by half and bring it down to 50% from the current rate, which is $50 million per month. The goal is have positive gross profit before the mad rush of festive sales begins. And they plan to achieve this by:
- Salary increments will be limited to 10%
- Category heads advised to reach profitability and the categories not performing well will be shut down
- Sales and customer experience targets allotted with September 2016 as deadline
- Funds used for business expansion to be reduced by half
Multiple sources confirmed Flipkart’s cost-cutting developments,
“Increments have largely been capped at 10%, barring some technology teams where it is driven by variable targets. The next six months will see new developments, including some categories being shut down.”
Hope pinned on logistics and advertisement business
Ekart’s recent tie-up with Paytm is an indicator that the ecommerce leader is counting on its subsidiary businesses to reach profitability. The company also hopes that new & emerging product categories such as furniture, and large appliances help them to remain cash positive.