Amazon’s losses continue despite increase in sales

Just when the race to supremacy in the ecommerce world was getting intense, Amazon has expressed a chance that it may withdraw operations from Indian market. This is as a consequence of hazy government laws surrounding ecommerce in the country. Be it taxation, warehousing costs or FDI – the rules either don’t exist or are likely to change not in favour of marketplaces.

 “There are substantial uncertainties on the interpretation of China and India’s laws, and is possible the government will take a view contrary to ours,”Amazon said in a regulatory filing to the US Securities and Exchange Commission (SEC).

The firm added, “Our Chinese and Indian businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or if China enforces contractual relationships with respect to the management and control of such businesses.”

Though Amazon believes that its marketplace model is compliant with the existing laws, it can’t be sure about the same in the near future. Amazon would rather not incur financial losses that would result from the revocation of licenses, or from being fined, in case it was found to be violating Indian laws that would finally come into practice.

Amazon’s fears are not baseless, considering their losses increased from Rs.24.6 crores two years back to Rs.321 crores despite a 50.2% increase in sales. Amazon, which lost out to Alibaba in China, amplified its investment in India from  Rs.200 crores earlier to Rs.1500 crores. This announcement comes as a surprise after the CEO Jeff Bezos visited India, promised almost $2 billion investment in the country, and showed encouragement to his Indian employees.

Flipkart.com reported a revenue of Rs.179 crores, marginally more than Amazon’s Rs.169 crores.  Flipkart India Pvt. Ltd, reported the wholesale arm’s sales were Rs.2846 crores, double that of last year. Amazon’s wholesale revenues were not made available. Since Flipkart reported losses of about Rs.400 crores, which is double their previous year’s loss, Amazon isn’t doing too bad. Snapdeal’s net loss is slated at Rs.246 crores, and thus the combined losses of the Indian ecommerce market are over Rs.985 crores.

“At this moment, most companies are building market share rather than having a phase of harvesting their business model. Lots of money is being spent on building share and cost of acquiring customers has certainly gone up since last year,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. “In addition, online players are investing by building supporting infrastructure, which in turn affects profitability.”

Interestingly, reliable sources say Amazon has approached the government of Gujarat to plan a new fulfilment centre in the state. This would be an addition to its current count of 7 fulfilment centres around the country – Mumbai, Bangalore, Delhi, Chennai, Jaipur, Ahmedabad and Tauru near Gurgaon. This is a welcome move and sources say it would boost employment in a state that has world class infrastructure and industry friendly policies.

Now we wait and watch the drama unfold as the competition gets too tough for all, and too tough to handle for some.