Amazon, Flipkart Sales Down By A Third, Lost $50 Bln In Three Days

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The new FDI policy which kicked in on Feb 01, 2019 has applied brakes on the Indian e-commerce juggernaut spearheaded by Amazon and Flipkart.

Since the new FDI rules came into place three days ago, sales at Amazon and Flipkart have already dipped by nearly 30%. Together, the two have reportedly lost more than $50 billion in market cap. While Amazon took the biggest hit by losing $45.22 billion, Walmart lost $5.7 billion. The share prices have fallen by 5.38% and 2.06% respectively.

The new set of rules is being seen as a move to appease small Indian traders ahead of the upcoming elections in May 2019. As per these new rules, e-commerce companies are now forbidden from entering into exclusive selling agreements with their vendors, holding business interests companies of their vendors and offering deep discounts and/or cash paybacks. They are also banned from exercising ownership or control over inventory and bound to provide warehousing, advertising and logistics services to all their sellers in a fair manner.

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To ensure compliance, both the platforms have already started affecting changes. They have both pulled product listings from their joint venture and preferred sellers from their respective sites which together account for 70% of India’s online retail sales.

Visible Changes Across Amazon and Flipkart so far

Experts had earlier warned of “significant customer disruption” in the wake of implementation of these new rules. Making their worst fears come true, online shoppers in India now stare at capped inventory, leading to fewer selections, higher prices and longer-than-usual delivery time.

The new rules have already caused huge ripples across the websites of both Amazon and Flipkart which are now grappling with ground reality.

Amazon has been forced into taking down its key grocery service Amazon Pantry in which it holds an indirect equity stake, though the grocery items can still be purchased individually. It has also led to the disappearance of products from Shoppers Stop in which it had acquired a 5% stake in 2017.

A huge array of products from Cloudtail (Amazon’s owned vendor) has already been missing since Friday. This includes their Echo smart speaker, Fire TV Stick and Kindle devices. Flipkart and Myntra continue to sell through alpha-sellers like RetailNet, SuperComNet, India Flash Mart, Omnitech Retail and Trunet Commerce, but with lower discounts.

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“While Amazon has voluntarily shut down Cloudtail and Appario, Flipkart hasn’t made any such changes,” said Kush Agarwal, a member of All India Online Vendors Association (AIOVA).

More products might be taken off in the days to come. Almost half the products listed on Amazon.in could be wiped out, according to Satish Meena, an analyst at Forrester Research Inc.

The Sentiment Underneath

It is obvious that the sheer volume of the Indian market and the rosy forecasts by various marketing agencies make it a very lucrative destination for foreign investors.

At present, the companies are left with no choice but to comply with the new rules but this is bound to affect the foreign investor sentiment in the country.

Nearly 35-40% of e-retail industry sales, amounting to $4.89 Bn – $5.6 Bn (Rs35,000 cr to Rs 40,000 cr) could be affected, points out a Crisil report.

The two US giants who bet heavily on the Indian market have already been jolted. Jeff Bezos led Amazon has already committed to invest $5.5 billion in India. After the new FDI rules have come into the effect, the affected sales may force Amazon to revisit its investment strategy in India.

 

They, however, continue to see India as a good long term opportunity, in spite of the ‘fluid’ situation at present. Brian Olsavsky, Chief Financial Officer at Amazon, confirmed this.

The other biggie Walmart Inc. who had spent an astounding $16 billion to acquire Indian platform Flipkart only last summer while scaling down its holdings in Brazil and Britain, however, expressed disappointment with the Indian government’s hasty implementation of changed rules. While admitting that they would be required to do “significant work that is required to change our supply chains and systems,” the company has pledged its commitment to compliance.

“We are committed to doing everything we can to be compliant with the new rules,” Flipkart India executive Rajneesh Kumar said in a statement.

The companies which were earlier enjoying revenue growth to the tune of 25-30% earlier might see it halve to 15% in the coming months, according to Arvind Singhal of consultancy Technopak Advisors Pvt, estimates.

“It will be at least six to eight months before they are able to find workarounds and restore listings,” said Singhal, the New Delhi-based chairman for Technopak.

it is obvious that besides doing a lot of work to become compliant with these rules, the two will also now face a stiffer challenge from brick and mortar stores, in addition to the Indian conglomerate Reliance who is now eyeing the huge Indian e-commerce market by creating a platform alongside its Jio wireless service. India’s largest private company looks all set to become the biggest omnichannel retailer soon by giving its almost $300 million telecom subscribers the chance to ‘access a bundle of financial, education, entertainment and retail services on their phone’s Jio app.’

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