Oh, how changes in the government’s diktat can fell even the mighty. Going by the reports today, it looks like Amazon India’s wholesale unit has found that out the bitter way.
According to regulatory documents sourced from business intelligence platform Tofler, the revenue of Amazon India’s wholesale unit fell a massive 70% YoY in the fiscal year ended March 31, 2020. Mustering a revenue of Rs 3,387 crore in FY20, the loss is of drastic proportions, seeing as revenue totalled Rs 11,250 crore the year previously.
Even though the losses at Amazon Wholesale (India) showed a marginal decline of 5%, they still chalk up to Rs 133 crore YoY. All the figures, which have been collected in the first fiscal year since the FDI guidelines came into effect in Feb 2019, also point to other factors that seem to have had a significant hand in the nosedive.
Press Note 2 the reason?
The heavy decline in revenue is attributed in large part to a change, specifically the Press Note 2 introduced in India’s Foreign Direct Investment (FDI) diktat. The rules, introduced by the government with a view to level the playing field between online and offline retailers, got the nod on Dec 18, before being brought into effect got in Feb 2019.
Going into the fundamentals of the rules, they disallowed sellers on e-commerce marketplaces from purchasing more than 25% of their goods’ value from entities related to the marketplace. Restricting online marketplaces from control over the inventory of sellers, they also prohibited e-commerce players to hold a stake in any seller on their marketplaces.
As a result, Amazon had to cop the effect of the blow, having to make structural changes in order to comply with the government’s imposed Press Note 2 regulations. Even though CFO Brian Olsavsky had come out assuring investors that the company was mitigating any ill effects, the wholesale arm still suffered from enough downtime to see its revenue stumble so spectacularly.
Despite such foreboding stats, the company was upbeat about its future plans. Citing that the drop in revenue could also be linked to lower customer adoption, they hinted that several sellers being forced to cut their purchase from Amazon Wholesale to satisfy the new regulations also resulted in the dip in revenue.
The hint is surely directed at two of the biggest sellers on Amazon last year in Cloudtail and Appario. Both the sellers had to engage in restructuring their shareholding due to the new rules that bar any ownership of any vendors that sell on the group company’s marketplace. Also, because of Amazon’s equity stake itself.
How the rivals fared
Looking on the other side of the fence, the rivals’ in fact enjoyed a much pleasant outing on the revenue front.
Flipkart’s wholesale arm for starters, saw revenues rise 12% in FY20 to Rs 34,610 crore. Moreover, the company was also able to bring down losses to 18%, or by Rs 3, 150 during the same fiscal year.
It should be noted that rival Flipkart is one who has been making aggressive moves in its wholesale business, as is proved by the acquisition of the business of Walmart India, which operates 28 B2B Modern Wholesale Stores under the brand name of `Best Price’. This is in addition to launching Flipkart Wholesale to compete among the best in class, and eating up the revenue of Amazon Wholesale and the like.
As such, it will be interesting to see how Amazon Wholesale emerges from this debacle. Whether the plummet was down to the government’s tightening of norms for online retailers having a formidable stream of ammo, or cut by its own failures, is theirs to prove now.
Stay tuned for more such updates.