Amazon steps on the gas with aim to get profitable in India by 2018

Jayadevan PK November 15, 2016 3 min

Online retailer Amazon is planning to get profitable in India by 2018 and has set in motion a plan to gallop towards that goal.

At Amazon India, the plan is being referred to as “entitlement”, and the mission is to get the company to profitability at a unit level, even as it fights to dethrone Flipkart as the largest online retailer in the country. Profitability at the unit level means that each product sold on Amazon should be profitable in itself.

“This means a lot of decisions are driven with profitability in mind,” a person aware of the development told FactorDaily.

Amazon will continue to spend aggressively in India in the next six months, especially in the digital content space and on its Prime membership programme. Data on how Prime subscriptions — priced at Rs 499 a year in India — help Amazon is not available, but according to the company, it was the highest selling product in Amazon.in’s history during its festive sale between October 1-5.

Amazon’s loss in India was Rs 1,724 crores (~$ 257 million) for the year ended March 2015, according to company filings reported here. Its sales touched Rs 1,022 crore ($152 million) in the same period.

Amazon’s push in India has been pulling down its global margins. In October, the company reported a total loss of $541 million for the quarter ending September, that’s more than twice the losses in the same quarter last year.

This is the biggest operating loss that Amazon’s international business has reported in its history, The Economic Times reported. To be sure, Amazon’s worldwide operations have reported profits just six times since it listed in 1997.

At Amazon India, the plan is being referred to as “entitlement”, and the mission is to get the company to profitability at a unit level, even as it fights to dethrone Flipkart as the largest online retailer in the country  

Brian Olsavsky, the chief financial officer of Amazon, had said that the company’s investments in India contributed to the biggest chunk of losses in the quarter.

Though the company will continue to invest in India, it now has its sights set on its target of getting to profitability at a unit level by 2018.

The company has plans to push harder on private labels, such as Solimo and Symbol, brands it launched earlier this year. Solimo currently sells bath towels, cookware, electric bulbs and other such household items. Symbol is a clothing brand Amazon launched just ahead of the festive season sale.

Amazon and homegrown retailer Flipkart are locked in a fierce and bruising battle in India, a $600 billion retail market. This means spending more to gain consumers and keeping them happy. After a series of missteps, Flipkart seems to be getting into its act these past two quarters and that only means that things won’t be easy for Amazon.

The two retailers competed fiercely during this festive season. According to RedSeer Consulting, online retailers sold more than 65 million units worth more than $2.25 billion during the festive month of October. (Also read: Behind the scenes of Flipkart’s big billion day sales).

The US-based retailer had managed to wrest market share from Snapdeal to inch closer to Flipkart. As we’d written earlier, Amazon has earmarked $5 billion to invest in India.

               
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.