Amazon India’s Report Card Mixed, Profitability Elusive: Report
A Bernstein report says that India is one of the biggest overseas markets for Amazon and also one of its fastest growing with a best-in-class customer experience and large Prime customer base
A latest report suggests that Amazon’s performance in India has been largely mixed. It says that Amazon India’s growth has come at a high cost of over USD 6.5 billion invested to-date while profitability remains elusive.
A Bernstein report says that India is one of the biggest overseas markets for Amazon and also one of its fastest growing with a best-in-class customer experience and large Prime customer base. But this growth has come at a high cost of over USD 6.5 billion invested to-date and profitability has remained elusive for the e-commerce giant in the country (5-10 per cent EBITDA margins).
The report further elucidated that Amazon India is facing huge competition in fast growing categories, a weaker value proposition in ‘New’ commerce, limited traction in tier 2/3 cities, and an unfavourable regulatory environment for outsiders.
Amazon leads in core categories (consumer electronics, media) and has done well in Tier 1 cities with 5 million prime subscribers, while Reliance leads in eGrocery categories with 15,000 store retail footprint and a stronger 1P model. Meanwhile, Flipkart has maintained leadership in the apparel category with 2x size of the nearest competition.
The report also highlighted that newer players like Meesho (USS 5 billion GMV) are winning in the faster growing Tier 2/3 cities – where Amazon has struggled to gain traction given low pricing and ‘zero commissions’. This is mainly due to regulations that don’t allow for an inventory led / 1P model for a foreign entity like Amazon.
This hasn’t stopped Amazon from making bets into Shoppers Stop (fashion), More (grocery), and rumored stake in Ecom Express (logistics). But integration has been limited as the regulations do not allow for full control, said the report. Reliance has been able to take advantage of this as Amazon’s key competitor by scaling up its eCommerce operations (19 per cent of core retail sales) utilising its strong footprint of stores (15,000) and an inventory led model.
“Profitability remains elusive. India has a low Average order value (AOV) at USD 10. Besides growth-related investments, profitability has also been impacted by a higher mix of low margin product categories (e.g., smartphones with sub 5 per cent net margins),” said the report.
The report also observed that Amazon’s management attrition has increased recently, which could indicate difficulties achieving desired scale.