Flipkart and Amazon may have doubled or even tripled their sales during the big bang festival sale event which ended on Sunday but analysts say that it has come at the cost of profitability.

The real winners in the dog fight between the two e-retailers are the customers who have benefited from deep- discounted product offers across categories.

Flipkart claimed to have created history for India’s smartphone market this year, when it sold 1.3 million smartphones within the first 20 hours of the category opening up for sale, which is twice the number of smartphones it sold in the same time period last year. Even Amazon claimed that smartphones led growth with a 2.5X increase over last year. Like in the previous years, smartphones were the largest selling category in value terms for both e-tailers, accounting for over 50 per cent of overall sales.

“E-tailers sell smartphones just because it is a topline grosser, they hardly make any money selling smartphones. Online marketplaces receive between 4 and 6 per cent commissions per transaction from smartphone brands, which is inclusive of shipping costs, payment gateway costs and marketing costs,” said one of the top offline mobile retailers in the country. The commissions further drop sharply to 2-3 per cent for selling brands like Xiaomi, Lenovo and Motorola for instance, in exchange for exclusive partnerships, where the brands sell particular models exclusively on these online marketplaces, he said.

Market strategy

While Amazon.in’s strategy of pumping in billions of dollars into acquiring new customers and aggressively growing its market share has been clear from the start, Flipkart’s strategy has been ping-ponging of late — from aggressively growing GMV when it was flush with investor funds to single-mindedly pursuing profitability when it was out of money and then back to chasing GMV, now that it has successfully raised fresh funds.

K Vaitheeswaran, author of Failing to Succeed– The story of India’s first e-commerce company , pointed out that all the pre-sales and post-sales claims such as GMV, number of smartphones sold, total number of sellers, new hires onboarded for the festival season, millions of sq ft of office space added, are simply vanity metrics intended to keep their investors and employees happy.

Elaborating, he said: “None of the e-tailers are aiming for profitability, they are going all out to spend the money they have raised very quickly to grab market share, so that they can raise their next round of funds and spend lavishly all over again. While Amazon is a publicly listed company that has other profitable businesses like Amazon Web Services and is willing to pump in money from its profits into India for the long term, Flipkart is far away from profitability and will get into a loop of raising more funds once it runs out of its existing cash, to keep up with Amazon.”

The problem is e-commerce companies in India have moved from pursuing a solid business strategy to a wing and a prayer, living in hope that they may emerge on top someday, he sums up. VCs are pumping in money into some of these companies to raise valuations with the sole aim of exiting by selling their shares to another investor at a higher valuation.

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