BANGALORE: Jeff Bezos said he will spend $2 billion (Rs 12,000 crore) to grow Amazon's online retail business in India in what amounted to a dare to Indian market leader Flipkart which only on Tuesday announced raising $1 billion in funding from a bevy of global investors.
This is the strongest indication by the Seattle-based Internet entrepreneur of his intent to battle for top honours in the Indian online retail market where Amazon is on track to record sales of over Rs 6,000 crore in just over a year of operations.
"We've never seen anything like this," said Bezos, the founder and chief executive officer of Amazon. "After our first year in business, the response from customers and small and medium-sized businesses in India has far surpassed our expectations," he said in a statement on Wednesday.
By making this announcement within a week of Amazon declaring a loss of $126 million on revenue of $19.34 billion in second quarter of 2014, Bezos is seen to be signalling in no uncertain terms his commitment to grow his business in India after having failed to make inroads in the Chinese online retail industry dominated by Jack Ma's Alibaba Group.
We see huge potential in the Indian economy and for the growth of ecommerce in India. Our team can continue to think big, innovate, and raise the bar for customers in India," he said. Experts said Amazon's salvo is a clear message to competitors that it does not want to play second fiddle to anyone. "They want to be seen as a leader, not as a challenger," said Arvind Singhal, chairman of retail advisory Technopak.
Flipkart, which is now also backed by Singapore's sovereign wealth fund GIC in addition to existing investors like South Africa's Naspers and Tiger Global Management who led the latest round of funding, has now received over $1.7 billion in risk capital funding.
Thirty-two year old Sachin Bansal, Flipkart's chief executive officer, said his company, which investors have valued at $7 billion, will use the latest round of funding to "shape the market in a way that we want." The Bangalore company is expected to splurge money on more discounts for customers, make acquisitions, beef up its logistics network and build out greater capability in mobile and payment technologies. "We are confident that as a local entrepreneurial company, Flipkart has the advantage of being on the ground and better connected to the market we serve," said Bansal.
Amazon's aggression is already apparent - it now sells over 17 million products across 28 categories and hosts 8,500 merchants on its platform -- and that is expected to only increase. Earlier this week it opened five more warehouses, almost doubling its storage capacity to over half million square feet. "From day one, our ambition has been to be India's most customer-centric company," said Amit Agarwal, vice-president and country head of Amazon.in. Investments in product categories, logistics, increasing seller base and in mobile technologies will increase, according to the 40-year-old Amazon executive who reports directly to founder Bezos.
The all-out war in the Indian online retail space is increasingly being fought on the mobile platform. Amazon said about 35 % of all sales in India come through mobile devices while Flipkart and Snapdeal claim that nearly 50% of all transactions are on hand-held devices.
By stepping up to tell the world about Amazon's progress in India, Bezos wants to assure customers that his company is here to stay while at the same time declaring war on his rivals, primarily Flipkart.
"It is abnormal for Bezos to talk about numbers. He never talks about investments or top line. This shows how important India is to Amazon. This is completely new," said a senior executive at a consumer internet company who until last year was employed at Amazon. "He wants to show that if Flipkart spends one dollar, Amazon will spend two."
At present, Amazon is believed to be running neck-to-neck with Snapdeal, with both companies having sold about $600 million (about Rs 3,600 crore) worth of products this year so far, with an aim to clock sales of $1 billion this fiscal, according to several people privy to the firms' financial details.
Flipkart, which notched up gross sales of $1 billion in March, is expected to close this fiscal with sales of $3 billion (Rs 18,000 crore). All top etailers in the country have been running continuous deep discounts, up to 85% in some cases, for the past few months. "In the short term the discounting game could get more aggressive. This will be good for customers but not for smaller competitors," said Aashish Bhinde, executive director of digital media and technology at investment bank Avendus Capital.
Many of the single-category companies in segments like babycare and furniture could become acquisition targets for Flipkart and Amazon, both with vast sums of money to spend. "With the game becoming big enough, we may see large domestic conglomerates such as Tatas and Reliance getting into it soon," said Harminder Sahani, managing director of retail consultancy Wazir Advisors.
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