E-commerce companies are burning through hundreds of millions of dollars in India, offering deep discounts to shoppers on everything from smartphones to statues of Hindu gods in a costly battle for market share.
Amazon.com Inc. is facing off against local rivals bankrolled by global venture capitalists. Among them: Flipkart Internet Pvt., valued by investors at $15 billion; Jasper Infotech Pvt.’s Snapdeal, valued at $5 billion; and One97 Communication Ltd.’s Paytm, backed by China’s Alibaba Group Holding Inc.
The largest companies are racking up tens of millions of dollars in losses monthly, investment bankers and industry executives say, the result of markdowns, subsidized shipping and spending on infrastructure and technology as they seek a competitive edge in the world’s second-most-populous country.
Technology executives and investors who accepted the cash burn when they were trying to push Indians to shop online for the first time now find it hard to justify. India’s e-commerce market is expected to hit $11 billion by year-end, according to Goldman SachsGroup research, large enough—investors say—to be sustainable without discounting and sales.
India is big but relatively poor. Per capita income is about $1,500 a year. Total e-commerce sales in India last year were $4 billion—roughly equivalent to four days of online shopping in the U.S
Million-dollar burn rates in India aren’t viewed with the shock that they should be,” saidBejul Somaia, managing director of the India operations of U.S.-based Lightspeed Venture Partners LLC. Burn rates are a measure of how much cash is being spent to fund operating losses.
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