Increased investments crank up losses for Amazon, but company confident of growth

US based marketplace Amazon has witnessed a growth in its losses. Based on a filing with the Registrar of Companies (RoC), the company has recorded a loss of Rs. 3,572 crores (from Rs. 1,724 crores last year). Thankfully, its income has also gone up from the figures of 2015. Its revenue stands at Rs. 2,275 crores (from Rs. Rs 1,022 crores).

Amazon Seller Services, the service wing of the company, has also notched up losses to the tune of Rs. 300 crores per month. Its revenue went up to Rs. 2,275 crores.

Its main nemesis in India, Flipkart, has recorded a revenue of Rs. 1,952 crores, and a loss of Rs. 2,306 crores for the year ended 2016.

Courtesy: Livemint

Increased losses due to investments this year

Amazon has pumped in sufficient funds to its India operations this year. It put in Rs. 160 crores into its wholesale business, Amazon Wholesale, and Rs. 2010 crores into the retail wing.

In the filing, Amazon said,

“The company has invested in establishing infrastructure, opening new fulfilment centres and technology advancement due to which the company’s losses increased to Rs3,572 crores.” It has more plans ahead, “The company is also investing on launching new products and new services for its customer and its sellers. The company is confident on its future growth.”

Taking the offline route

In a twist in the tale, Amazon is considering clearing its stock through its physical store partners. The company has requested its sellers with stores to sell Amazon exclusive smartphones through their stores.

This is a safe route for the company, feels the head of a cell phone chain, citing anonymity,

“Amazon has plans to invest significantly to expand its offline distribution. For the online-exclusive brands, it’s a winning proposition since they don’t have to spend much money on creating infrastructure for warehousing and offline distribution and yet get immediate sales.”

Not everyone is keen on this. According to another anonymous seller,

“Several online-exclusive brands do not have extensive service network, which could become an issue considering the fact that consumers would come back to us if they do not receive proper service support.”

Will 2017 bring fewer losses, more revenue and a hint of profits for Amazon? The company is definitely taking the necessary measures for it.

Amazon being sued by Flintobox for wrongful keyword usage?

Amazon hasn’t received much love from quite a few sellers either in terms of seller support and brand authorization. They feel the marketplace does whatever it pleases without looking at the interest of its sellers.

This time it’s words that have gotten Amazon into severe trouble. The online marketplace on Tuesday morning was sent a ‘cease and desist’ notice on account of deceitful diversion. Flintobox, a child development startup filed a legal suit against the ecommerce company stating that it has unlawfully used their brand name of their company as a keyword to direct traffic to their online website.

The firm’s lawyer claims this move is an act of deceitful diversion under the trademark laws and is even prohibited under the AdWord policy of the Google search engine.

Amazon has been doing this for a really long time

According to the Chennai-based company, Flintobox claims it had reached out to the etailer in July regarding this issue then in October as well. In response, the online marketplace kept sending ‘template answers’ across.

“We had to start a social media campaign against Amazon because the company was not responding. The decision to go legal is also one taken when few alternatives were in view,” said the co-founder of Fintobox, Vijay Babu Gandhi.

As a result, Flintobox is suing the online retail platform for damages worth Rs.10 lakhs.

An Amazon representative stated, “Our automated systems pick keywords based on what users search and buy, Amazon follows all copyright and trademark policies. We have paused all our ads mentioning the Flintobox brand and variation of the same in our ad copies on Google.”

Verdict from experts

Search engine optimisation technicians and intellectual property law experts say that the Amazon uses is an automated system that decides which phrase to bid for on Google to boost traffic.

“I would assume that many people had searched for Flintobox on Amazon, and, may be, a real-time bidding tool for Google AdWords had picked it up as a keyword, not realising it was in fact a brand name,” said Antony Kattukaran an entrepreneur who has built a search engine optimiser.

The President of National Intellectual Property Organisation, TC James mentioned, “While I would not comment on this particular matter, generally , in the case of an unintentional infringement, as in the case of a software-driven bidding process, then there could be many extraneous factors that may come in determining the judgement.”

Trademark law experts say the law protects everyone against infringements equally. Even virtual entities. However, in the above case, the use of software to generate keywords makes the whole situation a lot more complex.

Is TDS Reimbursement from marketplaces a tedious task for sellers?

When the proposal to float GST Bill was initiated by the Finance Ministry, ‘TDS’ (Tax Deducted at Source) also became the centre of attention. While online marketplaces didn’t want the burden of TDS on them, seller associations were happy that it would bring in more accountability. This also resulted in a heavy discussion & confusion over it. Hence, Indian Online Seller (IOS) published a detailed article on why online sellers should care about TDS, which helped many merchants to understand the basic concept and their tax liabilities.

With the basics taken care of, sellers thought that the hard part is over. But many have realized now that the process of getting TDS reimbursement from marketplaces isn’t as easy as they thought.

The process followed by ecommerce firms

If you drop by at IOS regularly, then you must have read the report on how Flipkart refused to refund sellers’ TDS. The etailer informed sellers that due to delay in filing the claim, they won’t be able to reimburse the TDS amount for FY 2015-16. But sellers cried foul and said Flipkart is manipulating deadline and facts to cheat sellers.

Since then Flipkart has sorted out its process; at least according to online seller Karan Duggad. He reveals to IOS that Flipkart’s TDS reimbursement process is very easy. Besides the Bansals-led company, Snapdeal and Amazon have also made it easy for sellers to claim the refund. But Paytm and Craftsvilla still lag behind.

Speaking about Craftsvilla, Duggad says,

“Craftvilla’s process is very poor. They will not pay if you are late for the quarter, which will surely happen with the small vendor.”

And on Paytm he shares,

“Paytm has complicated the TDS reimbursement process. And ultimately don’t pay. They will ask many questions and invoices. And I believe if you do not have a dedicated person for the reply (then) you have to forget the tds payment!”

The process followed by Amazon, Snapdeal and Flipkart is very similar to each other. Here it is:

1. The etailers first request the sellers to pay the TDS to the Government against the commission and other fees charged

2. Then sellers are asked to get hold of the Form 16

3. After this, sellers are asked to contact seller support team, create a new case for the reimbursement and attach a scanned copy of form 16/TDS certificate

4. In case of Amazon, sellers need to contact the support team through their panel

5. In case of Flipkart, sellers can send the TDS certificate to its team via email or direct mail

6. In case of Snapdeal, sellers can click the tab directly on its seller panel and claim TDS refund

7. After reviewing the claim, the marketplaces reimburse the TDS amount in the impending payment cycle, if the claim is approved/accurate

This a standard process followed by most of the ecommerce companies. What’s complicates the matter is the unnecessary demands of few of the online players.  Like Duggad mentions above, Paytm and Craftsvilla make it difficult for sellers to claim their refund by asking for a host of invoices/documents or manipulating the cut-off for filing request like Flipkart used to do.

The Problems

Two of the most common problems related to this issue that sellers struggle with are:

• Online marketplaces not disbursing the TDS amount on time

The TDS amount that a seller is supposed to get runs into thousands and sometimes lakhs of rupees. This money is crucial to maintain the working capital balance of every seller’s business. More so, for small sellers who don’t have much money in hand. Therefore, a delay in reimbursing the amount can prove to be detrimental for small vendors’ businesses.

Online marketplaces have billions of funds in their account to absorb losses. But vendors can’t sustain without working capital even for 3 months and hence they are often forced to take loans.

• The ambiguity over TDS categories for ecommerce

According to online seller Ankit listed on sellers’ body All India Online Vendor Association, the different TDS categories for ecommerce are:

1. 94C: contract – shipping charges, logistic charge paid to online marketplaces and advertisement charges paid to online marketplaces at 2%
2. 94H: commission/brokerage – all commission paid to market place at 10% up to 31st May 2016 and at 5% from 1st June 2016

According to Ankit, the problem starts when the nature of transactions mentioned in the online marketplaces’ invoices fall in different categories. To support this fact, he explained that while Amazon’s business support fee falls under 94H, Flipkart’s shipping charges comes under 94C. This applies to almost all the players, which causes a great deal of confusion.

What can sellers do?

Until the GST Bill comes into full effect or marketplaces fine tune the TDS reimbursement process at their end or proper ecommerce centric laws are in place, sellers please wear the responsibility cap and do the following:

• Keep all the invoices and maintain records for payment reconciliation

• Make note of the deadline and file the claim on time so that marketplaces’ have no excuse to reject your claim

• Pay TDS on time to the government so that you can get the TDS certificate as and when required

• Reach out to your personal tax advisor, chartered accountant or hire one to understand the various criteria for filing TDS

• Don’t give up on your money; pester online marketplaces until you get your rightful TDS payments

• Use a third-party’s service to do all the above on your behalf

Please comment below, if you have more tips and tricks for other sellers.

2016 was mellow year for online retailers; will private labels bring profitability in 2017?

The year 2016 would be remembered as the year when the inflated valuations of ecommerce unicorns and start-ups came crashing down.  Amidst series of devaluations and funds drying up, etailers realized that only positive results would attract investors and help them to sustain in the ecommerce industry.

Experts also blame demonetization for the sluggish ecommerce sales ($14-14.5 billion) in 2016, though it came into effect only in the last two months of the year.

Rahul Chowdhri, partner at Stellaris Venture Partners put the entire blame of ecommerce slowdown on the government’s move to ban high denomination notes by saying,

“The overall e-commerce and retail market did grow during the first half and till the October-December quarter—but demonetization has hit businesses very hard. And that is resulting in lower-than-expected numbers and is a big reason why (the market) has remained flat.”

Amazon disagrees

IOS reported how ecommerce projections went down post-demonetization. Industry watchers and research firms have predicted that the impact would last till April-May 2017. So 2016 will not only end on a mellow note for the online retail industry, but the beginning of 2017 would be slow too, according to analysts.

But ecommerce giant Amazon India holds a different opinion. The marketplace’s head Amit Agarwal said,

“I feel when you have 97% of pin codes place at least one order (Amazon saw people from 97% of all pin codes in India place at least one order in its October sale), I haven’t seen any other industry have that kind of penetration in such a short time. I see 1,500 new sellers breach the Rs1 crore club, it shows that the growth is prevalent on the platform and not just limited to a few people.”

Can private labels come to the rescue of troubled etailers?

Another prediction for 2017 is that private brands of online marketplaces and niche players would transform into a $5 billion empire in 2017.

Both the top players Amazon and Flipkart have launched a range of its own labels as it is their next battleground. Beauty etailer Nykaa too is counting on private label to increase FY 2017-18’s revenue. Fashion etailers Jabong and Myntra has long relied on their own brands to become profitable because of the high profit margins. Big Basket and Urban Ladder also follow the same route.

Devangshu Dutta, chief executive at Third Eyesight reiterated the high-profit margins factor as he stated,

“Given how the market is at the moment, where there is pressure from investors who have been asking about profitability or a route to profitability, products that earn additional margins are going to be a focus.”

This is why ecommerce players are focusing on this strategy. However, would it be enough to increase the sales in 2017? Would the demonetization effect stretch till the first and second quarter of 2017? And if the experts are right, then what does it say about the ecommerce industry where 2 months of drop in sales overpowered the 10 months of growth that includes the festive big fat festive season?

Flipkart dig deeper into online fashion; niche fashion etailers’ losses climb up

Indian etailer Flipkart had gained a considerable advantage by acquiring fashion etailer Jabong in July this year. Many feared that the Flipkart-Myntra-Jabong trio would shake the ecommerce world like no other. The home-grown etailer too had hoped for the same. But demonetisation temporarily derailed its plan. In addition, fashion is a difficult category to crack due to high returns.

According to Satish Meena, analyst at Forrester Research,

“Fashion is very expensive for ecommerce companies as there are a lot of returns and orders that are cancelled… Demonetisation has hurt Flipkart more than Amazon India as they were building momentum on festive season sales.”

Flipkart getting ready for 2017-2018

Despite the many set-backs and slow-down in sales, the home-grown etailer now is sharpening its claws to win the online fashion market in 2017. As the year comes to an end, Flipkart is all set for FY 2017-18 and finally use its fashionable advantage.

Flipkart’s CEO Binny Bansal affirmed,

“In March, we will be in an extremely good growth momentum, going back to 40% year-on-year growth and then accelerating over the next year. We will be getting into fiscal year 2018 with a growth tailwind, while we entered FY17 with zero growth.”

Industry watchers believe that the overall ecommerce market will stay dormant until March due to cash crunch and would pick up only in April, once the situation improves. But Flipkart is positive about its growth in the fashion category.

Speaking about their dominance, Kalyan Krishnamurthy, Head of Category Design Organization at Flipkart revealed,

“It’s been a year of defensible and capability-driven growth. In fashion we have become a very clear destination in India with about 75-80% market share, so we don’t compete with anybody there online.”

In the war of Flipart VS Amazon, niche fashion players losing money

Close to 80% of the online fashion market is in Flipkart’s palms. Amazon India too is busy building its fashion squad. In this Flipkart VS Amazon ecommerce war, many small online fashion players are piling on heavy losses.

According to reports, the losses of fashion etailers Craftsvilla, Koovs, LimeRoad, StalkBuyLove, Voonik, and Zivame increased considerably in FY 2015-16. Their collective losses amounted to Rs. 515 crore, compared to Rs. 134 crore in FY 2014-15. Although, the firms’ revenue too doubled.

Niche players are losing the game because they don’t have the funds to fuel discounts and increase marketing spends like the ecommerce biggies Flipkart and Amazon. To increase their visibility, the niche etailers are spending more than the previous years but it is still not enough to compete with the leaders.

Opinion is divided on if there’s room for small fashion etailers or not. Few say that there isn’t because firms like Voonik and others can’t match Amazon and Flipkart’s spending capacity. And few believe that the top players are not focusing on profitability and investors will eventually pull out. On one side we have Amazon that’s pouring millions into its India business; on the other side we have Flipkart’s frequent devaluations that show investors’ lack of trust. Which side do you believe in – can niche fashion players survive or will ecommerce biggies drown in heavy losses?

Flipkart sellers requested to update e-sancharan credentials to avoid restricted serviceability

A week ago, IOS informed you about Flipkart’s move to make logistics forms available on the online marketplace seller portal. The logistics forms for e-sancharan (form 38) introduced on the portal cuts out additional steps in obtaining them.

This week we received a tip that the online marketplace is has made it mandatory for online sellers to update their e-sancharan credentials in order to avoid restricted serviceability.

In an email to online sellers, Flipkart informed them that form 38 has been made mandatory by the Uttar Pradesh Commercial Tax Department. This means without the form sellers will not receive returned orders. They will remain stuck at the Flipkart hub.

The etailer wrote, “If credentials are not provided…your serviceability will be restricted and you will not be able to receive orders from outside of Uttar Pradesh, which might impact your Big Shopping Days performance as well.”

How to update e-sancharan credentials on the Flipkart seller portal

Step #1 – Go to the ‘Manage Profile’ option on the panel.

Step #2 – Now select the ‘Add’ button near ‘logistics setting’.

Step #3 – Select the state ‘Uttar Pradesh’ then enter e-sancharan details.

There is a clause however to this e-sancharan requirement, online seller Maynak comments on our previous article on the subject. Take a look at it here

Grofers’ modified delivery model sinks losses & boosts revenue; Here’s how

 

Grofers is a leader in the online grocery industry along with its rival BigBasket. The etailer’s revenue shot up in July this year but unfortunately so did its losses. To keep from continuing down its loss making path the online grocery company decided to change its delivery model. The announcement about this change was made by the etailer’s CEO Albinder Dhindsa.

Bring down losses by 30%

Four wheelers have replaced two wheelers as a mode of delivering orders. This move has helped elevate delivery capacity by 10%. In Gurgaon, the firm has only 20 delivery persons driving around in four wheelers to make daily deliveries. In July 74 delivery persons would take on 800-1000 daily orders.

So the simple switch helped bring down losses by 30%, Albinder claims. Until July this year Grofers was making losses of up to Rs.7.2 crores. Now, the losses have reduced to Rs.5.1 crores per month.

Increase in profit margins

“Our margins too have increased to 18%. Also the average order value which till July was R750 has gone up to R1,000 now,” Albinder says.

For Grofers on a daily basis it receives around 13,000-14,000 orders a day with an average ticket size of about Rs.1,000. And, the top 11 cities contribute to 85%of its orders.

A few more tweaks

From now on the e-grocery company’s CEO plans to focus on developing its delivery capacity in the different localities it caters to.

The online grocery company has ended its same day delivery facility for most orders. In its place consumers can apply for following day delivery. At the same time an express delivery service is available to Delhi, Mumbai and Bangalore city dwellers.