Amazon, faced with an “unfavorable” regulatory environment, struggles to develop in India – TechCrunch

Amazon lags its main rival Flipkart in India on several key metrics and is struggling to break into smaller Indian cities, according to a scathing report from investment firm Sanford C. Bernstein.

The US e-commerce giant’s 2021 gross merchandise value in the country, where it deployed more than $6.5 billion, was between $18 billion and $20 billion, lagging Flipkart’s $23 billion. , analysts said Tuesday in a report to customers obtained by TechCrunch.

India is a key overseas market for Amazon, where it competes with Mukesh Ambani’s Reliance Retail, which launched groceries on WhatsApp this week, Walmart-owned Flipkart, and social commerce startups, backed by SoftBank. , and DealShare, backed by Tiger Global. Amazon has so far offered “a weaker ‘new’ commerce proposition” in the country, the report adds.

The stake is one of the last great growth markets in the world. E-commerce spending in India, the world’s second-largest internet market, is expected to double to more than $130 billion by 2025. Amazon has tried to increase its presence in India by taking stakes in local companies and has also actively explored partnerships with neighborhood stores.

The company attempted to acquire Future Retail, the second largest retail chain in India, but was foiled by Ambani’s company. (Amazon has accused the estranged Indian partner and Reliance of newspaper ad fraud.)

Amazon’s recent spending on growth in India has also made its local division’s profitability prospects “elusive”, the Bernstein report adds.

“Amazon struggled to grow volumes in higher-margin categories such as fashion and BPC (beauty and personal care), while the inability to operate a 1P (inventory-driven) model limited the availability of private label brands over the competition, which puts additional pressure on margins. Amazon’s management attrition has also increased recently, potentially signaling challenges in achieving desired scale,” said said Bernstein, whose reports are highly influential and widely cited.

Amazon, like Walmart’s Flipkart, operates a marketplace business in India due to local regulatory requirements. It faces a wide range of other regulatory hurdles in the South Asian market. Marketplaces cannot have majority ownership of sellers on their platform. Amazon and Flipkart have reduced their stakes in their biggest sellers. Amazon had a majority stake in Cloudtail and Appario but reduced it to 24%.

A single seller cannot hold more than 25% share of a foreign-owned online marketplace. No e-commerce marketplace platform can require a seller/brand to sell exclusively on the platform. “He also cracked down on large discounts,” the report adds. Additionally, a new directive proposed by India’s central bank, if implemented, will impact Amazon’s buy it now, pay later offering, the report adds.

Picture credits: Sanford C. Bernstein

Other takeaways from the report:

  • Amazon is less competitive in the grocery and beauty and personal care categories.
  • Amazon India Prime’s membership offering is about the same as in the US in terms of entertainment availability, but the size of its logistics network pales in comparison (13 sq m vs 375 sq m) limiting the SKUs available for half-day delivery.
  • Amazon is lacking in terms of engagement metrics and download share. Flipkart was the leader during the festival season last year, capturing a 62% share while Amazon had a 27% share.

    Picture credits: Sanford C. Bernstein

    Picture credits: Sanford C. Bernstein

“With over 85% of our customers from Tier 2/3 cities/towns, shopping India’s largest selection in electronics, groceries, fashion and beauty, everyday essentials, etc., we are honored to be an integral fabric of daily life across India.. We pride ourselves in being a catalyst for the livelihoods and economic history of the India for small businesses and local stores, counting on us to go online,” an Amazon spokesperson said Thursday.

“Around 50% of our one million sellers come from Tier 2/3 cities/cities, and over 100,000 exporters sell to our customers, worldwide. We are excited by this momentum and remain committed to our promises to digitize 10 million MSMEs, generate 2 million jobs and enable cumulative exports of $20 billion by 2025.”

The story has been updated with Amazon’s response.

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