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Flipkart funding won't lead to discount war

News, 13 April 2017
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BENGALURU: Flipkart, the Indian e-commerce site, has raised $1.4bn in funding but industry observers don't expect the cash will be squandered on discounts and promotions and the CEO has highlighted private label as a major growth area.

Binny Bansal told Mint that "private label is an area where we are looking to invest in a big way".

"Margins are higher on private labels," he noted, an important consideration for a business aiming to report its first profits with the next two years. He also anticipated major investment in automation and artificial intelligence.

"We'll have razor-sharp focus on costs across the board," Bansal added, "whether it's on supply chain or marketing or pricing or on marketplace operations."

Flipkart is also expected to acquire rival Snapdeal, a development that would surely spell the end of the discount wars that were common a couple of years ago as the nascent e-commerce industry burned through investor cash in costly customer-acquisition efforts.

"Spending will be targeted towards adding more categories and building infrastructure," Satish Meena, forecast analyst at Forrester Research, told the Economic Times. "There will be discounts, no doubt, but it won't be like 2014."

The sector has matured significantly since then, as consumer trust grows and e-commerce businesses refine their offer.

"There is discounting," said an unnamed analyst, "but the propensity to spend more online has also gone up, driven by greater customer experience, better technology, greater cataloguing and improved supply chain and logistics."

The average order value increased 43% between 2015 and 2016 and now stands at around Rs 2,000.

The future for e-commerce platforms will be about spending 'smart' than spending big, the Economic Times suggested. "The focus is on high quality GMV which gives them better margins and better customer experience," explained Sujayath Ali, co-founder of fashion portal Voonik.

Data sourced from Economic Times, Mint; additional content by WARC staff

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