Alnoor Peermohamed, Business Standard

Bengaluru, 28 December 2016

The year 2016 will go down in history as a tumultuous one for India’s new economy companies that utilise the reach of the Internet to do business. The year started off on a low in terms of funding and valuations of start-ups, carrying over a sentiment of excessiveness from the previous six months.

It was a contrarian 12 months, with every expert under the sun saying that the fundamentals of the market — growing Internet penetration, increasing per capita income, a strong economy compared to a weak global market — remained extremely strong, yet companies riding on this wave were being punished.

This neglect from investors finally culminated when Sachin Bansal and Bhavish Aggarwal, two of the biggest poster boys for India’s start-up ecosystem, passed on the blame to foreign competition which came into the country with pockets full of cash. To their dismay, the red carpet treatment for foreign firms isn’t going anywhere, with Chinese big-daddy Alibaba planning to make an entry soon.

“My concern would be that 2017 may be a resurgence of aggressive pricing and discounting. It’s great for advertising and the media, but from the point of view of the sustainability of business, from the point of view of having a healthy consumer business ecosystem, you need a balanced approach,” said Devangshu Dutta, chief executive of Third Eyesight. “Just purely from a capital availability point of view and ability to spend point of view, Flipkart and Snapdeal would be at a bigger disadvantage.”

The year began with Prime Minister Narendra Modi’s big push for Start-up India with announcements of a fund of funds, incubation centres and promoting local start-ups across the country. But as the year came to a close, Modi’s move to scrap large value currency hit start-ups as business slowed across industries.

However, one bright spot was digital payment companies such as Paytm, Freecharge and Mobikwik which benefitted immensely from the move, with their user bases and the number of transactions on their platform going up in instantly.

Growth in digital payments, considered the backbone of e-commerce globally, could turbocharge the rest of India’s Internet ecosystem. Experts have dubbed 2017 the year of FinTech in India, with the government’s digital push helping grow and giving rise to secondary digital finance companies that deal in lending, helping consumers invest in capital markets and those that offer services to small businesses for handling the day-to-day running digitally.

Going into 2017, it is to be seen if the confidence in India’s start-up space returns. While angel investments have remained strong, the transition to Series A and further rounds needs to pick up steam. Consolidation in sectors such as e-retail, grocery delivery and food tech could give investors more confidence to return.

The focus on the scale will continue, however. “VC’s today are looking at how quickly can you add your first customer, your millionth customer and your 200 millionth customer. India is a volume game, if you do not get your 10 million customers in 6 months time they feel you have lost the game,” said K S Viswanathan, vice president, Industry Initiatives, Nasscom. 

(Published in Business Standard)

Richa Maheshwari, The Economic Times
Bengaluru, 27 December 2016

eBay India, one of the earliest online marketplaces in the country, posted a three-fold jump in sales in 2015-16. However, its losses widened to Rs 262 crore in FY16 from Rs 172 crore a year ago despite various costcutting initiatives.

The company posted revenue or income of Rs 392 crore for the fiscal 2015-16, according to its annual filing to the Registrar of Companies. It’s revenue stood at Rs 132 crore in the previous fiscal.

In comparison, Amazon Seller Services’ turnover for the previous fiscal rose 116% to Rs 2,217 crore, while Flipkart Internet’s sales increased 153% to Rs 1,952 crore during the same period.

These numbers are not earnings from actual goods sold on their portals, but transaction and listing fees from sellers and advertising revenue, which form an e-commerce site’s actual income. E-commerce firms charge sellers anything between 5% and 20% of the value of goods as commission.

“eBay is now playing defensive rather than strategic for some time as India is not a priority market for them. They have reconciled themselves as a small player and are now narrowing down their losses,” said Devangshu Dutta, CEO of consultancy firm Third Eyesight. 

“Investments by ecommerce giants Amazon and Flipkart have helped in expanding the footprint of the sector, especially of players with a small base like eBay,” he added.

The company declined to comment. “eBay India is a 100% subsidiary of eBay Inc and as a policy we don’t comment on country-specific financials,” said the official spokesperson of eBay India.

The company is now reducing its workforce in India by laying off engineers and data analytics professionals. Last Month, the company sent across an email to its employees in Bengaluru, saying, “We are also eliminating full time employee (FTE) and additional workforce (AW) roles supporting other domains in Bengaluru.

This is not a cost-cutting decision, rather, it is a decision to focus resources in locations with critical mass.” A copy of the mail seen by ETalso said that eBay will be hiring replacement roles at other locations particularly Shanghai and some in the United States. “A limited number of Bangalore based individuals will be asked to stay on for a transition period or offered relocation to the US.”

San Jose-based eBay bought local auction platform baazee.com for $55 million (about Rs 344 crore) to enter India in 2004, at a time when online retail was unheard of.

The company, however, lost its earlymover advantage in India to rivals Flipkart, Snapdeal and Amazon as these players took to investing heavily in customer acquisition by offering deep discounts. Last month alone, Amazon invested Rs 2,010 crore in its Indian unit, taking the company’s total investment in Amazon Seller Services to Rs 11,638 crore.

According to a Morgan Stanley Research released early this year, India’s ecommerce market will be pegged at $119 billion by 2020 against the earlier estimate of $102 billion, and the total Indian internet market size (including the online food-aggregation business) will grow to $159 billion from $137 billion.

(Published in The Economic Times)

Alnoor Peermohamed, Business Standard
Bengaluru, 26 December 2016

The contribution of private labels in India’s online shopping segment is expected to triple to around $5 billion in 2017 as e-tailers try to boost earnings and fill gaps in the market in high-margin categories such as fashion, furniture and home decor.

Private labels make up less than 10% of online sales today, or around $1.5 billion in value, largely driven by fashion retailers such as Myntra, Jabong and Koovs. Going forward, it is expected that this contribution could grow closer to 20% and will also be driven by high-value items such as furniture, according to RedSeer Consulting.

“What horizontal players are doing is they are consolidating buyers of unbranded products in electronic accessories and some few other categories and introducing products in those gaps,” said Anil Kumar, chief executive officer of RedSeer consulting. “This helps them earn additional margins where people really don’t care what brand they’re buying as long as the price is right.”

The largest of the horizontal players, Flipkart and Amazon, are launching new private labels to improve margins in commodity products such as electronic accessories. Flipkart recently launched Smartbuy, an umbrella brand for selling electronic accessories and home decor products, and plans a second brand next year.

Amazon, too, has its own private label Amazon Basics to sell electronic accessories and Symbol and Myx in the fashion space.

Rival Flipkart relies on subsidiaries Myntra and Jabong to drive private label fashion sales, with estimates suggesting around a third of the sales of the two brands being driven by fashion labels.

Amazon did not respond for comments and Flipkart said it was too early to comment as the private labels were launched this month.

With India’s e-commerce expected to grow by 60-70% in 2017, making it a $30-34-billion industry, a sizeable part of that will be driven by sales of private label products. The push for private labels largely comes from investor pressure on e-commerce companies to improve earnings and get on their way to profitability.

“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,” said Devangshu Dutta, chief executive at Third Eyesight.

Globally, Amazon has adopted the private label route, selling everything from groceries under its own brand to electronics such as Kindle tablets. While private labels will grow to contribute under 10% of sales on large platforms such as Flipkart and Amazon, smaller niche players will look at them more deeply.

As of today, online furniture retailers see over 50% of their sales being driven by private labels. Pepperfry and Urban Ladder, the two leading players in this space, almost exclusively sell furniture under their own brand names. In online fashion this contribution is 25-30% while for online groceries it is close to 20%, says RedSeer.

“One reason is that when you’re stepping into a gap in the market, there’s no competition so you are not forced to discount. Secondly, if you’re sourcing it directly and cutting out a brand, the cost of product development and marketing can be made by the retailer,” added Dutta.

(Published in Business Standard)

Sagar Malviya & Shambhavi Anand, The Economic Times
Mumbai/New Delhi, 21 December 2016

Amazon expects India to overtake Japan, Germany and the UK to become its largest overseas market, besides becoming the quickest to reach $10 billion in gross merchandise value in the company’s history.

It’s showing in Amazon’s performance already. Amazon Seller Services has more than doubled its revenues in the year ended March. It earns its revenues through commissions, advertisements and shipping fees that they charge to sellers.

“Being a third-party market has caused a lot of invention on our side. The team in India has been very creative on whenever they find a roadblock or something that has not existed in another country, they create it themselves, whether from delivery stations to working with small merchants,” Brian Olsavsky, CFO at Amazon-.com, told investors in October this year.

(Published in The Economic Times)

Sapna Agarwal, Mint
Mumbai, 14 December 2016

“In the future, India is the most important country for us. We want to invest and develop the brand in India,” said Frédéric de Narp, chief executive officer of Bally who took charge in November 2013 to turn it around. “Part of this turnaround strategy is the joint venture in India,” said de Narp, who is credited with the successful turnaround of American jeweller and watchmaker Harry Winston Inc.

Bally first entered India in a franchise partnership with Bird Group, which has interests in travel technology, hospitality and aviation. It had two stores in India, one at the Palladium mall in Mumbai and the other at DLF Emporio Mall. Both these stores have closed in the past two years. The partnership was ended earlier this year.

This time round the company has spent a few years finding the right partner and fine-tuning its strategy for India. “We have been working in developing this joint venture by developing the trust for the last few years,” said de Narp, adding that more importantly, the joint venture is with Reliance, a profitable company and a reliable retailer.

In India, Bally will sell its entire range across men’s and women’s footwear and accessories. The new store will be part of the brand’s global expansion which has seen the opening of two new concept flagships in Tokyo’s Ginza and Los Angeles’ Rodeo Drive this year. The joint venture will open four stores in Delhi, Mumbai, Kolkata and Chennai in the next 3-4 years, said Darshan Mehta, chief executive officer, Reliance Brands.

In its previous partnership, Bally which is part of JAB Holding Company, a privately held group known for its brands like Jimmy Choo, Krispy Kreme and Belstaff globally, “had underestimated the challenges in investing in India,” admits de Narp. “Franchise is a challenging model,” he added. De Narp is looking at investing this time to build a healthy and sustainable business in India.

To be sure, a majority of international retailers that have launched operations in India have come through the franchise route in the last 4-5 years, said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm. “Franchise model is a low-risk approach for a retailer who is not entirely sure about the market. It is about experimenting and exploring the market,” said Dutta, adding, “However, once they have committed they prefer to invest.”

(Published in MINT)