Flipkart posts over Rs 2,000-crore loss in discount war & Big Billion Day Sale

MUMBAI: Flipkart posted a loss of about Rs 2,000 crore in the year ended March 2015, amounting to a fifth of its rapidly rising sales, as the country’s largest online retailer spent heavily to fund discounts to win customers and stay ahead of rivals Snapdeal and Amazon India while investing in back-end operations.

Flipkart Internet, which runs the consumer-facing portal, registered a net loss of Rs 1,096.4 crore, while that of Flipkart India, the wholesale arm, was Rs 836.5 crore, according to a Registrar of Companies filing on Monday. A year ago, the units had a combined loss of Rs 715 crore. Combined sales trebled to Rs 10,390 crore as reported last month. A Flipkart spokesperson declined to comment on the company’s financials. Last month’s numbers came from its annual MGT-07 return that lists sales and net worth. The latest data is from the complete standalone financial statement that Flipkart has filed.

India’s leading online marketplace may need to keep sustaining losses as it seeks to win market share by offering the best prices. “Flipkart could post between 35-50% of its sales as operating loss due to its high logistics cost and discounting,” said Ruchi Sally, director at retail consultancy Elargir Solutions. “The only way to reduce (this) is to diversify in higher-margin product categories such as apparel and home.”

“The current model of Flipkart doesn’t make any economic sense as any company selling goods below manufacturing cost without any margin will always attract customers. But a sustainable business can’t run like this and Flipkart needs to look for alternate revenue models such as advertising and data selling to make money,” said the CEO of a leading retail group.

“Flush with cash, firms could so easily develop expensive habits such as embarking on costly and perhaps undifferentiated customer acquisition strategies and too quickly elevating their fixed-cost structures, which may be difficult to wind back when circumstances change,” said Viju George of JP Morgan. India’s ecommerce market is set to rise to $103 billion by FY20 from $26 billion now, according to Goldman Sachs.

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