Flipkart to spend $2 billion in cash to counter Amazon

Flipkart is likely to spend much as $2 billion in cash over the next one and a half year to push its sales growth, according to a report in Mint.

The move by India’s largest e-commerce player is aimed at boosting sales instead of cutting losses, following its acquisition by Walmart. Moneycontrol could not independently verify the report.

The report suggests that Flipkart’s projected cash burn would also force rival Amazon to double its committed investment of $5 billion in its Indian subsidiary.

Flipkart currently has a burn rate of $70-80 million per month and $1.44 billion over 18 months.

The report citing analysts states that both the e-commerce players — Amazon and Flipkart — are nowhere near profitability but their bigger priority remains sales growth over cutting losses.

The two companies are expected to spend hundreds of millions of dollars towards expansion over the next few years.

Sale days remain key

In the recently concluded four-day ‘Big Shopping Days’ sale, Flipkart recorded sales equal to 24 non-sale days in terms of value and sold as many units equal to those on 12 non-sale days, according to a report by Inc42.

A report by research firm RedSeer Consulting suggests that, sale days contributed almost 30 percent to the annual gross merchandise volume (GMV) of Indian e-commerce firms in 2017.

The report indicated that the Indian online retail industry is largely sale-driven. It also added that there was an increase of about 30 percent in the average order value and 200 percent in the number of transactions per day during the sales period in 2017.

The e-commerce industry has seen a sharp increase in the number of shoppers from 75 million in 2016 to 90 million in 2017.

Metropolitan cities have witnessed a slower growth in the number of new shoppers, adding just three million while tier two cities added nearly 10 million shoppers in 2017.

The report predicts that the number of online shoppers would continue to grow by 15 percent, 30 percent and 50 percent in metropolitan, tier one and tier two respectively, in 2018.

Majority of the new 30 million shoppers the industry will add in 2018, would come from tier two cities, the report adds.

With Walmart infusing more cash into Flipkart, the Indian e-commerce giant is likely to be better placed while taking on rival Amazon by having more sales.

Earlier this month, Walmart announced that it would buy 77 percent of online retailer Flipkart for $6 billion, as it made an elephant-footed entry into India's e-commerce market.

The remainder of the business will be held by some of Flipkart's existing shareholders, including co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft.