How Do E-Commerce Companies Like Snapdeal And Flipkart Make Profits?
According to the report of Goldman Sachs, e-commerce companies like Flipkart, Amazon and Snapdeal have to raise Rs 1.27 lakh crore or $20 billion over next 5 years to sustain growth. According to the reports, Indian e-tailer on a typical incurs 1.35 times Gross Merchandising Value (GMV) sold as expenses, which means they are sustaining a loss of 35 percent.
If you are questioning how these businesses make profits, the response is they DO N'T.
So now the concern that emerges is, if these companies do not make earnings then how do they sustain? The answer is throughout financiers. Now let us explore all the facts in information. You can find further information about gig league writing and translations @ gigleague.com.
Talking about past couple of years, there has been an unmatched growth of e-commerce industry in India and industry is further expected to grow because of enhanced Google penetration and increased confidence among the buyers in e-commerce business. According to Goldman Sachs, India will be second biggest digital market in the world, after China, with e-commerce market approximated to grow 15 times to $300 billion by 2030. Presently India is thought about to be about 7 years behind China in e-commerce revolution.
E-commerce companies’ deal with marketplace based design, which means that they do not bring any inventory, and for this reason do not incur stock holding expenses. Likewise they do not have to maintain their stores and keep salespersons. This is how they save expenses and gives discount rates in every product that they sell in their platform. Regardless of the high incomes being reported by most of the e-commerce business, none of them are yet profitable. They are deeply in losses. In year ending March 2014, Snapdeal reported a loss of Rs 264.4 crore on the profits of Rs 168 crore. Flipkart also reported loss of Rs 281 crore on sales of Rs 1180 crore for the year ended March 2013. GMV information shows that Flipkart makes around 10-12 percent of GMV as profits, instead it's expense of handling these products are around 15 percent. In spite of the losses, these giants invest big quantity on marketing and brand building so about acquire more customers.
Business could make profits and recover cost through volumes. Companies have to sell their products to as many clients, get new clients and build loyal clients to make revenues. However these companies are not concentrated to making revenue, rather they are more concentrated on growth. According to KunalBahl, CEO of Snapdeal, it is more important to concentrate on economics instead of success. He says "Snapdeal might have produced earnings by now, however that's not the focus yet. If you want to grow quicker, you need to postpone profitability". In an interview with SachinBansal, CEO of Flipkart, he stated "Flipkart can be lucrative from today if we desire. We can stop purchasing one location and start making revenues. However we don't wish to stay a little profitable company". These companies reinvest the money back into their business and a significant chunk of money goes into establishing technological capabilities, specifically on mobile front through acquisitions, which is obvious from Snapdeal acquiring Freecharge. Likewise company seeks to enhance supply chain and warehousing costs. Huge quantity is spent on brand structure throughout ads as they are extremely important to build credibility.