Amazon is facing a huge challenge in India that may potentially hinder its growth in the Indian e-commerce market. Amazon has already invested billions of dollars in India because the country’s e-commerce keeps growing exponentially.
According to the Indian E-commerce Industry Report, the e-commerce market in India is expected to reach $200 billion by 2026.
However, it doesn’t seem that the retail giant will have it easy in its efforts to expand in India, as there are other homegrown rivals that it needs to outperform first.
The Reliance Retail Challenge
Reliance Retail went after Amazon in a big way several months ago. The largest retailer in India has launched a hybrid app to try and dominate the grocery market in the country, adding to its already massive footprint in the Indian retail market.
Reliance Retail collaborates with the majority of lifestyle and fashion brands to which its flagship subsidiaries, Reliance Brands and Reliance Trends, hold the right. Reliance Retail pulled out brands from rivals by stopping inventory supplying to third-parties to create exclusivity on its own hybrid marketplace.
This move by the local retail behemoth poses a massive threat to Amazon when the American retailer is already facing regulatory challenges from India’s foreign direct investment laws.
Amazon had to pull thousands of products from its shelves last year to abide by the Indian new regulations for foreign platforms selling goods in the country.
This regulatory pressure, combined with the Mukesh Ambani’s company, is perhaps why Amazon has taken a step back when it comes to investing in India this year.
Amazon invested only a third of its 2018 funding in India in 2019, which marks the first time the retail giant has dropped its investment in the Indian e-commerce market since it set up shop in 2012.
But this isn’t everything that challenges Amazon’s growth in India. Paytm is also a big player that Amazon needs to outperform.
The Paytm’s $1 billion Push
Paytm poses another threat that Amazon is facing in India. The Indian digital e-commerce payments provider has just raised $1 billion worth of equity funding to expand into investments, stockbroking, insurance, and lending. It is currently valued at $16 billion and has over 450 million registered users, of which 130 million are active.
The financial services company now makes it a lot more difficult for Amazon to outperform it and grow in India.
Why? Because it dominates the fast-growing Indian e-commerce market. Paytm has an e-commerce division, Paytm Mall, that provides clothing, electronics, groceries, and a great number of other items.
What’s more, it has a single dedicated app for both its online marketplace and e-commerce payments, which is incredibly convenient for consumers.
Paytm is targeting $2.1 billion in GMV (gross merchandise value) in 2020, as it significantly improved its financial situation in 2019. It wasn’t so great for the financial service provider during 2018, so now it plans to go full steam ahead.
This considerable investment plan doesn’t concern only big cities in India, as Paytm plans to extend its financial services to underbanked merchants and customers in smaller cities as well. It plans to target smaller markets with populations of 5000 to 20000 people, particularly those who have just entered the online world and started using smartphones.
Providing all those consumers with the convenience of its online marketplace and digital payments puts a brake on Amazon’s growth in India.
Paytm collaborates with local retailers to allow consumers to purchase their products through the Paytm app. To list and sell their products on the online marketplace, retailers must create a Paytm Mall account.
This online-to-offline (O2O) model that Paytm has adopted enabled it to cut costs by 60%, even though it has dropped nearly 30% of sellers. It also managed to increase the speed of its deliveries considerably.
What helped Paytm Mall expand its customer base to a great extent is the fact that its e-commerce payments platform already had millions of registered users. Since it’s all on the same app, users only had to create Paytm Mall accounts within the app to start selling their goods.
Will Amazon Win the Race?
It’s tough to succeed in a market where local retailers have already made a name for themselves and continue investing in innovative services. Amazon can certainly try to win the race and get its piece of the pie in India, but the fight will not be without its share of challenges.
Amazon has pledged $5.5 billion for its operations in India so far, but that simply may not be enough. With such strong local rivals, Jeff Bezos may just have to push a little harder.
Its rivals are scaling up at a breakneck pace, so Amazon may eventually strike out in India. It did set its eyes India for its huge e-commerce growth, both ongoing and forecasted, but it may need to give up if it doesn’t offer something groundbreaking to Indian consumers.
Whether or not Amazon will win, only the future will tell. We can only keep guessing for now, but until Amazon makes its next move, Paytm will continue dominating the e-commerce landscape in India. Reliance Retail is a dominant player as well, creating even more headaches for Amazon.
Amazon indirectly squeezing sellers to offer lower prices doesn’t help. It has strict pricing rules regarding its merchants selling on other platforms. It forced them to lower their prices on Amazon while raising them on other platforms.
The retail giant may be pushing some legal boundaries, but the matters are worse for its sellers. Why should they lower their prices on Amazon when they clearly have to cover the costs of listing their products on the platform? It doesn’t make any sense, and it pushes many sellers away.
What do you think about these pricing rules that Amazon imposes on its merchants? Do you have anything else to add about its challenges in India? Don’t hesitate to leave a comment below and start the conversation!