Flipkart tightens cash tap to its marketplace by 70%

While the eight-year-old Flipkart, which has raised $3.2 billion (Rs 21,500 crore) until now, has had the lead and can possibly afford to channel capital into strengthening other critical business arms, Amazon is aggressively catching up. A senior Flipkart executive who declined to be identified said the company has reduced its cash burn by about 40% this year.

“It is much lesser than $40 million,” this person said, adding that “supply-chain costs have improved by 20% and we have also done a lot of work in getting our seller costs in shape.” Flipkart declined to offer comment for this report. Flipkart’s gross merchandise value, or gross sales, remained stagnant at $3.5 billion-$4 billion for most of the past year-and-half, before inching back to $4.5 billion-$5 billion in recent months.

Amazon India has managed to narrow the gap with Flipkart’s gross sales to 15-20% in recent months, according to ecommerce executives, investors and analysts. They added that Amazon India is estimated to be out-spending Flipkart by two-three times, especially in marketing and promotions. The total equity investment in Flipkart Marketplace until now stands at Rs 7,909 crore, with most of the money flowing in during recent years.

Amazon Seller Services’s total infusion stands at about Rs 9,600 crore. The two companies are competing to trump each other during their ongoing festival sales, although analysts say Flipkart’s investment in marketing and advertising is significantly lower this time. “Flipkart is reaping the benefits of investing a lot over the past two-three years. They have created a brand value so they may not have to invest as much,” said Satish Meena, analyst with Forrester Research.

Both Flipkart and Amazon have a slew of companies registered in India that run their business across commerce, logistics, wholesale and payments. These units get capital infusion from investment holding companies registered overseas. Flipkart’s commerce business in India is housed under two companies.

Flipkart Internet owns Flipkart.com and registers sales from advertisements and commissions charged on merchants. Flipkart Marketplace owns a 99.74% stake in Flipkart Internet. We obtained access to regulatory filings related only to Flipkart Marketplace. The other business is Flipkart India, the company’s wholesale cash-and-carry unit, which is owned by Flipkart directly and registers product sales. Flipkart India and Flipkart Internet reported a combined a loss of Rs 2,000 crore for fiscal 2015, show filings with the Registrar of Companies.

Their combined sales trebled to Rs 10,390 crore that year, with Flipkart India accounting for over 90% of it. Financial numbers for the year ended March 2016 are yet to be filed.