July 30, 2014 10:17 am

Amazon $2bn investment sparks India ecommerce war

The silhouette of Jeff Bezos, chief executive officer of Amazon.com Inc., is seen as he unveils the Fire Phone during an event at Fremont Studios in Seattle, Washington, U.S., on Wednesday, June 18, 2014 Amazon.com Inc. jumped into the crowded smartphone market with its own handset called Fire Phone, ramping up competition with Apple Inc. and Samsung Electronics Co. Photographer: Mike Kane/Bloomberg *** Local Caption *** Jeff Bezos©Bloomberg

Amazon is investing an extra $2bn in its India operations as the US online retailer takes advantage of the country’s fast-growing internet shopping market.

Jeff Bezos, chief executive, said that India was on course to reach $1bn in gross sales faster than any other market in which Amazon has a presence. “We’ve never seen anything like this,” he said.

Amazon, which gave few details of the timing of the investment or how the funds would be used, launched its operations in India a year ago. It has aggressively built its profile with slick television advertisements and offers of guaranteed same-day delivery for customers in selected cities.

The US company’s India plans come a day after Flipkart, an eight-year-old Indian version of the US ecommerce company, said it had raised $1bn in capital to upgrade its mobile technology platforms.

Analysts said the timing of the announcement reflected Amazon’s intensifying rivalry with Flipkart, which is India’s largest internet retailer by sales, and whose two youthful founders both began as Amazon employees.

“The message that Amazon is sending is that they are a serious, long-run player,” said Pragya Singh, a vice-president at Technopak, the retail consultancy. “They will be competition for Flipkart, continuing to bid for leadership in the market.”

Amazon said it was establishing five new warehouses to facilitate expansion of its same-day delivery services.

Indians are expected to buy about $2.3bn worth of merchandise over the internet this year, accounting for just 0.4 per cent of all retail sales. But with the expansion of modern bricks-and-mortar retail chains stymied by high real estate costs and logistical difficulties, ecommerce is growing in importance and popularity, aided by the rapid growth of smartphone use in the country.

Technopak forecasts that merchandise sales over the internet in India will rise to $32bn, or about 3 per cent of retail sales, within the next six years.

Companies such as Amazon, Flipkart and local rival Snapdeal, which is backed by eBay, are expanding and refining their operations as they compete for leadership in the huge potential market, though profitability appears to be some way off.

Announcing Flipkart’s $1bn capital-raising on Tuesday, Sachin Bansal, the Indian ecommerce group’s co-founder and chief executive, said profitability was not a short-term goal.

“No leading player is making money here,” said Technopak’s Ms Singh. “They are putting in a lot of effort in scaling up their businesses and grabbing market share.”

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