Amazon is struggling in India unlike Reliance, Meesho says wealth management firm Bernstein
- India’s ecommerce market is expected to reach $130 billion by 2025.
- Social ecommerce firms in
Indialike Meesho are performing better than traditional ecommerce firms.
- The world’s biggest ecommerce company is struggling to gain a foothold in India’s Tier 2 and 3 cities due to regulatory setbacks.
Almost ten years later, its success is being questioned by a wealth management firm, Bernstein, in its latest report.
Amazon is now the second largest player behind Flipkart with a gross merchandise value of $18-20 billion and has over 170 million products. But it’s yet to turn profitable in a market where the average order value is below $10 (approx. ₹800).
“Besides growth-related investments, profitability has also been impacted by a higher mix of low margin product categories (e.g., smartphones with sub 5% net margins). Amazon has struggled to scale volumes in higher margin categories such as fashion and beauty and personal care,” said the Bernstein report.
Fashion has seen the highest growth in the last few years, and so has grocery. But the latter is led by quick commerce players like Dunzo, Zepto and
Indian regulations give
In spite of having 700,000 sellers on its platform, Amazon is yet to gain ground in a very important category in India — tier 2 and tier 3 markets. As per the report, these markets account for around 50% of all e-commerce sales, and they’re growing.
“Reliance leads in India with a strong 1P business with over 15,000 store retail footprints. Flipkart is the frontrunner in the apparel category and social ecommerce firm Meesho is winning in tier 2/3 cities where Amazon struggles to perform,” it said.
1P business is where retailers have an online presence like Reliance with a wide brick and mortar footprint. Amazon however is a 3P player who works with sellers. The regulations in India are skewed towards the former, and tougher for MNCs.
“Regulations don't allow for an inventory-led 1P model for a foreign entity like Amazon. The company has made investments into local retailers like
AdvertisementAt the same time, its key competitor Reliance scaled up its ecommerce operations to around 19% of core retail sales, thanks to its 15,000 stores and ability to manage an inventory-led model.
“Amazon's management attrition has also increased recently, potentially signaling difficulties achieving desired scale,” the report said. Amazon’s worldwide consumer CEO Dave Clark left the company after 23 years in 2022.
Here’s where ecommerce growth is at
The sweet spot for ecommerce growth in India is Tier 2+, the report says, which is a market that’s seeking products tailored to their needs.
However, due to regulations, Amazon cannot make headway here too. The inability to operate a 1P model has limited the availability of private labels versus the competition, which further pressures margins, the report says.
Advertisement“Despite the importance of the market, we estimate that it contributes less than 5% to Amazon's overall value. At Amazon's current valuation, we see the India business as a call option for Amazon investors, as long as the company is disciplined around capital allocation,” says Bernstein.
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