Flipkart drain on Amazon forces it to up commissions

Amazon has increased the commission it charges from sellers in categories such as consumer electronics, which includes smartphones, as the firm looks to offset losses which dragged down its international 

earnings in the September quarter.

For upcoming and high-value product categories such as furniture and large appliances, (which local rival Flipkart has been able to monopolise), Amazon has cut commissions to drive down the cost of such products on its platform. 

The company claims it is the only marketplace that continues to offer free delivery of goods priced above Rs 20,000.

“We have reduced fees and shipping rates on some popular categories, while increasing fees on certain others. This fee revision is part of our periodic process that we undertake to encourage seller performance and growth so as to serve customers better,” said an Amazon spokesperson.

Amazon had slashed margins across the board in June to bypass India’s Foreign Direct Investment norms for e-commerce marketplaces which disallows players from offering discounts. At the same time, Flipkart had increased commissions for major categories on its platform, while also revising its return policy.

In the September quarter, Amazon’s losses from international businesses shot up to $541 million from $208 million in the corresponding quarter last year, largely due to its investments in India.

Since mid-2014, Amazon has pledged to invest $5 billion into the country, with the aim of overtaking Flipkart and becoming the largest e-commerce marketplace.

“By far the biggest individual thing is the investment in India that we continue to make and very excited about it, the initial reaction in India from both the customers and also sellers,” said Brian T Olsavsky, chief financial officer at Amazon, during a call with analysts and investors last month.

Majority of those investments have gone into setting up warehouses, buying bollywood rights for its upcoming Prime video streaming service and largely towards undercutting the cost of products sold on its platform. While the company has managed to achieve significant scale in the three years it has been in India, Flipkart has turned out to be a formidable opponent.

Flipkart which began rationalising its costs late last year in order to move towards profitability, was able to edge out Amazon in the recent festive sales with a greater focus on customer experience. With products such as no-cost EMI and other attractive options, the company sold 15.5 million units during its five day Big Billion Day sale, higher than what Amazon was able to do.

The company has so far raised $3.15 billion in venture capital funding, among the highest globally, and is utilising it to compete in India’s fast growing e-commerce space. The firm is reportedly in talks to raise another $1 billion from Amazon’s US rival Wal-Mart which is eyeing a strategic investment in India.