With sales over 100% in 2018, Paytm Mall eyes $10 bn revenue by March

Paytm Mall, the newest entrant in e-commerce, has set its sights on $10 billion in revenue by March. But the question is not whether it will reach its goal, but how it will do so

Paytm Mall may have been a late entrant in the country’s e-commerce market but it has instantly made a splash, carving out a niche for itself in the midst of a broader transformation in the industry. 

Carved out of parent One97 Communication —mobile wallet Paytm’s parent firm —and launched as a separate business unit in February 2017, it is now the putative number three in the industry after Amazon and Flipkart.

In 2018, sales for Paytm Mall grew over 100 per cent over the previous year, according to multiple analysts. Company filings show revenue of Rs 775 crore in the financial year 2017-18, up from Rs 13.6 crore the year before, when it recorded only two months of business. 

All this growth has come even as the e-commerce market moved towards a duopoly dominated by Amazon and Flipkart, at the expense of smaller players like Shopclues and Snapdeal.

“It’s been a great year for us— the business grew in all respects,” says Amit Sinha, chief operating officer at Paytm Mall.

Of course, many things are going for Paytm Mall. It has the backing of Paytm’s 200-million-strong user base and deep pocket to begin with. Paytm contributed 800 personnel, including top executives, and investors old and new have pumped in $650 million into the new unit so far. This money fuelled the massive discounts and cash-back offers, a highlight of its initial period when it took in new user at a break-neck pace. 

But while there has been break-away growth, challenges remain around its unique business model and a viable long-term strategy to compete against Amazon and Flipkart, which together hold 76 per cent of the market. 

Sinha, however, says Paytm Mall is on solid ground because its growth has been driven by users rather than GMV, or gross merchandise value, the widely accepted measure of growth in the industry. 

“Our growth has been higher in terms of users as compared to the growth in GMV. We are early in our life cycle, so our focus has been on growing transactions,” Sinha told Business Standard in an interview.

Sinha did not disclose the sales numbers or customers the platform serviced, but maintained that Paytm Mall was on target to achieve an annualised sales of $10 billion (approximately Rs 70,000 crore on Wednesday’s exchange rate) by March 2019.  Paytm Mall may be on course to achieve this target, but what is of concern is how it will choose to reach this point—not whether it will, say analysts.

“Paytm reminds me of Snapdeal in its early days when it was known for offers and deals. It’s a simple model —utilise the massive funding from VCs to power deals and discounts in the hope that customers who come in will stay on,” says Karthik Srinivasan, a digital strategy consultant. 

“Deals and discounts, however, do attract customers, but to stick to a store, customers look beyond deals —service, predictable delivery, range of options, after sales, including returns and so on. These are not something that Paytm Mall is known for at this point.” 

As things are, he says, Paytm is paying customers to buy products from its online store. “Even in their offline-to-online model powered by QR codes, the reason a customer opts for them even when she is shopping offline is the extra value they seem to be getting in the form of upgrade in flight tickets, cash-backs and so on.”

“In essence, Paytm  (Mall) is quite literally paying customers to buy from their online store. That doesn’t seem like a sound business strategy, but for a company that is so incredibly funded, this may seem like something they can keep on doing for quite some time,” Srinivasan adds.

Unlike Amazon India and Flipkart, Paytm Mall does not operate large warehouses or logistic operations, (uses only third-party services) and boasts a wide network of kirana stores and regional suppliers on its platform. 

Being asset light, “we are more capital efficient than anybody else,” Sinha says. But with the platform relying solely on partners for packaging, fulfilment and delivery, it runs the risk of trading off quality for a simpler business model, multiple analysts point out.

But it does have its strengths. It has brand recall in non-metros and its revenue across product categories is more widely spread. Paytm Mall gained early traction by offering the best price on high-selling items like Apple Macbooks and iPhones. However, its category split is, in fact, better than others. Its reliance on mobile phones, a category that typically makes for 50 per cent of sales on any other platform, is only 35 per cent, RedSeer Consulting data shows. 

Sinha says categories like grocery, fashion, electronics are picking up as well. The company is reportedly in talks with Future Group to buy a larger stake in Future Retail, the operator of Big Bazaar and More supermarket chains. If the deals go through — Amazon is also reportedly a bidder in the negotiations — it’ll give Paytm Mall a sizeable supplier network where the Future Group supermarkets may serve as its stock keeping and fulfilment units.

The Paytm group’s core strengths are its formidable network, a wide array of services all the way from travel booking to mobile recharge to wealth management services, and an enduring acceptance in tier II, tier III and even smaller regions. 

A user who may come in for one service may get introduced to another, and may get hooked to a third one. That’s the network effect it is hoping to bank on, says Pinakiranjan Mishra, partner and national leader for retail and consumer products at EY. 

“They have a relationship with the consumer because they are one platform where you can pay telephone bill, buy insurance, or movie tickets. Similarly, they have a relationship with the trader, or retailer, as mostly all of them have Paytm enabled. So it has trust and usability on both sides. That’s their network, and at this point, they are figuring out how to leverage this network,” says Mishra.