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Amazon, facing ‘unfavorable’ regulatory environment, struggles to expand in India

According to a scathing report by investment firm Sanford C. Bernstein, Amazon is trailing its main rival Flipkart in India on a number of important parameters and is finding it difficult to make inroads in the country’s smaller cities and villages. The analysts estimated that Amazon’s 2021 GMV in India, where it has invested more than $6.5 billion, would be between $18 and $20 billion, falling short of Flipkart’s $23 billion, according to a report.

Amazon competes in India, a significant international market, with Walmart-owned Flipkart, Reliance Retail, which last week launched grocery shopping on WhatsApp, SoftBank-backed Meesho, and Tiger Global-backed DealShare. According to the report, Amazon has so far presented “a weaker proposition in ‘new’ commerce” in the nation.

One of the world’s last major growth markets is in jeopardy. By 2025, it is anticipated that India, the second-largest internet market in the world, will have spending more than $130 billion on e-commerce. Through investments in regional businesses, Amazon has been striving to expand its presence in India. It has also actively pursued relationships with nearby retailers.

The chance of Amazon’s local division making a profit has also become “elusive” as a result of recent investments made for expansion in India, according to the Bernstein report.

“Amazon has struggled to scale volumes in higher-margin categories such as fashion and BPC (beauty and personal care), while the inability to operate a 1P model (inventory led) has limited the availability of private labels vs. competition which further pressures margins. Amazon’s management attrition has also increased recently, potentially signaling difficulties achieving desired scale,” stated Bernstein, whose reports are highly regarded and frequently quoted.

Due to local regulatory restrictions, Amazon runs a marketplace operation in India, just like Walmart’s Flipkart. In the South Asian market, it is up against a variety of additional regulatory obstacles. Marketplaces are not allowed to own a majority of stake in sellers on their platform. The stakes that Amazon and Flipkart held in their top sellers have decreased. Amazon once held a majority stake in Cloudtail and Appario, but it now only holds a 24% stake.

On a foreign-owned online marketplace, no single seller may possess more than 25% of the market. No e-commerce marketplace platform has the authority to require a seller or brand to sell only through it. The story continues, “Deep discounts have also come under pressure.” Additionally, if adopted, a new policy put forth by the central bank of India will affect Amazon’s buy now, pay later programme, the report added.

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