After a decade of the launch, Flipkart is changing its business strategy. The Bengaluru based e-commerce major is finally appears to have started thinking towards profitability.
The company is pushing hard to cut losses, by reducing discounts, logistics and warehousing costs; and has set a target of breaking even at the gross profit (GP) level by the end of the financial year, according to the Mint report.
Gross profit is a measure of total sales minus the cost of goods sold.
The report asserted that the company had to change its business strategy as Tencent Holdings Ltd and eBay Inc. had demanded that the company show a so-called path to profitability when they, along with Microsoft Corp., agreed to put $1.4 billion into the company in April.
However, Flipkart’s commitment to profitability seems very weak. The company generates a majority of its sales from smartphones, a money-losing category for online retailers; and it cannot afford to shut the category and lose its leadership position to Amazon India.
Besides, Flipkart also plans to introduce groceries and re-launch furniture within the next month, which will further increase the spending the company.
“There’s a lot of pressure to get to GP-positive but at the same time it cannot be that growth suffers. So it (the GP positive goal) may not be achieved this year,” according to the Mint.
Many analysts have expressed doubts about the business models of consumer internet start-ups and of Flipkart, in particular. If Flipkart is able to move toward profitability and keep its No.1 position at the same time, it will greatly boost investor confidence in India’s internet business.
Meanwhile, the company is also experimenting with various models to slash the burn rate. It is betting big on private label business. It has already pulled on most other levers to cut expenses—slashing ad spending, convincing many brands to fund some of the discounts on its platform, firing or easing out most of its senior leaders, and reduce hiring.
To tackle logistics cost, Flipkart is introducing more automation at its warehouses and trying to figure out how to reduce the last-mile delivery expenses.
“Very few e-commerce companies have managed to successfully build proper supply chains and cost-effective logistics. It’s a tough space to be in. I doubt if any of the top e-commerce companies can crack logistics,” said Harminder Sahni, founder and managing director at Wazir Advisors.