India's largest e-commerce firm, Flipkart, aims to turn profitable, even as online retailers have come under severe criticism from industry watchers for burning cash on discounts and thereby incurring losses.
The firm is expected to turn profitable in three years, according to Binny Bansal, co-founder and chief operating officer, Flipkart, reports Business Standard.
The Bengaluru-based online retailer opened its largest fully-automated fulfillment centre in Hyderabad on Friday.
Flipkart also said that it would invest $2.5 billion (Rs 16,250 crore) in its nationwide fulfillment and logistics network over the next four to five years.
Flipkart, which was started eight years ago, has been making massive losses due to huge discounts offered to customers to woo them.
Similar is the case with other players in the e-commerce space, as they dole out discounts to attract customers to their online platforms.
Fashion and lifestyle online retailer, Jabong, recorded five-fold increase in losses to Rs 160 crore during the calendar year 2014 due to high discounts on its offerings, although its revenues went up by 136% to Rs 811 crore.
Recently, Jabong was reported to have held talks with Snapdeal, India's second largest online retailer, to sell stake in the company following a sharp rise in losses.
In April, a report by PricewaterhouseCoopers (PwC) had estimated the total losses incurred by online retailers (as a result of discounts) at about Rs 1,000 crore.
Besides, e-commerce firms have also been criticised for their excessive valuations in the wake of rising losses.
Vinod Khosla, one of the co-founders of Sun Microsystems and a prominent investor, said last month that 85% of Indian online retailers, including Flipkart and Snapdeal, are 'overvalued'.
Among others, who questioned the business model of Flipkart and Snapdeal were celebrity fund manager Samir Arora and billionaire investor Rakesh Jhunjhunwala.
However, a study by global investment bank UBS had painted a rosy picture of the domestic e-commerce sector, saying that the industry was well positioned to see a vast growth, led by "favourable demographics, multi-fold rise in internet penetration and scarce organised retail."
The study showed that online retailers would turn profitable by 2020 as operating costs (as a percentage of gross merchandise volume) are likely to decline by an estimated 400 basis points.
