Income of India's largest e-commerce firm Flipkart may have trebled last fiscal year, but huge discounts offered by it to lure customers and fend off competition from rivals has widened its losses significantly.
The Bengaluru-based online retailer's losses escalated to Rs.2,000 crore in the fiscal year ending March 2015, up nearly 180% as compared to Rs.715 crore in the previous year, according to the company's filing to Registrar of Companies.
"The current model of Flipkart doesn't make any economic sense as any company selling goods below manufacturing cost without any margin will always attract customers. But a sustainable business can't run like this and Flipkart needs to look for alternate revenue models such as advertising and data selling to make money," said the CEO of a leading retail group.
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.
The discount strategy followed by online retailers has been criticised by many industry watchers, as huge cash is burnt in the process, leading to heavy losses. Besides, e-commerce firms have also been slammed for their excessive valuations in the wake of rising losses.
"Flipkart could post between 35-50% of its sales as operating loss due to its high logistics cost and discounting," The Economic Times quoted Ruchi Sally, Director at retail consultancy Elargir Solutions, as saying.
"The only way to reduce (this) is to diversify in higher-margin product categories such as apparel and home," she said.
Flipkart expects its sales to grow six-fold in the current fiscal year after trebling to Rs.10,390 crore last year, according to the firm's head of commerce Mukesh Bansal.
