Flipkart Eyes Profitability – Plans To Reduce Discounts, Costs

Bengaluru-based online marketplace Flipkart is looking to cut losses and move towards profitability during the current financial year ending in March 31, 2018. To that end, the ecommerce giant is planning to curtail discounts, while also reducing warehouse and logistics-related costs.

As per reports, Flipkart is hoping to bolster sales and break even at the gross profit (GP) level by the end of FY ’18. The term gross profit refers to total revenue generated during a particular time period minus the cost of goods sold in the same period.

Flipkart’s decision to refocus its strategies on attaining profitability comes after Chinese investment firm Tencent Holdings, Microsoft, and eBay agreed to infuse $1.4 Bn in April. The investment was done on the condition that the ecommerce compnay adopts a cost-saving approach geared towards generating profit.

Commenting on Flipkart’s decision a source said, “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.”

Valued at $11.6 Bn, the company has a cash burn rate of $60 Mn-$65 Mn per month. To thwart competition from rival Amazon, the 10-year-old unicorn has been aggressively offering discounts and cashbacks to customers which has, in turn, caused its burn rate to skyrocket in the last two years.

To reduce its soaring cash burn rate, the company has taken steps to lower logistics-related expenses. In addition, it is looking to convince high-performing brands to fund some of the discounts on its online platform. Flipkart has also curbed its promotion and ad spendings. It has also reduced hiring of new talents as well as expenditure on office space etc.

To achieve profitability, the company has also introduced private labels. After launching its private electronics label Flipkart Smart Buy in December 2016, the company has gone on to release its first women’s clothing line Divastri in June 2017. Later in July, it also unveiled a private label for men called Metronaut, which includes a contemporary urban fashion line offering trendy styles.

In April, it was reported that Flipkart is gearing up to re-enter the country’s online grocery market, after shutting down Nearby in February 2016. Flipkart’s rival Amazon India launched Amazon Pantry in July 2016 as a service that offers grocery and household essentials. Most recently, Paytm Mall reportedly expressed interest in acquiring egrocer BigBasket for $200 Mn.

Speaking about the development, CEO Kalyan Krishnamurthy said at the time, “Eighty percent of the units bought in India are in the grocery segment. The grocery market is almost as big as $400 Mn-$600 Mn so we will have to get into it.”

Flipkart is also looking to expand its ecommerce foothold by merging with rival Snapdeal. Currently in the final stages, the Flipkart-Snapdeal merger will likely take place for $850 Mn within the next month.

Although reduction of costs and discounts as well as a merger with Snapdeal will likely help Flipkart strengthen its presence in the ecommerce world, whether these steps will actually result in profitability is something that remains to be seen.

(The development was reported by Livemint)