American e-commerce giant Amazon (NASDAQ:AMZN) was having a great run in the Indian e-commerce space thanks to its huge financial muscle, which allowed it to spend freely on things like faster delivery options. In fact, Amazon managed to carve an estimated 31% share of this market in just five years, with Citi Research valuing its Indian business at an impressive $16 billion a couple of months ago. What's more, Amazon has run up close to local player Flipkart, which is estimated by Forrester Research to have 39% of the online retail market in India.
But Walmart's (NYSE:WMT) entry into India through Flipkart (it's buying a majority of the company) gives Flipkart a lot of firepower in terms of both money and infrastructure. Amazon now is being forced to take some aggressive measures in a bid to sustain its terrific momentum in India.
Stepping up its game
Amazon had originally decided to invest $5 billion in India, but a recent CNBC report credits unnamed sources with saying that it's now raising that figure by $2 billion. Amazon did not comment for the CNBC report, though it seems likely that it will keep expanding its fulfillment centers and warehouse network in India.
Amazon currently has 41 fulfillment centers in the country. Flipkart's count is lower, at 21, though it intends to take it up to 25 in the next 18 months. But Walmart will give a big boost to Flipkart's presence, as the big-box retailer already is operating 21 cash-and-carry stores in the country, selling roughly 5,000 items from each location, with each running around 50,000 square feet.
Flipkart and Walmart's combined presence will equal that of Amazon's once the acquisition is complete. Additionally, Flipkart is currently in the process of setting up a logistics park in the southern part of India that will be spread across 4.5 million square feet and will house several warehouses to improve supply chain efficiency.
So it isn't surprising to see Amazon has decided to infuse more money into its Indian operations. But this is just one of the ways the company is preparing for the stepped-up rivalry that's coming its way.
Boosting the seller network
Expanding the distribution network will help Amazon fulfill orders more quickly, but it also needs to boost its product selection. One way to do this is by getting more sellers onto its platform. The company has been taking several steps to make it easier and more profitable for sellers to sell their items through its marketplace.
For instance, Amazon has decided to slash the seller fees across 22 categories starting July 15, following the last round of cuts that took place across 30 categories in April.
Additionally, Amazon is reducing the fixed fee that it charges sellers under its "Fulfilled by Amazon" program by a 25% on items priced above 500 Indian rupees (roughly $8). These lower charges should attract more sellers to Amazon's platform, especially considering that there's concern among the All India Online Vendors Association that Walmart could corner a lion's share of Flipkart's e-commerce marketplace and hurt their businesses.
What's more, Amazon recently unveiled the Seller Lending Network, which allows sellers to choose from a variety of loans on offer from multiple lenders. Sellers can get a loan tailor-made for their specific needs from a lender of their choice in an approval process that takes just two to three days and the competition promises lower rates.
Why Amazon won't be giving up
Flipkart might be on track to get a big boost from the Walmart acquisition. But Amazon is in no mood for backing away from this lucrative e-commerce market that's expected to grow at a compound annual growth rate of 21% over the next decade, according to Citi Research. The firm's analysts forecast that Amazon could eventually corner 35% of the Indian e-commerce market, generating over $10 billion in revenue and close to $1.5 billion in free cash flow by 2027.
This would be a massive jump from the $461 million in revenue generated by Amazon's primary India unit last fiscal year, giving the company's overall business a solid boost in the long run. But it will have to tackle the freshly minted threat that it's now facing in India, and its latest efforts show that it will rise up to the challenge.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.