Is Flipkart making a prowhere is patagoniafit
I explain this question with the example of Homeshop18, as flipkart has recently changed its ideology. The latter part of answer delves on what flipkart is currently up to(as per my thinking).
I have worked closely with the publishing industry as well as tpatagonia outlet reno store hours1he internet start up space. Recently, homeshop18 has managed to get a significant traction in the domain of books. The way it has achieved that is by offering unbelievable discounts of upto 40% and offering FREE SHIPPING to all the books, even those which are worth less than 100. Now every book has its own cost and the initial margin at which publisher sells to the distributor/retailer. Generally, a 100 rupees book pages) initial printing cost comes out to be somwhere between Rs. 35 40. The publisher sells it to homeshop18, taking hpatagonia micro puff hoody reviewis own margin of around 15 20 rupees per book at Rs. 55 60. Now homeshop18 sells it at 40% discoupatagonia outlet reno store hoursnt which is at around 60 rupees.
But, that not the way the e commerce companies think. They are not losing 7 rupees but instead they are investing that 7 rupees as the customer acquisition cost as they are converting flipkart price sensitive customers to buy from them and with their subsequent purchases(with products of higher margins) from homeshop18, they would cover up for their losses in this order. But again, there is a downside too, as it catering to a very price sensitive audience, which if find a competitive website selling the same product at a lower price, would move there.
The reason I didn discuss about flipkart was that it not concentrating right now on encashing the domain of books(low margin) but instead the other arenas of high margin products. It has increased the lower slab of minimum purchase for free shipping to Rs. 300, which clearly means that now it has already acquired a lot of loyal customers and doesn need to sell product at no profit/loss to acquirepatagonia wading boots review the other ones. While it losing some avid flipkart users by doing so, but it is also converting a lot of flipkart fans into making a purchase of Rs. 300 or more, which nullifies the loss.
Recently, i wanted to buy a book worth 75 bucks on flipkart(being a loyal Flipkart fan) and just because of the minimum 300 patagonia coats reviewRs. slab for free shipping, I shelled out another 500 bucks and ordered more books, which I wished to read but didn really want to read now, worth 575 instead. That the game, you see.
Hope this gives you some insight. Cheers.
Harsh has provided a great answer and is quite right about the margins involved.
Generally foreign publishers such as Hachette, Harper Collins, Penguin etc. do not sell directly to a retailer. The latter has to go through intermediary distributors, which tend to give discounts in the range of 35 40% off the MRP. They were getting 35% discount while we were getting 36%. Since then Flipkart has gotten quite big and might be getting discounts in the range of 40 45% easily. Further, if they are able to deal directly with the publisher instead of a distributor, then this range can go up as high as 45 50%. The MRP of these books is generally upward of Rs. 250.
Indian publications like Rupa, Roli, etc. deal directly with retailers and do give discounts up to 35 45% right from the start. So it may be safe to assume that Flipkart will be getting 40 50% discount on these. So the Rs 99 Chetan Bhagat book will actually cost just Rs 50 60 to Flipkart.
Now let assume Flipkart gives away a 25% discount on books. For a Rs 300 order, that translates into an MRP of Rs. 400. Rs. 60 per order if not more.
Now the shipping costs.
When we used to ship books, we started out with the courier cost of average Rs. 10 in NCR, Rs 16 in North India and Rs 30 all over India for every 600gms. This is inclusive of tax and fuel surcharge. Let assume that it costs the same to Flipkart (which it will not as they have order of magnitudes of volume more) as well when it was not doing its own delivery. However, what needs to be borne in mind is that they were procuring from multiple places Delhi, Kolkatta, Bangalore. In such a case, they will see a higher mix of local and same region courier costs. So let assume that their weighted average cost is Rs 16 only for 600gm parcel, which can generally accommodate Rs 300 order (3xRs 100 books, or 1xRs 300 book) quite easily.
Therefore, if shipping charge is applicable at current rates, Rs. 30 totally offsets it. In fact they may even make money off it. If it is not applicable, then they make Rs 44 (60 16) per order.
Now if we bring the COD element, which can be as high as Rs. 100 per order, we will also have to bring Flipkart self delivery into picture. From our own sales, we had a mix of 80:20 for Metro:Non Metro. Keeping the same ratio for Flipkart, if they deliver 80 orders in metro by self delivery then they make a profit of Rsnwt new unisex patagonia puffy down winter jacket coat sz medium 10 yrs ret $129 3,520 (80x44). For delivering the 20 orders in non metro, if 15 books are through COD then they lose Rs 620 (20x44 15x100). Gross profit is Rs. 2,900 on orders worth Rs. 9.7% (Well Flipkart might say that their revenues are not Rs. 30,000 but actually Rs 40,000, with Rs 10,000 given away as marketing cost, then the margin goes down even further to 7.25%).
And then there are the other huge expense overheads Manpower, Marketing Advertising costs etc. that need to be taken out of the 9.7% grosspatagonia outlet reno store hours2 margins. So not much money left to work with.
There are some interesting perspectives before we answer this question :
Is it important to be profitable for flipkart ? : E commerce in India has just reached The street is paved with gold : I remember reading Kim Woo Choong autobiography. The former Daewoo Founder, was a newspaper vendor when in teens. In war torn South Korea in 70s, people were crazypatagonia chile luxury hotel and eager for news ( Underserved and expanding). He realized that if he delivers and collects change from each of his customers, he would lose time, limit his sale and wont become the largest newsboy. He devipatagonia outlet reno store hours0sed a new approach. He ran along the pavements giving newspaper to each and every person who would take it and reach the other end of the street fastest. He would collect the money on the journey back. He calculated that even if 5 or 10 people slipped away without paying, he could make 3 times more profit. This is what this visionary did. Flipkart and its investors at this stage are seemingly losing money. In the long run it may not. In chess, this is often called sacrifice a master, apparently offers to sacrifice a bishop. The amateur bites the bait and goes for it. The next masterstroke then bepatagonia outlet reno store hours3heads his Queen. Flipkart at this stage may be on this forward pass of delivering. The losses in COD are a tactics from Chess book. In web its the mindshare and userbase that counts. Profits can be done any day its founders want if the customer base is robust.
It would be pretty evident (even if you were an outsider) that Flipkart is not profitable at this stage. On the obvious side, there are large discounts,COD and the replacement policies. For the more perceptive, the opulence of the packaging for a Rs 250 product or the fact that different items in the same order basket arrive separately and from different warehouses would ring some warning bells. And of course, there is enough data floating around to suggest non profitability. While the accuracy of most of it is debatable, they are all pointing in the right direction Flipkart is not profitable as opatagonia everlong review 10n date.
I think there has also been enough answers that argue on the merits of the business model itself which focuses on scaling up quickly and set up enough of an entry barrier to any other player looking to enter. The Amazon factor too isnt as bleak as is being made out to be. For one, they would still need to adapt closely to this market (leveling the playing field a little bit) and two, there is room enough for both. The real question that remains is whether (knowing that loss making is not a sustainable business model in the lopatagonia guide jacket gateng run) Flipkart is making the right moves to become a profit making entity.
Having been ppatagonia guide jacket jumperart of Flipkart for the last year and a little (and having been fairly closely involved with thinking about profitability here), I have the following observations
Profitability need not come at the cost of increasing prices and no COD
Heavy price discounts and COD always emerge as the popular poster boys for why Flipkart has to be a loss making entity and hence sustainability of the business itself looks suspect if these two are to be touched to improve profitability at some point. The reality however, is that they are just components among several others that should and can be improved to reach the magical profitability number. Operational inefficiencies (something any startup that scaled exponentially would face) do contribute to fair amount of leakage and these are true low hanging, positive customer impact areas to improve profitability. For instance, Flipkart is the final stages of implementing a new ERP system that will enable it to scale up efficiently and help reduce significantly the leakages due to inefficiency. Several key operational areas from sourcing to warehousing to logistics are being worked upon by different teams with the intent of having a lean, profitable ops. Flipkart logistics will get more profitable with scale and will significantly add to competitive advantage. Flipkart is beginning to tie up with more Brands and eliminate additional layers of cost and thus improving margins without impacting discounts. Sourcing efficiencies will further improve with scale reducing buying costs even more.
