BANGALORE: India's largest online retailer Flipkart has increased its minimum order value to avail of free home delivery from Rs 200 to Rs 300 signalling the e-tailer's intent to end the price competitiveness it offered, especially in the books segment.
The move comes at a time when the e-tailer, backed by Accel Partners and Tiger Global, is trying to prune its cash burn and improve margins even as it looks out for further funding. Flipkart, often compared with American online retail behemoth Amazon, started off selling books at dirt cheap prices but with the latest development, industry watchers say, the poster boy of Indian e-commerce is slowly moving away from its core customer base.
Flipkart has in the last few months expanded its portfolio at an aggressive pace adding 16 new categories such as baby care, beauty, health care, mobile phones, electronic products and toys as it veers away from its dependency on selling books. In fact, competitors, including Infibeam, Homeshop18, Indiatimes shopping and Junglee, offer cheaper rates on books today without charging extra on shipping (see table).
Flipkart, however, defended the move. "This impacts less than 15% of our customers. However, it gives us much larger efficiencies in our supply chain and we will be to pass on more benefits to our customers after this change. The charge for shipping for orders below Rs 300 remains same as earlier at Rs 30," Ankit Nagori, VP, Retail at Flipkart, said in response to a query from TOI.
Flipkart as well as other big online retailers have faced the heat from investors of late as follow-on funding has become difficult to come by. Venture capitalists who were actively chasing the e-commerce boom in India have turned cautious in the last six months demanding better bottom lines from players even as top lines grew handsomely.
Kanwaljit Singh, managing director, Helion Venture Partners, which has invested in online retailers such as Yepme and Fashionara, said that since some products like books which are low-value do not enjoy big margins and after factoring the delivery/transportation charges retailers do not make anything of these products.
"Such a proposition is not sustainable for players. Therefore it is a positive move by Flipkart to increase the free delivery. It may have a short-term impact on their profitability and competitiveness, but in the long run it can become a standard for others in the industry to follow,'' he said.
"To me it's a healthy sign. All e-commerce businesses have to make margins on unit transactions for long-term hygiene," added Gautam Sinha, director (technology and e-commerce) at Indiatimes.