Flipkart an 11 billion dollar company, running over 30-40 crores loss per month. So why investors are investing huge amount on Flipkart even if its per year loss is double than its revenue? and How and when Flipkart will become profitable for it’s investors? Questions which every entrepreneur looking for an answer. Here we try our best to decode Flipkart future profitable model. Read and let us know your feedback on it.
First Understand Inventory Model and Their Loss:
Most of the e-commerce platforms are based on inventory model. Now, what basically is inventory model?
In simple language, when we buy material, these materials are usually brought as raw material. These undergo manufacturing and become a finished product. Now we decide the production planning and how much time we need to allocate on each product. According to that, we decide how much raw material we have to buy or you can say how much you have to order, basically the demand of each product. On the basis of demand, they order raw material. Many e-commerce companies work on this principle.
So whatever a customer buys from these e-commerce platforms, it is understood from their point of view that the company has those products in inventory stock. Also, the product sold by these companies has only one seller for every product. There are some major drawbacks of using this model.
First of all, this type of system is fine for less quantity of orders but when it comes to bulk, it leads to chaos and loss especially if the product is not sold within a particular time interval. Companies either have to buy products they sell in advance or they have to start holding inventory. And there will be always some unsold inventory. In addition to this, storing item’s cost (insurance, security) also adds to the loss.
For Own Inventory Products: Buy a Product -> stock a product -> Sell a Product and earn margin in the same. By buying at low and selling at high, but due to large stocks it’s not feasible for big companies.
For Marketplace Product: Sell Product -> Source Product -> Deliver Product. Earn Commission/Margin in the process. But this module is risky because of depending upon third party source for product availability.
If your company is working on inventory model, marketing should be utmost importance and that adds to the total cost. This leads to less profitability again.
After all of that, many e-commerce companies provide facilities like free shipping and they have their own delivery network. It adds to the package cost and most of the times free shipping is not profitable in a country like India.
Flipkart and Other Companies Operations
If we compare the online shopping market in India, there are majorly three competitors: Amazon, Flipkart, and Snapdeal.
Each one of them wants to raise their customer number, offer more discounts and products.
If we compare both graphs, it is well understood that, however, net revenue for Flipkart is more but still because of loss it is losing the race on e-commerce platform. And if the trend continues for a long time, not only Flipkart but all of them would not be able to sustain. They need to change their business model from inventory to a more sustainable one.
How Flipkart Will Become Profitable
Flipkart removed WS Retails, its largest supplier at a time. It accounts for more than 80% of the platform’s logistics and delivery network. Now Flipkart tied-up with local transport vendors to transfers its orders and reduce delivery time and money loss.
Based on data of online shopping searches, Flipkart tech teams building technology to serve paid ads product based on keywords.
Flipkart is buying, mobile advertising technology firm AdIQuity Technologies to improve its ad platform that will help Flipkart to analyze its customer data and shopping pattern.
Flipkart open its platform for third party vendors and charges monthly or yearly subscription. These plans may boost their revenue to a large level because of its user traction (3 crores per month).
We also analyze that if Flipkart and Airtel Zero deal happen (thanks to the furor over Net Neutrality) then there was a chance for Flipkart to increase its profit mode 60-70% because of free app support.
In India, brand matters and most people in India are purchasing from Flipkart because of its service and brand value.