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Bernstein pitches Reliance as India’s last e-commerce kingpin

As Indian conglomerate Reliance looks set to oust Amazon and Walmart-backed Flipkart in the race for the country’s $150 billion e-commerce market, Bernstein analysts presented clients with a scathing report this week that challenges prevailing global views. Electricity house.

Bernstein’s launch hinges on a quartet of attractive advantages that he argues will propel Reliance to the top: a strong retail network, a widespread mobile network, a holistic digital ecosystem, and a “home field advantage” in a notoriously challenging regulatory landscape. . The wealth management firm said these factors would help Reliance capture the massive e-commerce market in the long run.

Reliance Retail, a subsidiary of Reliance Industries, is already a dominant force, operating the country’s largest retail chain with over 18,000 stores. Bernstein sees the group’s huge physical presence, bolstered by several recent acquisitions of retail companies focused on e-commerce, and a partnership with Meta to develop a small business communication platform through WhatsApp Business. constitute a formidable “competitive gap” for the Indian. Electricity house. E-commerce still accounts for less than 10% of total retail in India.

Reliance Retail Ecosystem. (Image and analysis: Bernstein)

In contrast, Flipkart, which is heavily dependent on the wireless and mobile category — accounting for half of e-commerce sales in India — is facing concerns over a slowing in the country’s smartphone shipments. Furthermore, the low-margin nature of the smartphone category makes it necessary for both Flipkart and Amazon to grow their high-margin categories.

For Amazon, the recent $12.7 billion investment in Amazon Web Services in India suggests a shift in focus towards cloud services in the South Asian market. Bernstein’s report shows that Amazon’s cloud business operated with a loss of only $500,000 to $1 million, with the e-commerce division losing up to $500 million in India.

In addition, Amazon is losing ground in high-profit categories such as fashion. While Flipkart claims 60% market share in this segment, Amazon captures only 20%. According to Bernstein, Reliance’s AJio is already garnering over 15% of the fashion market.

Bernstein valued Reliance Retail’s e-commerce business at $36.4 billion, surpassing Flipkart’s adjusted $33 billion valuation following the spin-off of PhonePe.

Arguably the biggest hurdle facing Amazon and Flipkart is India’s complex regulatory environment. Local law prevents these marketplace-model firms from directly buying, selling, and pricing goods. In contrast, Reliance’s inventory-based model allows it to navigate these challenges with increased inventory control, pricing autonomy and improved customer experience.

E-commerce business practices and regulations in India (Image and analysis: Bernstein)

Bernstein also argues that India’s relatively underdeveloped seller ecosystem hinders the execution of a pure marketplace model, a model that accounts for more than 80% of e-commerce gross merchandise value in China. Despite this, they note, the third-party model proves victorious in terms of SKU depth and is more straightforward in China due to merchants’ specific responsibility for fulfillment through express delivery companies.

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