I am standing in a corridor in Amazon India’s 25th floor office in the north-western part of Bengaluru, looking at two people dressed in casuals.

It’s a few days before Christmas, and it’s a mildly cold winter evening. There are no Christmas decorations that adorn the office, but it’s a relaxed vibe where I catch strains of George Michael’s “Careless Whisper”.

I am about to tell them that I am here to meet Amit Agarwal, senior vice president and country head at Amazon India. Sensing my presence, one of the two, a tall man dressed in jeans and a checked shirt, turns to me. I see that it is Agarwal himself. He greets me and leads me to the conference room for the interview as I wonder why I could not spot him sooner. Then it dawns on me. Agarwal is mostly seen in formals. Except when he and his boss, Jeff Bezos, wore sherwanis and posed for snaps on a bright yellow truck in Bengaluru in 2014, a year after Amazon launched in India.

An IIT Kanpur and Stanford University alumnus, Agarwal joined Amazon in Seattle in 1999. As we begin talking, he explains Amazon’s mission is based on “three pillars”—offering customers access to large selections, value (pricing), and fast and reliable delivery. One may recall Amazon.com’s mission statement when it launched in 1995 was “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices”.

Agarwal, a Kishore Kumar fan who used to play the electric guitar and was part of a band called the Algo-Rhythms at Stanford, says the three pillars are consistent with customers globally. “What that[the three pillars] has allowed us to do is to be able to leverage all the innovations that we have done elsewhere as a starting point,” he says. “When we look at India, we have consistently grown over the last five years at a phenomenal rate and that’s because we focused all our energy on these three pillars. Each time we launch something, make investments, we see returns down the line. And these dividends [of faster growth than competition] keep coming for us,” says Agarwal, who is passionate about teaching and looks forward to wearing a teacher’s hat someday.

The year 2018 was, by and large, a good one for Agarwal and his team. During the festive season sales, more than half of Indian online shoppers choose to buy on Amazon.in, making it the most visited and transacted online marketplace in the country. A Barclays report which came out towards the end of the year said Amazon India grew its revenue faster than rival Flipkart (excluding Myntra and Jabong) in the fiscal year ended March 31, 2018, though both were “neck and neck” in gross merchandise value or GMV—a metric used by the e-commerce industry to show the total value of merchandise sold on a marketplace. A goodyear indeed, till Christmas.

On December 26 (popularly known as Boxing Day in western countries), the government of India sucker-punched online retailers. It issued new norms barring them from selling products of entities or companies in which they owned stakes. The new norms also prohibited online retailers from entering into exclusive deals for products.

 Amazon fulfilment centre nearPanchgaon, Haryana.      
Amazon fulfilment centre nearPanchgaon, Haryana.     
Image : Sanjay Rawat

While India’s policy changes are a known unknown for multinationals, the ban on selling merchandise of firms in which they own stakes hit Amazon India hard. Among a few such collaborations was Cloudtail, a joint venture between Amazon and Catamaran Ventures; and Appario, a JV with the Patni Group. Put together, Appario and Cloudtail make nearly 50% of the daily volumes on the site, according to industry estimates.

The government gave e-commerce firms till February 1 to comply with the new norms. While an extension was expected, it didn’t happen and overnight 400,000 products disappeared from the Amazon India website. Industry experts said it would add to operational costs, pump up losses and decelerate growth in sales by 10-20%. The change in rules even hit the Seattle-headquartered parent firm and on February 1, its shares were down by more than 5%.

The market was shaken, but Amazon stirred into action.Within a couple of days, it found ways to comply with the new rules. On February 6, Amazon sold a chunk of its stake in Cloudtail and brought back the merchandise it had removed from its site earlier. Amazon sold 25% stake to Prione Business Services, run by Catamaran Advisors. Now, Prione owns 76% of the JV, while the remaining 24% is owned by Amazon Asia-Pacific Resources, a non-Indian arm of Amazon.com, Inc. Appario is also making a comeback through asimilar restructuring route.

Experts point out that there will be a financial impact on Amazon India despite it making structural changes. “The restructuring that Amazon (and Flipkart) have had to carry out recently in order to comply with the foreign investment laws may have a short-term impact on their sales, and most certainly on their margins, since private labels or exclusive products that would have been margin-rich and channeled through partly-owned or controlled companies will be impacted, and more margins may need to be dished out to intermediaries who would be the invoicing entities,” says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

Amazon is also seeking more clarity from the government on its deal with Shoppers Stop in which it holds a 5% stake. It wants to know whether it can start selling its merchandise on the site.For now, no Shoppers Stop products are available with the e-tailer. It is also learnt to have suspended talks to acquire a stake in the Kishore Biyani-led Future Group.

Gaurav Gandhi, director and head of Amazon Prime Video India.
Gaurav Gandhi, director and head of Amazon Prime Video India.
Image : S Kumar

Agarwal doesn’t lose sleep over these short-term glitches—it’s business as usual at Amazon India Even after December 26. While it refuses to comment on competition (read Flipkart), the Indian e-commerce space is pretty much a battle for supremacy between the two (see graph). According to the Barclays report mentioned earlier, Amazon India generated GMV of $7.5 billion in the year ended March 31, 2018, compared with $6.2 billion by Flipkart (excluding Myntra and Jabong). Myntra and Jabong together typically have a revenue run rate of over $2 billion. Amazon’s GMV is expected to touch $11.2 billion this fiscal year, according to Barclays, while Flipkart is expected to clock in $8.7billion (excluding Myntra and Jabong).

Dutta says Amazon seems to have benefitted from the evolution of the ecosystem because of capital infusions into Flipkart and other e-commerce firms that have been active earlier. “In most markets, the so-called ‘first mover’ doesn’t really have an advantage and can turn out actually to be a ‘first-loser’, since investments have to be made in developing the customer base as well as the supply ecosystem. The learning curve for Amazon India, in that sense, has been shorter and less steep.”

Coping with difficult situations is part of Amazon’s DNA. In 1997, when Amazon.com, Inc.decided to go public, its plans were greeted by a wave of scepticism. It was an overvalued market for Internet firms and analysts were already terming the dot-com, credit and housing segments as “bubble”economies. But Amazon founder Bezos based his decision on one snippet of data. “I came across the fact that web usage was growing at 2,300% per year,” Bezos revealed ina 2010 address, according to a CNBC report.

For its initial public offering in May 1997, Amazon.com’s stock was priced at $18 per share. In its debut trade on Nasdaq, the stock soared and eventually closed at $23.50 a share. But soon the dot-com bubble burst and Amazon’s stock headed south, losing nearly 90% of its value in two years.

By early 2000, it was clear to Bezos that the company needed a stronger cash position. Amazon sold nearly $672million in convertible bonds to foreign investors—just about a month before the market crashed. The capital infusion helped Amazon weather the storm. A little over 18 summers later, Amazon is among the world’s most valuable listed companies.

Cut to the present. For now, time seems to favour Amazon India but for the blow in December. Flipkart and its group companies are undergoing several internal changes since its acquisition by U.S. retailer Walmart in May last year, and hence a lot of focus is on streamlining operations and synergies. “Possibly Amazon India’s biggest advantage in building momentum in the last two-three years may have been that its management team’s energy was focused on growth. It would certainly have benefited from Flipkart’s management energy being scattered into the various rounds of capital raises, acquisitions and internal restructuring, management changes, and finally activities leading up to the acquisition by Walmart and its aftermath,” says Dutta.

He has a point. Over the past five years, Amazon has invested nearly $5 billion in India on innovation, technology and the creation of an infrastructure that can cater to the needs of 100 million online shoppers today, Agarwal says.And Amazon India has identified ways to attract them and keep them hooked, such as larger selections, faster deliveries and more options for payments and financing,such as credit cards and flexible EMIs (equated monthly installments).

India represents an important market for Amazon.When he visited India in 2014, Bezos said that Agarwal—who helmed the e-tailer’s 2013 debut in the country—could always ask his rich “uncle” for a cheque to bolster and widen its presence here. At 45, Agarwal, who has been personally mentored by the Amazon founder, is also one of the youngest members of Bezos’ core team of top executives.

Over the past 20 years, Agarwal has been involved in all important business initiatives of the company, ranging from its cloud-computing business, Amazon Web Services(AWS), to the rather crucial entry into India. Nowadays, Agarwal, who runs marathons, spends half his time at the company’s global headquarters in Seattle. He believes that customers are loyal if the shopping experience is top class; hence his biggest challenge is to ensure that Amazon India service standards surpass customers’ expectations.

From Left:  Kishore Thota, director, customer experience and marketing, Amazon India, Arun Sirdeshmukh, head of fashion portfolio at Amazon India, and Manish Tiwary, VP, Amazon India.<em></em>
From Left: Kishore Thota, director, customer experience and marketing, Amazon India, Arun Sirdeshmukh, head of fashion portfolio at Amazon India, and Manish Tiwary, VP, Amazon India.
Image : Narendra Bisht

Agarwal says he’s surprised at Amazon India’s performance and its acceptance. “If someone had told me five years ago that Amazon India would be this successful, I would not have believed it.” And it was probably his mother who drove home the point.

He had just got home one day when his mother said that they had run out of atta (wheat flour). Agarwal fished out his phone and placed an order on Prime Now, which promises delivery in two hours. To his mother’s surprise, the atta came in 40 minutes, at a price lesser than the maximum retail price. Now she is so used to the service that she refers to wellness medicines ordered on the site as “Amazonki dawai” and atta as “Amazon ki atta”. As a country head, Agarwal probably couldn’t have asked for better validation of Amazon and Amazon Prime.

In fact, over the past two years, Amazon Prime has emerged as the single largest differentiator for the e-commerce giant in India. From free one-day and two-day deliveries to scheduled deliveries to exclusive deals, it has now entered all aspects of a consumer’s life, be it through Amazon Music, which offers ad-free music streaming with unlimited offline downloads, or Prime Video, or Prime Reading.

“Prime customers will always have the benefit of having a large Prime-eligible selection and we will have to ensure that efficiency of the system is very, very high,” says Akhil Saxena,vice president for customer fulfillment at Amazon India.Currently, in India, the Prime selection is about 40 million products and is being beefed up in a big way.

In an entertainment-hungry nation, Amazon Prime Video, an Internet video on demand service, has emerged as a very strong hook to attract consumers. With a Prime membership, one can access the latest Hollywood, Bollywood and regional blockbusters and U.S. TV shows as well as have exclusive access to Prime Original shows like Comicstaan, Breathe, and Inside Edge, among others. And the content is also available in Tamil, Telugu, Bengali, Marathi, and Kannada, besides English and Hindi.

And customers who watch videos “or listen to music on Prime are shopping more, they are renewing the memberships more,” says Gaurav Gandhi, director and head, business, Amazon Prime Video India.“The customer engagement that we see through our content offering is among the highest in the world,”he says, adding that customers who subscribe to the service watch a video within the first 24 hours.

Today, Amazon India covers all serviceable PIN codes in India, offering over 170 million products from more than 400,000 sellers. Its infrastructure(fulfillment centres) grew 1.5x by storage volume in 2018 compared with a year ago and stands at over 20 million cubic feet, one of the largest such setups in the country. All this has been done with a vision to scale the network ahead of demand and shorten the delivery time for all orders.

But the company is not just distinguishing itself through services. It has been innovating specifically for the Indian market. While credit cards are a norm in the U.S., in India which has a population of 1.32 billion, there are just 3.47 million credit cards. So,it has launched the Amazon Pay ICICI Bank credit card, issued by ICICI Bank in association with Amazon Pay (India) and Visa. As a large percentage of customers still prefer to pay by cash, Amazon Pay—the company’s online payment system—has launched a “cash load” facility to do away with the hassle of change. So now, when paying cash for their cash-on-delivery order, Amazon customers can simply ask the delivery associate to add the leftover change to their Amazon Pay balance. As always,the focus is on customers. “We have the right set of technologies, processes, access controls, to make sure that the information that we have is securely stored...For us, these are very technology-heavy investments and millions of dollars of investments go into artificial intelligence and machine learning,” says Mahendra Nerurkar, director, Amazon Pay.

What I noticed about all Amazon executives I spoke to was that all of them were casually dressed,and were self-confessedly “not fashion conscious”. So,when I meet Arun Sirdeshmukh, Amazon Fashion Business head, I expect more of the same. But he is elegantly dressed in fawn-coloured corduroys, which he has paired with a checked shirt and red loafers.To be sure, fashion is one of the most critical categories for Amazon and in India, and it faces formidable competition from Myntra and Jabong. Globally,online fashion retail is one of the largest categories in ecommerce, and things are not very different in India.Gross margins in the online fashion business tend to be very high, sometimes as much as 40% for branded products and 50-60% for private labels; hence this business forms an integral part of an e-tailer. Amazon Fashion In India carries the widest range with over 20,000 brands.About a year ago, it set up what’s called The Designer Boutique on the website. It currently carries designer wear from over 200 designers ranging from Ritu Kumar to JJ Valayato Rina Dhaka to several emerging designers. Sirdeshmukh says physical retail has not expanded enough to solve the issue of serving fashion needs in tier 2 and tier 3 cities and towns, for which Amazon Fashion could be the answer.

Besides a wider range of choices across price points,Amazon Fashion is leveraging technology to enhance the shopping experience. For example, now almost 95% of the clothes on sale have a size chart, with reviews and ratings on the fit to help the buyer make the right size choice. It recently launched a video catalogue for women’s products,especially dresses, and sets so that one can see the overall look and fall of the fabric.

While Amazon India may be working hard to get it right with the customers here, several aspects are still beyond its control. Experts say the December 26 regulatory changes may not be the last. “Unfortunately, this [the new norms] is not the last one as this solves nothing for marketplaces, small sellers and the investors. A clearer long-term retail policy is required instead of stop-gap patches like this and focusing on online retail only,” says Satish Meena, a senior research analyst at Forrester Research.

While Amazon deals with regulatory changes,the focus now is on looking ahead. Agarwal isn’t perturbed by these changes and is looking to boost infrastructure and invest in new categories such as groceries. So far, it has invested nearly $500 million to expand the grocery business here and Agarwal says there is no cap on the capital Amazon can invest in India. “Grocery is a big area of investment for us because we see a high degree of affinity between customers who are Prime members and who like to buy groceries online,” he says.

Agarwal says Amazon India’s first five years were spent on getting the first 100 million customers and“changing e-commerce from being an occasional metro [cities] phenomenon” to buying anything anywhere in India. “Our next five years will be all about driving our engagement to build the largest Prime base and to get the next 100 million customers.” Reliance Industries Ltd’s entry into the space with its hybrid online-to-offline commerce platform will be another big challenge. But going by Amazon’s record, it will find its way around.

(This story was originally published in the March 2019 issue of the magazine)

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