Since the investor confidence in India’s ecommerce sector recovered, the market landscape kept evolving. Two weeks ago, WalMart finally completed the US$16 billion acquisition of Flipmart, the number 1 player in the market.
Now it looks that Paytm Mall will soon be replaced by Club Factory – a Chinese cross border player – as the number 3 in India’s ecommerce market.
According to credible sources, Club Factory’s daily orders have surpassed 80,000, not that far behind Paytm Mall’s around 100,000. With the current growth rate, very soon Club Factory will overtake Paytm Mall.
In the following map of landscape earlier this year, Club Factory was simply lumped in “others”:
The great game
The current top three players, Flipkart, Amazon & Paytm Mall, are all backed by giants. Flipkart is the survivor of the previous gold rush, while Amazon has been advancing fast on Bezos’s pledge of more than US$5 billion investment in the market, and Paytm is strongly backed by Alibaba, another giant cash generator.
However, the market is still in its relatively early stages, where growth matters more than current stock/market share. With capital pouring into the market, the relative strength of leading players has been shifting.
And who still remembers Snapdeal, the number 2 player barely 2 years ago?
Flipkart vs. Amazon
Before the acquisition by WalMart, Flipkart must have been a strong state of anxiety: Amazon has been stealing market share, backed by patient public market investors.
WalMart was probably more anxious – its ecommerce efforts had some gains, but did not stop the momentum of Amazon in its home markets. In order not to lose the big growth potential of Indian market, buying Flipkart seemed to be the best choice, no matter the price.
Amazon could have finished this battle two years ago by acquiring Flipkart themselves. However, they were not as lucky as in negotiations to acquire Souq in the Middle East. There Amazon managed to slashed the price almost by half (from the previous valuation).
Souq was desperate back then, facing the onslaught of JollyChic and emergence of Noon.
Already backed by Alibaba & Softbank, Paytm Mall also received a shot of confidence from Warren Buffett in August this year. Berkshire Hathaway intends to invest more than US$300 million in One97 Communications, the parent company of Paytm, in exchange for 3% to 4% of the company.
Another recent news is that Google will work with Paytm Mall to acquire a minority share of Future Retail, a major retailer in the country.
While the three big platforms with rich dads are fiercely fighting for marketplace, a cross border player from China is fast growing in the Indian market.
Club Factory has been in India for 18 months – the founders did not know much of India before starting the venture, and they did not visit India for a long time after India became its biggest market.
At the current level, Club Factory is already completing 80,000 orders a day, not that far from Paytm Mall’s around 100,000.
The two platforms have similar basket size of between US$ and US$8.
Club Factory has thus far adopted a light platform model: it does not carry the goods itself, but matching orders and sellers with algorithm. The platform sets price for medium and small manufacturers/sellers upstream, and handles customer service, cross border logistics etc.
When an order is made, the system automatically assigns to a supplier that is able to deliver. The supplier sends the goods to the platform’s warehouse, and the rest will be taken care of.
While this does not sound very time efficient, the low prices of the goods compensate for the long logistics time.
India is the most important market for Club Factory – a market overlooked by other Chinese cross border players because the basket size is low. At the same time, Club Factory is also aggressively entering Middle East market.
Club Factory’s logic
Club Factory closed US$100 million C round in February this year, barely two years after its founding.
No doubt it is burning money, fast.
The logic is simple, once you become really big, you have more negotiation power than your competitors, towards sellers as well as partners in logistics payment etc. It will also gain influence in front of investors.
We think this logic is valid, knowing that the Indian market landscape is still in flux.
This is also the same logic that Shopee adopted in Indonesia.
This article was originally published in Chinese through Momentum Works’s WeChat official account.
In addition to The Low Down, Momentum Works’s Chinese articles are well read by key investment decision makers in tech.