The cashback-based business model isn’t working for Vijay Shekar Sharma’s e-commerce venture.
That’s according to a report by Forrester Inc. that also said the market share of Paytm Mall—which targeted pole position in Indian e-commerce by 2020—declined to 3.4 percent in 2018 from 5.6 percent in 2017.
The Jack Ma-founded Alibaba Group Holding Ltd.—which owns 46.09 percent stake in Paytm Mall—is unwilling to fund it further, the report by the market researcher said. The decision came as Paytm missed its mandates on profitability and gross merchandise volumes, leading to loss of confidence, one of the people in the know told BloombergQuint. The person requested anonymity as the information isn’t public, adding that Paytm also got board approval to bring in a new investor.
Launched in 2016, Paytm Mall was carved out of Paytm’s payments business into a separate entity, under Paytm E-Commerce Pvt. Ltd. It took inspiration from Alibaba’s T-Mall in China and bet on the offline-to-online model with zero inventory, unlike its larger peers. The firm was in just two years able to raise over $645 million from the likes of Alibaba Group Holding Ltd. and Japan’s SoftBank Vision Fund, among others, at a valuation of nearly $2 billion.
And the firm used that firepower for breakneck spending to grab a slice of the highly competitive e-commerce market in India—which according to Forrester will be worth $85 billion by 2023—with Amazon.com Inc. and Walmart Inc. owned Flipkart as competitors. Paytm Mall’s former chief operating officer Amit Sinha told BloombergQuint in an interview in April 2018 that they would spend over $1 billion to gain market share, targeting $10 billion in gross sales for the year ended March 2019.
A year later, Paytm Mall seems to be floundering. “Paytm Mall did gross sales of little less than $1 billion for the year ended March 2019,” Satish Meena, senior analyst at Forrester Inc., said over the phone. He expects its gross sales to be identical in the ongoing financial year as well.
What Went Wrong?
That may have to do with Paytm lacking a unique selling point beyond cashbacks, according to Arvind Singhal, chairman of the retail consultancy Technopak. “…It had one when it started the wallet business, but not with e-commerce,” he said, adding that the firm actually spoiled the customer with cashbacks. Meena said it has no unique proposition or experience to offer.
Agreed Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight. “The fundamental problem Paytm has to address is the absence of a sustainable product-market strategy,” Dutta said, adding that without it Paytm can’t be considered a serious contender in e-commerce.
A former Paytm Mall executive laid the blame on its operation relying on third-party platforms to manage its business. The executive told BloombergQuint on the condition of anonymity that lack of control over inventory, logistics and experience dented its image, leading to poor traction.
Another instance of poor control over operations was visible when it reported a cashback fraud of up to Rs 10 crore earlier this month.
Spate Of Leadership Exits
A series of exits at the senior leadership over the past year also hurt. Earlier this month, Bhushan Patil, a senior leader tasked with boosting Paytm’s cross-border business that would emulate AliExpress, Alibaba’s online retail service, stepped down. The firm’s COO Amit Sinha was shunted to the wholesale business. Sinha, the person cited earlier said, has put down his papers. Alibaba Group’s senior director Bharti Balakrishnan, who was roped in to lead fashion, home and kitchen categories at Paytm Mall, too, has stepped down, the person said.
Other high-profile exits in the last one year include senior vice presidents Saurabh Vashishtha and Amit Bagaria; chief marketing officer Shankar Nath; and Rohit Sood, vice president of FMCG and grocery business.
Paytm Mall and Alibaba Group didn’t respond to an emailed questionnaire seeking comment and a separate email on the exits of Sinha and Balakrishnan.
Sinha declined to comment when contacted by BloombergQuint, directing queries to Paytm’s Communications team. Balakrishnan couldn’t be reached for a comment.
Soaring Losses Hurt
All this has resulted in mounting losses for Paytm. While Paytm Mall’s revenue soared to Rs 744.15 crore in FY18 from Rs 7 crore in the previous year, it posted a net loss of Rs 1,787 crore in FY18 compared with Rs 13.6 crore in FY17, in which it was operational for only seven months, according to filings with the Registrar of Companies.
The firm didn’t leave any stone unturned to get customers on to its platform. It spent nearly Rs 2,581 crore in the 12 months through March 2018, the filings showed.
Paytm, however, began to cut down on cashbacks across categories in the beginning of this year and shut its fulfillment centers, but it only added to declining sales. “The traffic went down by nearly 70 percent after cut down in cashbacks by Paytm, as it was the only pull for the customers,” Meena said.
Paytm needs to reinvent itself, said Singhal. But what will they reinvent as there is competition everywhere, he asked.
Meena isn’t optimistic about Paytm Mall’s future. It can’t survive in its current form against Amazon and Flipkart in the long term, he said, even after a new round of funding.―Bloomberg Quint