Amazon has ramped up in India to compete with local rival Flipkart as the two e-commerce companies launch four-day sales as part of the Diwali holiday shopping frenzy.

Share story

It’s mere weeks to the festival of Diwali, the season of lavish, reckless consumption in India, and in a cavernous warehouse minutes from the Hyderabad airport, hundreds of workers are furiously sorting mountains of everyday items.

There are sunglasses and shaving creams, sewing machines, vegetable slicers and microwave ovens, all lined up by to sate the shopping frenzy that is India’s Black Friday and Christmas combined. The windowless 400,000-square-foot facility is fitted with 300 miles of cables and 16,000 fire sprinklers. Sellers pour in with their wares precariously balanced on two-wheelers, or in autorickshaws and trucks.

It’s Amazon’s largest — and newest — such center in the South Asian country, and it offers a view into the company’s ramp up in this crucial market before a festival-sale collision this week with local rival Flipkart Online Services. Its investments in India show the Seattle-based retailer using a strategy similar to the U.S., where a vast network of warehouses allows it to offer quick, cheap deliveries and distinguish itself from competitors like eBay.

The e-commerce giant has a lot riding in the country after its washout in the world’s other large market, China, where Alibaba Group Holding and other local players have prevailed. Amazon has said its international loss grew more than fivefold from a year ago to $724 million in the quarter ending in June. Part of that can be attributed to its investments in India, including additions to storage capacity.

“Fulfillment centers are extremely critical for the success of our Indian operations,” said Amazon’s India head, Amit Agarwal. “We have doubled our storage capacity in the last one year to meet our rapid growth in India.”

Bangalore-based Flipkart still has a lead in the Indian e-commerce market. But Amazon is also expanding at ripping speeds, and in the last year has roughly doubled its size on several metrics. Warehouse capacity has risen to 13 million cubic feet, sellers to over 225,000 and products to more than 160 million.

During the lead-up to the annual holiday, Amazon and Flipkart have played a cloak-and-dagger game, each waiting for the other to announce sales dates. Flipkart — recently rejuvenated with an additional $3 billion in cash after funding from big-name investors including Tencent Holdings, Microsoft and SoftBank Vision Fund — is preparing to launch its own holiday blitzkrieg.

When the domestic player finally went public with its timetable, Amazon responded by timing its four-day Great Indian Festival Sale to exactly overlap with Flipkart’s Big Billion Days Sale. The buzz of activity at the warehouse will only quicken as the Amazon sale begins Thursday.

Flipkart, meanwhile, says it’ll triumph by doubling its sales from last year and quadrupling shipments of smartphones. “Our Big Billion Days Sale is not about discounts alone, but about exclusive selections on a plethora of products in mobile, fashion and appliances that rivals do not have,” the company said.

It’s also boasting about industry firsts such as monthly payments against purchases charged to debit cards, and hundreds of thousands of personalized video promotions on social media during the sale days.

Diwali is the time when annual bonuses are paid in India, and families do their heaviest shopping. The festival extends over several days, starting Oct. 17 this year.

“Amazon and Flipkart are more evenly matched today than ever before and it’s a lot tougher to predict who’ll be the winner in this year’s peak selling season,” said Mrigank Gutgutia, engagement manager at researcher RedSeer Consulting. “With the war chests they have, both are building up warehouses and logistics infrastructure.”

Within miles of the new Hyderabad storage hub is one of Amazon’s largest global customer-service centers as well as one of its biggest software-development facilities in the world. They are all testimony to Chief Executive Officer Jeff Bezos’ aggressive Indian expansion backed by a $5 billion budget.

Amazon’s 41 warehouses in India are vital in a country where the largest online retailers are marketplaces without any inventory of their own, in accordance with foreign investment rules for e-commerce. Their locations are crucial because the nation’s logistics networks can be unreliable. They have to be close to sellers and with easy access to a density of buyers.

Those in the real-estate trade alert rivals to each other’s warehouse searches, and competition is intense. Alibaba-backed Paytm e-commerce is the newest competitor in the fray and just beginning to build capacity.

“On-ground superiority can give an edge to the players, bringing down supply-chain costs, optimizing shipping and providing premium customers the fastest delivery,” said analyst Gutgutia.

At the nondescript Amazon warehouse in Hyderabad code-named HYD8, there’s a milelong network of conveyor belts snaking through the building’s innards. The goal is to fulfill orders at the fastest pace with the lowest possible cost, but there’s not a single robot in sight.

“In India, we’ve adopted a hybrid model, a blend of people and conveyor,” said Akhil Saxena, vice president, India Customer Fulfillment. Full-on automation and drone deliveries are far off on India’s e-commerce horizon. Fixed costs are high in the country while labor costs are low, the inverse of the West. So a vast number of workers toil in comparatively smaller warehouses.

The nation’s patchy logistics network and vendors’ poor digital grasp mean that most operating on Amazon’s marketplace prefer to drop their products off at such depots and let the company worry about packing and deliveries.

There are about a dozen steps before items are shipped to the country’s far-flung corners. Products ranging from shiny idols of India’s elephant-headed god, Ganesha, to small hacksaws are quality checked, bar coded and laser scanned for exact dimensions. Finally, a computer algorithm helps ‘slot’ and optimize storage, calculating charges for sellers who pay for warehouse space — down to each cubic foot.

Amazon’s revenue in India has grown about 124 percent year-on-year, and has risen 85 percent in the first quarter and 88 percent in the second quarter this year, according to Agarwal, the country chief. A lot, however, rides on the upcoming peak sales period as Amazon and Flipkart compete to get buyers’ attention. Agarwal says he’s counting on a “brilliant” season in terms of traffic, new customers and sales.

As he walks around the massive space, vice president Saxena can’t help remarking on the challenge that lies ahead for Amazon.

In India, everything from sellers to logistics is at a different maturity level, Saxena said. To tackle it, Amazon has to be “not just a global company, but also local.”