Flipkart eyes Diwali to resuscitate its fortunes as Amazon pulls ahead in India

The festival season of Diwali in India is potentially the biggest bonanza for companies of all kinds, hawking everything from fridges and jewelry to smartphones and clothes. A fountain of sales are generated for the year from just this one event.

No surprise then that Diwali remains one of the biggest battlegrounds for ecommerce companies looking to grab market share. None will be as fiercely contested, however, as that between Flipkart and Amazon.

On Thursday, Amazon decided to up the ante in its ongoing matchup with the Indian e-tailer by deciding that it too will launch its giant Diwali sale -- named the "Great Indian Festival" -- during the exact same period that Flipkart launches its annual "Big Billion Day" sale, which will take place in the first five days of October. No prizes so far in terms of originality of names, it seems, but they nevertheless seem to be doing the job.

For a company like Flipkart, the event will assume a critical importance in its ongoing tussle with Amazon for online supremacy for a number of reasons. Flipkart has had a pretty bruising year. From being the cock-of the-walk whose CEOs strutted about like emperors of ecommerce, the company has had its wings severely clipped in a very short period of time.

The first jolt came when several institutional investors decided to lower Flipkart's valuation by as much as 40 percent. Subsequently, the company just wasn't able to raise any financing at terms that it felt comfortable with -- possibly more so because it was having a hard time accepting the brave, new, and uncomfortable world that it suddenly found itself mired in, a world faced with vanishing capital and vastly diminished exuberance that had so far characterized the ecommerce arena.

Then came other bitter pills. That great white shark called Amazon, which had been cruising Indian waters for a few years building up momentum, announced a gargantuan $3 billion in funding towards the Indian market just as Flipkart began floundering. Amazon CEO Jeff Bezos had declared war with a clear trumpet-call announcing a no-holds-barred contest.

Soon enough, especially post the new ecommerce rules scripted by the Indian government that disallowed the deeply ingrained practice of deep discounting, Flipkart's sales slumped by as much as 20 percent compared to the same period last year, and in July, Amazon pulled ahead of its rival in terms of monthly sales. If that wasn't bad, it did so again the next month.

Flipkart's problems aren't only company-related. Yes, its quality quotient apparently tanked as it hewed to the asinine metric popular amongst all ecommerce companies in the country -- namely gross value merchandise (GMV), where the health of a company is measured by total value of goods sold rather than anything that actually matters in the real world such as gross margins.

But the rot in ecommerce has its roots in much deeper truths that affect even great whites such as Amazon -- namely, a lack of fundamental innovation and sole reliance on discounting merchandise has led to stagnation, which sure enough is reflected in lower sales.

Flipkart to its credit hasn't been idle. A big reason for that has been because its primary investor Tiger has decided to take a more hands-on role by injecting some of its own DNA into senior management at the ecommerce outfit. This has contributed to an immediate positive effect of strong monthly sales and the forging of a new parameter through which it has started to measure its success, namely net promoter score that basically measures customer satisfaction rather than gross value of goods sold.

That may seem like a no-brainer decision that should have been executed a long time ago, but when everyone in the industry is drinking the kool aid of GMV, things like EBITDA and customer satisfaction become very old-fashioned and irrelevant concepts.

In order to jockey itself into a winning position during the mega Diwali face-off with Amazon, Flipkart has aggressively pursued a few key strategies. One is a product exchange program that it hopes will send big-ticket items such as washing machines and refrigerators flying out of its warehouses and into consumers' houses. Another is its determination to triple its market share of LED TVs in India to 20 percent. A third is a no-cost monthly payment plan for shoppers.

It is hard to not to emphasize how important the Diwali season is for Flipkart. A successful week could easily mean a successful funding round which it desperately needs in order to keep pace with a rampaging Amazon, a company with deep pockets that is solidly backed by Bezos. This is not a market he wants to lose after getting trounced in China. The company has just launched a number of exclusive fashion brands -- a high-margin category that Flipkart has previously ruled, post its acquisition of Myntra and more recently Jabong.

For its part, Amazon has also launched six new fulfillment centers covering around 250 stations, 1.5 times more than last year. It has also apparently recently inked partnerships with more than 12,500, an impressive five times more than last year. They will be the crucible for Flipkart, now and seemingly forever.

Clearly, the fireworks associated with Diwali will be for more reasons than just the kind that you can see in the sky as these two online giants duke it out.