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Every year around this time, Indian Ecommerce goes into a tizzy as leading online marketplaces announce their yearly carnival – the season of mega-discounts.

Amazon, Flipkart, and Snapdeal are now standing on the brink of what analysts think could be a defining point for the country’s online shopping industry, as discounts go down and sales somewhat flatten. More so for Flipkart, which could see a make-or-break season this year.

“Discounts will be down by at least 20 percent in most categories. That (will) pull back sales a bit,” said Ashish Jhalani, founder of research firm eTailing India.

The festive season in India begins around October and culminates in Diwali. The days in between are considered auspicious for making purchases, driving sales of big-ticket items like furniture, home appliances, gadgets, and jewelry.

Ecommerce players could look at business worth as much as US$12.8 b this festive season

For any retailer, the festive season accounts for almost a third of their annual sales. Some analysts say that could be as high as 40 percent for online retailers.

Given that the Internet and Mobile Association of India expects the ecommerce market in the country to be worth about US$31.5 billion by December, one could infer ecommerce players are looking at business worth as much as US$12.8 billion this year.

For the past few years, Amazon, Flipkart, and Snapdeal have ridden the holiday wave on the back of massive discounts to claim eye-popping numbers that really mean nothing. Surrounding media frenzy fed into rhetorics of “crazy offers”.

A 2015 report by Goldman Sachs said about 30 percent of an Indian ecommerce company’s expenses were geared towards discounts, second only to the 65 percent that went in warehousing.

This year, Amazon India announced it would host its Great Indian Festival from October 1 to 5, pat on top of Flipkart’s Big Billion day sales, which is being held from October 2 to 6, setting them up for a major showdown. Amazon and Flipkart have locked horns last year, but the stakes are higher now than ever before.

Snapdeal’s sales too start October 2. The company has invested in an entirely new rebranding campaign to go with, as it tries to gain back lost ground.

See: Snapdeal slipped up against Amazon, Flipkart. Here’s how it plans to redeem itself.

Flipkart’s moment of truth

Wary global investor sentiment and tight funding have made it harder for India’s high-valued startups to raise funding, and everyone’s feeling the need to stem cash burn.

The pressure is piling on Flipkart, which has to defend its turf as market leader.

While a recent Bank of America – Merrill Lynch report said Amazon is still going to trail Flipkart for the next three years, many industry insiders beg to differ.

“If you look at this season itself, I would be surprised if Amazon does not come out to say their run rates for GMV for the festive month have surpassed Flipkart,” eTailing India’s Ashish said.

“If anyone is expecting the likes of Flipkart to gain market share this festive season, that’s not going to happen. … Brands anyway won’t allow more discounts than is available offline. For Flipkart, it’ll be an achievement if they ensure that they don’t concede any further market share,” Harminder Sahni, founder and managing director of Wazir Advisors told the Mint newspaper.

See: Amazon India gets a cool $3 billion more while rivals see funding crunch

Add to this the fact that Amazon says it is kicking off this season with 200 percent more sellers, thrice the selection (of last year), 1.5 times more fulfilment capacity, and very deep pockets.

“With 24 fully operational fulfillment centers offering a storage capacity of over 6 million cubic feet, we have built the largest fulfilment infrastructure and storage capacity for our every growing seller base to ensure fast and reliable delivery to our customers,” Manish Tiwary, VP of category management at Amazon India told Tech in Asia.

“We do believe that customers will shop on Amazon.in till the time they find a better customer experience elsewhere and we have invested tremendously in ensuring that customers have a great shopping experience with us this festive season too.”

The company also has more than 120,000 sellers this year – compared to 40,000 a year ago – and has expanded its assisted shopping initiative to 100 cities in 14 states compared to three states a year ago, he said. Assisted shopping helps ecommerce retailers get small-town Indians, who may not be well versed in internet usage and shopping online.

A Flipkart spokesperson said the company’s back-end teams, including engineering, supply chain, and customer support “are working round the clock to gear up for the expected spike over the next few weeks,” and that “sales are expected to grow significantly over the next one month, owing to the festive frenzy,” but without more details it is hard for an edgy investor community (or anyone, for that matter) to be reassured.

Flipkart did not say how it has ramped up for this year, or how it would take on Amazon.

“With our well-oiled backend and supply chain systems, we are fully prepared to process a billion wishes well in time through this event of the year,” Kalyan Krishnamurthy, head of category design organization at Flipkart, said in a statement.

Down with the discounts

Flipkart’s specific worries aside, this year is going to be a difficult show for ecommerce at large.

Apart from monetary woes, the Indian government’s new policies of foreign direct investment are bound to make it harder for the companies to host sales at throwaway prices.

The government now says that online marketplaces cannot interfere with pricing by the hosting companies. Obviously, there are ways to work around these legalities.

To work with the law, vendors are being asked to participate more in discounting, as opposed to earlier when the ecommerce companies would absorb the discounts themselves. But more importantly, most of the business for Amazon and Flipkart come from their holding companies Cloudtail and WS Retail, which are their biggest vendors. That makes it easy for the ecommerce companies to work around the pricing pitfalls.

Last year Cloudtail contributed to about 33 percent of Amazon’s overall sales, while WS Retail accounted for about 40 percent of Flipkart’s sales, eTailing India’s Ashish said.

“They are moving away from these (to redistribute vendor dependency), but at least for this season it will still be from these holdings,” he said.

This post Amazon and Flipkart go head to head next week. One has a lot to prove. appeared first on Tech in Asia.

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