Flipkart started its business with Rs.4 Lac in an apartment in Bangalore. The founders (Sachin and Binny Bansal) were impressed by the Amazon model in the US and went on to replicate the same in India in 2007. With a low penetration of internet in the pre-smartphone era in India with a hesitation to buy products using credit/debit cards and a terrible logistic network, the founders took the daring to start flipkart.com (Flipping into the Kart). Their success made them instant phenomena and inspired by the poster-boys of e-commerce many Indian start-ups and World’s largest e-tailer Amazon came in to fight for a better market share and profitability. In this post we will discuss about Flipkart journey to keep Amazon and Snapdeal at bay by commanding at over 70% of market share in the Fashion and Lifestyle segment.
Why Fashion and Lifestyle segment is the new bet by all e-tail players?
Apparels provides a margin of 35%, which is way higher than that from electronic items and books so helps the company attains profitability faster at the cost of loss of the other segments such that they can get many investors on-board by showing their profitability margin compare to its peers.
Apparel segment accounts for 8% of the total revenue in the retail industry (around $70 billion) and only 2% online expected to touch 10% by 2020. This leaves a lot of room for many e-commerce players to get them online on their platform.
For this reason companies are trying to leave no stone unturned to get more users on-board with
- Half-price sale attracting new users to shop online
- Giving the consumers an opportunity to buy products after trial
- Fastest delivery of fashion goods like Myntra did in Delhi and Bangalore in less than an hour (thanks to its inventory-based model in 2014. Today Myntra has adopted a hybrid marketplace model)
- Gift Vouchers, etc…
- Some start-ups to gain market-share were selling at a thin margin over cost price with free home delivery.
- Myntra’s new Try It and Buy It
Flipkart’s foray in the Fashion and Lifestyle segment….
It is always said “If you can defeat him, join him”. While Flipkart launched the fashion shopping in October 2012 in the men’s category which was followed by introducing women’s and kid’s category subsequently in 2013. This made Flipkart’s presence in all retail shopping avenues (like electronics, fashion, etc…) which was started as an online book-portal in 2007.
Despite the steep discounts it provided to its customers, it wasn’t able to make a major dent to grab market share in the fashion category which was dominated by Myntra and Jabong both completely focussed in fashion retailing and understanding the needs of the customers rather providing discounts like Flipkart.
This was understood by Flipkart quite early and they went on to acquire Myntra in 2014 and Jabong in 2016. In Depth, detail of what happened and what each of the portals got with the deal and how Flipkart-Myntra-Jabong combine would fight the heavily funded World’s largest retailer Amazon.
Flipkart’s Myntra Mantra
As discussed earlier Flipkart believed in best discounts and a wide range of products to its customers. With largest selling category for Flipkart still remains electronics, fashion needs not mass but quality selling. The strategy applied for selling books and electronics (volume based approach) couldn’t be applied to fashion which requires specialization and unique selling point.
Mukesh Bansal controlled Myntra was launched in 2007 was sold to Flipkart in 2014 for $330 million (Rs. 2000 crore) in a mixed cash-and-stock deal. While it was called the grand Bansal wedding (Sachin, Binny and Mukesh are not related) as it was a win-win situation for all.
In the fashion segment, there were four major rivals, namely Myntra, Gabon, Flipkart and Snapdeal (Amazon were yet to make a debut in fashion); all four were Indian home-grown start-ups who had to rely on regular rounds of funding as there wasn’t any other mode for cash flow.
All the entities were burning cash to gain market share. Despite a margin of 40% on GMV for fashion products, there were substantial losses by all the entities.
Come 2014, Myntra had just raised funds from Premji Investment worth $50 million in February, 4 months prior to Myntra getting acquired by Flipkart.
Despite the funding, it won’t make sense to burn cash to fight rivals for no substantial returns in the future. As Flipkart being the face of e-commerce in India, they had more access to fresh funds rather Myntra.
Flipkart and Myntra fighting for market share didn’t make sense for the investors too. Both Tiger Global and Accel Partners had considerable stakes in Flipkart and Myntra. The companies wanted to cut down expenses in-order to break-even turned out to the major driving reason for the merger piping out Snapdeal (Jasper Infotech).
A Win-Win situation
This wasn’t a one-sided deal, but a win-win situation for both the entities
- 60% market share in the fashion segment making it strike better deals
- Loyal customers of Myntra
- Expertise in fashion segment
- Staying relevant to remain independent despite 7 years of its launch
- Strike better deals with advertisers on Television and Print media
- Discounts exclusive to Flipkart due to market share and more visibility from the dealers.
- Gets access to private labels exclusive to Myntra
- Myntra has a strong foothold on men’s category (60% shoppers are men) who can be brought on Flipkart to buy electronics and books which is the company’s key revenue driver.
- Get access to 21000 pin-code delivery system of Flipkart.
- Good inflow of investments in Flipkart due to early risers in Indian e-commerce space.
- Improving specialization in various segments in India (Myntra remains restricted to fashion)
- Helps combat new strong foreign players like Alibaba, Amazon, eBay, etc… in the future.
Changes in Myntra after being acquired
Flipkart promise to keep Myntra independent, but it would be vertically integrated with Flipkart’s Fashion segment was kept. It did not shut down Myntra like its previous acquisitions like Letsbuy.com in 2012 (an electronics online portal gained prominence due to steep discounts was acquired and shut down by Flipkart in 2012. All traffic is directed to the home page of Flipkart).
In 2015 Myntra hired an outside CEO Ananth Narayanan (ex-Director at McKinsey who had a long stint of 15 years with the firm) and Mukesh Bansal exited the company to focus on new ventures. Considered as the right hand to the Bansal duo (Sachin and Binny) Ananth Narayanan proved his worth. An engineer by qualification adapted well into the new ecosystem and became a part of the Myntra’s DNA.
Jabong was for sale in 2015 for $1.2 Billion but it was out of reach for Flipkart and Snapdeal. Amazon was in talks with Jabong but it couldn’t acquire it.
Myntra was in neck-to-neck with Jabong as Myntra was a just little ahead of Jabong in GMV and market share.
Myntra became the first e-commerce portal to go app-only in 2015 which backfired for the company. To do justice to their app-only strategy they went on to acquire Native5 (app development platform) and Cubeit (a content aggregator for mobile devices) in 2015 and 2016.
Other fashion portals, especially Jabong took advantage of this strategy to stabilize its position in the fashion segment. Limeroad and Yepme also gained visibility of the investors and customers too. The unique and loyal customers of Myntra were drifting away.
As the saying goes “Nothing is too late to start”, Myntra returned to mobile and desktop websites in 2016 just before the acquisition.
It didn’t affect much to Myntra as more than 70% of the transactions were done on mobile but losses for an e-commerce company which has the benefit of huge margins on its products made it less presentable to the investors.
It acquired a major stake in HRX launched by Bollywood heart-rob Hrithik Roshan to strength its private labels and men’s category which dominates to 60% of the revenues to Myntra.
Myntra from an inventory-based model (stocking the products before-hand) became a hybrid marketplace model (Sellers products are quality checked by the portal) after being acquired.
Myntra acquires Jabong: Seriously!!!!!!!
In July 2016, Myntra acquired Jabong for $70 million. The valuation which was at its peak at $1.2 Billion in 2015 came down by 95% of its peak valuation.
This was a win situation for Myntra only and Jabong’s parent (Rocket Internet’s Global Fashion Group) wanted to exit fashion retail in India with least losses as possible.
But it piped Snapdeal and Future Group to acquire Jabong in an all cash deal for $70 million in July 2016. An additional info: One year back Jabong turned down the offer of $150 million.
The main reason for such a low valuation from its peak in 2015 was spinning off its own delivery system GoJavas in 2015. An e-commerce platform back-bone is the delivery system making Jabong dependent on other delivery operators whom it cannot control delivery time for its products neither can assure excellent product quality during delivery.
It lost its backbone and the pound of flesh was sold off by GFG to Myntra in 2016. While investors invested over $300 million, it was sold only for $70 million is a shear loss to Rocket Internet and Kinnevik.
But the major benefactor of the deal is by far Flipkart. Though it was acquired by Myntra, it got a sound media commentary on the acquisition of Jabong making it still relevant in the Indian e-commerce space to combat Amazon.
- Access to a large woman online shoppers, who were alien to Myntra (60% of Jabong’s revenue comes from women category).
- High revenue from the Delhi-NCR region for Jabong which is a cash-cow for the online portal Jabong. Myntra has low penetration in some high-revenue regions like Delhi-NCR. Thanks to infamous traffic and fast-paced life, Delhi-NCR, Mumbai and Kolkata shoppers prefer online fashion shopping where Jabong has a strong foothold.
- Why? Jabong has a large range of international brands on-board whereas Myntra concentrates only on private labels, today’s IT youth population prefer brands rather quality unlike in other parts of India. Myntra with this acquisition gets access to international brands expanding its portfolio.
- Myntra has previously done acquisitions like Fitiquette (virtual fitting room technology) Native5 and Cubeit for better technology to attract customers. But Jabong has a very robust technology adopted on its platform thanks to its parent Rocket Internet. This helps Myntra gain access to all new technologies exclusive to Jabong.
- It gets a consolidated market share of 70% unique customers making it difficult for new players to enter the fashion segments and keeps Amazon at bay for a while.
Flipkart-Myntra-Jabong keeps Amazon at bay
Flipkart currently has access to all types of customers in the fashion segment. While Flipkart concentrates on best discounts and wider selections for the price-sensitive customers, Myntra provides best quality products with private labels for customers who are price-sensitive, but also take care of expertise the platform provides them during the purchase of the product. Jabong came in as the last piece in the fashion jigsaw puzzle with international brands to customers in metros who only speak about brands (On a general note, I would prefer good quality and best price going to Myntra)
Flipkart-combines commands around Rs.1000 crore GMV keeping Amazon at bay by a big distance which has an expected GMV of Rs.200 crore [According to The Ken report]
Flipkart has sealed a formidable position in the fashion segment, but has to worry about Amazon, which has committed an investment $3 Billion in India, which it may use to strengthen its portfolio in fashion which has very lucrative margins supported by electronics and books.
The major worry for Flipkart comes from Aditya Birla Group (ABOF), Mukesh Ambani-controlled (AJIO), Tata Group (TATA CLIQ) and Arvind Group (CREYATE). It has to maintain the lead from these large business conglomerates that have a very superior supply and collection chain with better rapport with the industry due to its 50+ year expertise in the industry.
While Amazon comes with a multi-nation expertise, Aditya Birla Group has a strong foothold in offline-retail stores in the entire country packed with their own brands like Van Huesen, Peter England and Allen Solly. Reliance Retail is India’s largest retail store in India by revenue, has a good command over bargaining power thanks to its existing ever-popular retail store Reliance Trends.
Arvind Group is a Bengaluru based textile-manufacturer has a wide collection of products to display on its online portal and offline store. Tata Cliq, the name speaks everything. The conglomerate has a good command over its products and distribution network, for it the association of the name in its online portal is enough to bring customers on its portal as most Indians have the feeling of trust and home-coming with the Tata brand.
Besides all these, for now Flipkart is the fashion king and we all wish the portal all the very best to remain significant in the market and achieve its profitability target soon.
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