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Big Turnaround! How Jabong Clocked Gross Profit In First Quarter This Year

Big Turnaround! How Jabong Clocked Gross Profit In First Quarter This Year
Image credit: Jabong
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Online fashion portal Jabong.com, a company that was sometime back struggling to get funds, managed to achieve what many of its competitors are grappling to get in today’s time – the Rocket Internet-backed startup clocked in a gross profit in the first quarter this year. Jabong, which competes with Flipkart-owned Myntra and Voonik, saw its Gross Merchandise Value increase. So what made this happen?

Chief Executive Officer Sanjeev Mohanty told Entrepreneur Media that getting some key fundamentals right helped the online fashion portal achieve this versus others!

What worked for Jabong?

“There was a lot of value which was leaking out because of the kind of pricing that we had been doing, so we corrected the pricing and discounting. Secondly, we changed over the mix to more full-priced merchandise. If you look at e-commerce, especially in fashion, a lot of old season merchandise is sold at a heavy discount. We cleared a lot of old season merchandise and moved towards a more fresher and in-season and fashion forward merchandise. Thirdly, we cleared out a lot of low-priced, high-discount, small brands and labels which are not core to our target audience and focused in slightly higher and better-priced merchandise. We moved away on a wide-array of private labels and concentrated on brands which had ability to scale and had gross margin and profitability.”

However, despite achieving the magic number, Sanjeev said that this was just the beginning and one will get to see a far better impact in the long-term due to the corrections that the company was implementing.  Sanjeev said that Jabong is expected to witness more action around profitability as the company goes into Q3 and Q4.

Calling this achievement a “decent start” to the whole process of revamping the brand’s strategy, Sanjeev said, “What you are seeing today in Q1 is merely 5%-10% of the levers we have really pulled.”

Tackling competition

Indian ecommerce platforms like Myntra, Flipkart and Voonik, are not only competing with local brands but are also challenged by international mammoths like Amazon. Amazon, which has been pouring investment into India, is been seen as a threat to every local ecommerce player.

Talking about the fierce competition Sanjeev said that Jabong is clearly on the road to vacating the value segment – which is items priced below Rs. 500. “We are moving up to an average selling price of Rs.1200- Rs.1250,”he said. 

Sanjeev said that he is keener on cracking the premium segment that requires clear positioning, outstanding experience on the app and merchandising circulation and the company is not interested in capturing the market that has products priced below Rs. 1000.

Valuations and profitability

With the market witnessing a dry round of funds and markdowns, companies, including ecommerce firms are forced to re-think about their operating strategies. Jabong shed several low-margin brands last month, including its private labels, in a bid to trim losses.

Talking about the recent dip in valuations, Sanjeev said that markdowns should matter if the market had reached a point of saturation. Today we are absolutely in the beginning of e-commerce phase in India.

“Today we haven’t even begun our journey in terms of how consumers shop on e-commerce. I think penetration is only 6%-7%. There are barely 50 million people who have actually shopped online. That number is expected to reach 200 million by 2020. We are just beginning to see resemblance of what the market is going to look line in 4-5 years. What is important is that we should have the funding and runway to be profitable quickly to enable growth,” he said.

As Jabong continues on its journey with its new strategy, it plans to raise funds soon and expects come with an the announcement in the next 6-8 weeks.

 

 

Edition: December 2016

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