Befriending The Enemy: What Myntra Buying Out Jabong Means
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Times looked gloomy and the tunnel that led to funding did not even have a single speck of light coming in. This was Flipkart a couple of months ago. Their valuations dropped, Amazon was quickly covering the gap Flipkart took years to build, 100 per cent FDI was introduced, a number of top executives left and leadership roles were changed, and the whole Flipkart-IIM fiasco was a cherry on the cake.
Taking a covert turn, the outspoken Flipkart, and the team took to silence thinking it better not to take their thoughts public and make it worse. They applied a couple of strategies internally and tried making amends with the refund policy, but faced a backlash again. Looks like somebody had a reversal of fortune and not the kind people want to hear about.
And then Amazon’s Jeff Bezos made the announcement of investing another $3 billion in its India’s operation after exhausting its earlier investment of $2 billion. This is when the fear of being overtaken by Amazon struck Flipkart and the Bansal brothers decided to revive the old Flipkart. Since, Flipkart has re-hired Kalyan Krishnamurthy in his former role, bought PhonePe, a mobile payments start-up, to enter the digital payments sector and has made Flipkart’s biggest priority is to be “very, very consumer-focused”, Bansal said in an interview with one of the reputed newspaper. They also re-launched the Myntra’s desktop website to get back the lost customers when Myntra went app-only in 2015.
Another eCommerce going through a similar fate, but a much worse one, was Jabong. Owned by Global Fashion Group (GFG), which is jointly owned by Rocket Internet and Kinnevik, Jabong matched its rival Myntra in sales until early 2014. GFG foresaw what was coming and has been looking for a buyer for more than a year now. And looks like they have found the perfect match.
Befriending the enemy, Flipkart’s Myntra has acquired Jabong , which was put on a sale for a consideration of $70 million. In talks with major eCommerce players, such as Snapdeal, Aditya Birla Group, and Kishore Biyanis Future Group, Flipkart has emerged as the perfect suitor and here is why we think this partnership would be for the best, probably!
Officially the largest fashion marketplace for them all!
Myntra already has 2,000 global and domestic brands on its platform. Myntra buying out Jabong means adding more than 1,500 international high-street brands, sports labels, Indian ethnic and designer labels, and over 150,000 styles from over a thousand sellers to Myntra.
In an interview with a media channel CEO of Myntra, Anant Narayanan, said that he plans to keep both sites operating as independent brands. This means that they do not lose the customers of both sides, simultaneously increasing traffic on both. Instead of merging, Jabong will be a click away from Myntra and vice-versa.
Myntra holds around 35 per cent market share while the parent Flipkart has around 10 per cent share. If Jabong rolls into its fold, Flipkart and its subsidiaries together will hold around 70 per cent of the online apparel sales.
Hitting two birds with one stone
“Jabong acquisition is a natural step in the journey to be India’s largest fashion platform," Anant has been quoted as saying in the media reports and the biggest they will be.
Seeking a valuation of $100-150 million, drowning Jabong found Flipkart’s Myntra as the straw and in turn return helped in making for what Flipkart lacked in valuation. The recent demise of eCommerce startups in India got everyone worried and if Flipkart wouldn’t have done anything soon, it would be in a lot of trouble.
Though Flipkart claimed they have all the funds they need, they have been spending too much on discounts and marketing, which when gave no return led to huge losses. Jabong couldn’t keep up with the offers on Myntra and gave up. GFG realized that its position in India "would be best served through a business combination with a local player" and which makes point number three.
The Indian eCommerce industry survives
Divided, Indian eCommerce companies fought with each other like cats and mice, but united, Jabong and Myntra together can take down Amazon India.
Comparing Amazon and Flipkart does not seem fair given Amazon’s experience and being in the game for more than ten years now. Jeff Bezoz has said that his goal is to make Amazon the world’s most customer-centric company, not the most customer-centric online retailer. This is where Flipkart and Amazon differ and to get where Amazon is, Bansals' would have to do wonders.
More like a safe move than a wonder, this buyout will surely act as a light of hope for both Jabong and Myntra in their dark times and help them get an edge over Amazon. Commenting on this buyout V Sivaramakrishnan, Finance Director of Venture Factory says, “This is likely to be an acquisition for market share and pricing power even though Myntra and Flipkart may be able to substantiate the investment through synergies. It was reported that Myntra was eyeing a turnover of 10000 crore over 4 years. Since this acquisition would end the single biggest competition for Myntra the latter could justify a $70 million price by arguing that the average discount rate could be lower by 3-5 per cent in the absence of competition."
Also, this acquisition also brings a halt to all those rumours to Indian eCommerce industry heading towards its demise. Not only will Flipkart beat Amazon this way, but revive the industry.
Anil Joshi of Unicorn India Ventures commented, “Jabong acquisition would give clear leadership position to Myntra and that would stay for years now as the combined entity would cater to the much larger customer and vendor base. This leadership position would allow for experimentation on offering and more for optimising resources which would lead to better revenue numbers with possible profitability”
This calls for good times for the two eCommerce companies and its parent company as well. At least for now!
(With inputs from Sneha Banerjee)