Alnoor Peermohamed, Business Standard
Bengaluru, 26 December 2016

The contribution of private labels in India’s online shopping segment is expected to triple to around $5 billion in 2017 as e-tailers try to boost earnings and fill gaps in the market in high-margin categories such as fashion, furniture and home decor.

Private labels make up less than 10% of online sales today, or around $1.5 billion in value, largely driven by fashion retailers such as Myntra, Jabong and Koovs. Going forward, it is expected that this contribution could grow closer to 20% and will also be driven by high-value items such as furniture, according to RedSeer Consulting.

“What horizontal players are doing is they are consolidating buyers of unbranded products in electronic accessories and some few other categories and introducing products in those gaps,” said Anil Kumar, chief executive officer of RedSeer consulting. “This helps them earn additional margins where people really don’t care what brand they’re buying as long as the price is right.”

The largest of the horizontal players, Flipkart and Amazon, are launching new private labels to improve margins in commodity products such as electronic accessories. Flipkart recently launched Smartbuy, an umbrella brand for selling electronic accessories and home decor products, and plans a second brand next year.

Amazon, too, has its own private label Amazon Basics to sell electronic accessories and Symbol and Myx in the fashion space.

Rival Flipkart relies on subsidiaries Myntra and Jabong to drive private label fashion sales, with estimates suggesting around a third of the sales of the two brands being driven by fashion labels.

Amazon did not respond for comments and Flipkart said it was too early to comment as the private labels were launched this month.

With India’s e-commerce expected to grow by 60-70% in 2017, making it a $30-34-billion industry, a sizeable part of that will be driven by sales of private label products. The push for private labels largely comes from investor pressure on e-commerce companies to improve earnings and get on their way to profitability.

“Given how the market is at the moment, where there is pressure from investors who have been asking about profitability or a route to profitability, products that earn additional margins are going to be a focus,” said Devangshu Dutta, chief executive at Third Eyesight.

Globally, Amazon has adopted the private label route, selling everything from groceries under its own brand to electronics such as Kindle tablets. While private labels will grow to contribute under 10% of sales on large platforms such as Flipkart and Amazon, smaller niche players will look at them more deeply.

As of today, online furniture retailers see over 50% of their sales being driven by private labels. Pepperfry and Urban Ladder, the two leading players in this space, almost exclusively sell furniture under their own brand names. In online fashion this contribution is 25-30% while for online groceries it is close to 20%, says RedSeer.

“One reason is that when you’re stepping into a gap in the market, there’s no competition so you are not forced to discount. Secondly, if you’re sourcing it directly and cutting out a brand, the cost of product development and marketing can be made by the retailer,” added Dutta.

(Published in Business Standard)

Sagar Malviya & Shambhavi Anand, The Economic Times
Mumbai/New Delhi, 21 December 2016

Amazon expects India to overtake Japan, Germany and the UK to become its largest overseas market, besides becoming the quickest to reach $10 billion in gross merchandise value in the company’s history.

It’s showing in Amazon’s performance already. Amazon Seller Services has more than doubled its revenues in the year ended March. It earns its revenues through commissions, advertisements and shipping fees that they charge to sellers.

“Being a third-party market has caused a lot of invention on our side. The team in India has been very creative on whenever they find a roadblock or something that has not existed in another country, they create it themselves, whether from delivery stations to working with small merchants,” Brian Olsavsky, CFO at Amazon-.com, told investors in October this year.

(Published in The Economic Times)

Sapna Agarwal, Mint
Mumbai, 14 December 2016

“In the future, India is the most important country for us. We want to invest and develop the brand in India,” said Frédéric de Narp, chief executive officer of Bally who took charge in November 2013 to turn it around. “Part of this turnaround strategy is the joint venture in India,” said de Narp, who is credited with the successful turnaround of American jeweller and watchmaker Harry Winston Inc.

Bally first entered India in a franchise partnership with Bird Group, which has interests in travel technology, hospitality and aviation. It had two stores in India, one at the Palladium mall in Mumbai and the other at DLF Emporio Mall. Both these stores have closed in the past two years. The partnership was ended earlier this year.

This time round the company has spent a few years finding the right partner and fine-tuning its strategy for India. “We have been working in developing this joint venture by developing the trust for the last few years,” said de Narp, adding that more importantly, the joint venture is with Reliance, a profitable company and a reliable retailer.

In India, Bally will sell its entire range across men’s and women’s footwear and accessories. The new store will be part of the brand’s global expansion which has seen the opening of two new concept flagships in Tokyo’s Ginza and Los Angeles’ Rodeo Drive this year. The joint venture will open four stores in Delhi, Mumbai, Kolkata and Chennai in the next 3-4 years, said Darshan Mehta, chief executive officer, Reliance Brands.

In its previous partnership, Bally which is part of JAB Holding Company, a privately held group known for its brands like Jimmy Choo, Krispy Kreme and Belstaff globally, “had underestimated the challenges in investing in India,” admits de Narp. “Franchise is a challenging model,” he added. De Narp is looking at investing this time to build a healthy and sustainable business in India.

To be sure, a majority of international retailers that have launched operations in India have come through the franchise route in the last 4-5 years, said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm. “Franchise model is a low-risk approach for a retailer who is not entirely sure about the market. It is about experimenting and exploring the market,” said Dutta, adding, “However, once they have committed they prefer to invest.”

(Published in MINT)

Suparna Goswami Bhattacharya, TechinAsia

Bengaluru, 12 December 2016

The entrepreneur overcoming all hurdles to emerge as an icon for millions – that’s the typical positive story startup media is abuzz with. Such narratives are often considered the only way to attain startup goals. In the clamor, we can forget that each startup journey is unique: before tasting success, even successful entrepreneurs have faced failure.

The startup narrative can be one-sided, observes Sharad Sharma, co-founder of Indian tech industry think-tank iSPIRT. “So many startups fail, but there’s no focus on those entrepreneurs. Then there are small companies which do not enjoy high valuation[…] Their learnings can make a big impact in the startup ecosystem.”

Rude awakening

True. Not all entrepreneurs have to be the next Sachin Bansal or Mark Zuckerberg. And this should be fine, as long as they are fulfilling their dreams. 

Shakir Basha couldn’t agree more. He’s the founder of Zippon, a packing and moving service, which eventually had to shut shop. 

“I believe in setting up a profitable business on a small scale and gradually taking it to higher levels, especially when you lack business skills and you are a first-timer. But many in today’s generation want to aim for the sky, forget to keep their roots intact and hence fail at what they do. I have personally faced that,” he says. (Right: Zippon founder Shakir Basha. Photo credit: Shakir Basha)

Little wonder then that Aishwarya Raman, who started auto-rickshaw app AutoRaja, found peace working as a zonal head for Ola Auto.

“My main motive of starting AutoRaja was to make the auto-rickshaw drivers a part of the organized sector. Here at Ola Auto, I’m working with the same motive – of course, on a much bigger scale,” says Aishwarya. 

In September 2015, AutoRaja shut down mainly because of lack of funds. After lying low for a few months, Aishwarya decided to give her dream another shot.

(Above: Aishwarya Raman founded rickshaw aggregator AutoRaja. Photo credit: Aishwarya Raman.)

This time, the approach was different. “I didn’t want to start another company immediately. Though my parents encouraged me not to give up on my dream, I thought I should gain experience by working in a similar industry but with a different setup.” She approached Ola and they were more than happy to hire her, given her relevant startup experience.

It’s common to battle a funding crunch after your startup closes: that’s when working a regular job provides a much-required cushion. Case in point: Akash Sharma, who founded Delivree King, a tech-enabled logistic startup, and Fitfood, a healthy food delivery company. He now works for MobieFit, a fitness app. “To say that I am disappointed as my previous ventures did not work will be an understatement. But I’m happy to be part of the food and fitness industry, which I’ve always wanted. What life has to offer in terms of opportunities is not known yet, but for now I am happy working and gaining experience,” says Akash.

Not all entrepreneurs have to be the next Sachin Bansal or Mark Zuckerberg.

It’s all about timing

2015 saw many startups shutting shop. For Akash, Delivree King and Fitfood were victims of market corrections. Delivree King specialized in four-hour delivery and guaranteed same- and next-day delivery, besides offering promotional services for its clients. It had to be shut down for want of funds. For Fitfood, the timing, unfortunately, was not right.

“I started Fitfood when food-tech companies were growing. However, by the time it reached a stage where we needed funds, none of the venture capitalists we approached were ready to even look at the company. The timing was bad,” rues Akash. (Left: Akash Sharma founded FitFood and Delivree King. Photo credit: Akash Sharma.)

For Tapan Kumar Das, access to venture capital wasn’t a problem. The founder of online meal service iTiffin faced a different problem: low investor confidence. “There was a lot of negativity around the food industry. I had to choose between burning my money or shutting down,” he says, adding that there’s still scope for innovative food-tech companies despite negativity around the industry.

Knocking at the wrong door

Entrepreneurship is a place of constant comparison. There is a pressure to raise a certain amount which will eventually land them adequate press coverage. However, raising funds from VCs is no cakewalk – especially if one is not part of the networking circle.

“There is an expectation that all entrepreneurs either have to be from an IIT, IIM or one of the top two-three institutes in the country,” says Sukanth Srivastav, who founded Tooler, a laundry startup. He’s referring to India’s elite Indian Institutes of Technology (IITs) and Indian Institutes of Management (IIMs). “The fact remains that a business can be run by anyone who has an aptitude. We don’t need to complicate things.”

It’s a tough world out there, especially if you are not well-networked.

Graduates of IITs and IIMs typically have large networking circles, of which venture capitalists are also a part. “My experience with VCs has not been pleasant. I had met many of them during my startup stint but the purpose of their funding is different from what we wanted to achieve as a startup,” Sukanth says.

The experience taught Sukanth an important lesson: don’t go by the hype. “Newspaper reports are replete with stories of VCs out there looking to fund you. This is not the reality. It’s a tough world out there, especially if you are not well-networked.” Aishwarya’s experience with VCs was also unpleasant. “I guess I approached the wrong VCs; they never believed or understood what I wanted to do.”

Pressure-cooker scene?

Failure is not taken lightly in India – or, for that matter, in any country. 

Says Devangshu Dutta from Third Eyesight, a retail- and consumer-focused consulting firm, “There’s nothing wrong with aiming high. But entrepreneurs should not feel like failures when their company does not reach a particular size or valuation.”

Then there’s family pressure to look for a stable monthly source of income. “I come from a family where my father has spent his entire professional career in one company. They do not understand this concept of joining a startup or starting a business. After my startup stints, I was left with no money. My mother would often ask why I am wasting my IIT degree on startups when MNCs are ready to offer me high-paying jobs. So yes, I felt that pressure,” says Akash.

For Sukanth, the situation was more or less the same. “In terms of financial growth, I have made zero progress. I did not have the heart to borrow from my parents to start another company. There is enough pressure from society to earn a certain amount. In fact, no one believes in your dreams until you start making money. That’s the hard fact.”

Editing by Neha Margosa, Michael Tegos, and Steven Millward

(Published in TechinAsia)

Nishant Sharma, Bloomberg Quint

New Delhi, 2 December 2016

In its ever biggest markdown of the Indian e-commerce company, a mutual fund managed by Morgan Stanley slashed Flipkart’s valuation by 38 percent on Tuesday. With this, the valuation of the country’s most valuable internet company stood at at $5.54 billion – the lowest since September 2014.

But Flipkart is not alone. Japanese investment giant Softbank earlier this month, announced a 58.1 billion yen ($513 million) investment loss in two of its biggest investments in India – cab-hailing firm Ola (ANI Technologies Pvt. Ltd) and e-commerce marketplace Snapdeal (Jasper Infotech Pvt. Ltd).

This comes at a time when these companies are looking to raise additional funding.

Reality Check

The country’s top startup evangelists and investors are not too worried though. Investors BloombergQuint spoke to said that a markdown in valuation is a much-needed market correction which will bring maturity in the Indian startup ecosystem that saw euphoric valuations over the last two years.

“This is nothing but a natural cycle that is bound to happen”, said Ben Mathias, managing director of Vertex Ventures in a telephonic interview. Vertex Ventures is the venture capital arm of Singapore state investment firm Temasek Holdings. “Last two years, there was a lot of rapture around startups and valuation were driven up because of that. The situation wasn’t limited to India but was also seen in Silicon Valley, China and other markets. What we are seeing today is a rationalisation of valuations and expectations. A needed market correction has taken place.” 

Raising heaps of money from late-stage mutual funds and cross-over funds in a heated fund raising environment leads to bubble valuations which increases the risk of potential markdowns when the market cools off, added Anshuman Verma, founder and managing director of venture capital firm M1L and a former partner at Accel Partners.

The Indian startup ecosystem was booming till 2015, with venture capital investments flowing in. Indian startups raised $5.5 billion (Rs 36,000 crore) from VC firms and angel investors in 1,096 deals, in 2015 alone, according to data compiled by research firm VCCEdge.

Tough Times Ahead?

The markdowns may cause promoters some pain as they will have to dilute a higher stake to raise funds, but industry experts said that if the company performs well and is able to meet its targets, lower valuation will not necessarily dent their ability to raise more funds.

“You can’t raise money on valuations alone. There are key metrics like profitability, margins, return rates. All this is what really matters and is what investors focus on while making investments,” said Sunil Rao, Partner, Lightspeed Venture Partners

Mathias of Vertex Ventures added if a company has reached the target it has set for the year, it shouldn’t worry about raising funds. It can raise money at robust valuations, despite markdowns.

Not everyone shares that view though.

“Trying to raise money for your venture post meaningful markdowns is akin to trying to refill and write with a broken (leaking) pen. It is tiring, messy, and irritating to write with such a pen. Isn’t it? Markdowns are demoralisers for companies, and act as leakers.” said Anshuman Verma, Founder and Managing Director, M1L

Lessons From Markdowns

Verma’s advice to e-commerce entrepreneurs is they should look at markdowns as a wake-up call. “They should consider markdowns as pointers to fundamental problems in the business that must be solved. It should push them to become more realistic, pragmatic and action-oriented,” he said.

According to Devangshu Dutta, chief executive at management consulting firm Third Eyesight, markdowns are a sign that investors were far more bullish and aggressive earlier, a view they no longer hold. “If the survival of the company depends on raising funds at lower valuations, one should do that. Survival should take precedence over valuations,” he said.

Verma said that with subsequent markdowns the startup ecosystem will see non-prudent founders and their investors accept the harsh realities of the art of markdowns.

“We will see further humbling of such founders/investors/companies. Many from the ecosystem still have not come to terms with the reality of loss-making in late-stage ventures in India. Few larger internet ventures are not accepting the state of affairs as they are, and this could be the starting point of all the problems,” he said.

(Published in BloombergQuint)