admin
November 14, 2016
Anita Babu & Alnoor
Peermohamed, Business Standard
Bengaluru, 14 November 2016
Rocket
Internet’s $70-million fire sale (the term for doing so at an extremely
discounted price, usually under some compulsion) of Jabong has turned
out to be a great deal for Flipkart.
The online giant has managed to turn around the fashion portal in four months, scoring a mark over rival Amazon.
It
has even surprised Myntra’s chief executive, Ananth Narayanan, who also
heads Jabong. He’d earlier found the customer overlap between the two
brands, Myntra and Jabong, was no more than 30%. At the time of
acquisition, Flipkart’s management had estimated this number to be
50-60%.
“Essentially, this is all extra incremental growth.
While the fixed costs like supply chain have not grown dramatically,
sales have grown,” said Narayanan.
In October, Jabong saw 50%
growth in revenue and managed to become unit economics-positive. The
loss-making company, on a downward spiral when Flipkart, pushed by
investor Tiger Global, made a fell swoop and took ownership in three
days, had once been in talks to sell out to Amazon at a value of $1.2
billion. By any stretch, Jabong was a steal for Flipkart and the recent
success is icing on the cake.
“If
they are saying the overlap between the customer base of the two
companies is only 30%, then acquiring that set of customers is a
one-time capital investment and they can milk that over the lifetime of
the customer. Moreover, fashion is a category which is margin-friendly;
so, it’s going to pay off faster than other categories,” said Devangshu
Dutta, chief executive at consulting firm Third Eyesight.
The
clean-up of Jabong has been fairly straightforward. The biggest
cost-cutting measure has been utilising Ekart (owned by Flipkart) and
Myntra’s in-house logistics networks. The company also slashed the
discounts being offered by two-three percentage points and introduced
its private brands, such as Roadster, on Jabong, yielding higher
margins.
Prior to its acquisition, Jabong was one of the first
third-party brands to utilise Ekart’s service, something that might
have given Flipkart an insight into the brand, leading to its
acquisition.
“Having two brands instead of one will help. I
think Jabong customers are a bit more fashion-forward than the
Myntra ones,” said Narayanan. The difference between the two brands in
terms of the customers they serve is what makes Jabong complementary to
Myntra, he added.
With fashion being a category where
spec-by-spec comparison is missing, it’s often easier to charge higher
margins than in consumer electronics or even large appliances. Going
forward, fashion is expected to power profits for e-commerce
marketplaces, with Flipkart shoring up on brands to take on Amazon –
the latter also recently made a splash in the space with its own
private label.
Flipkart currently leads India’s e-commerce fashion segment. It, Myntra and Jabong claim to have two-third of the market.
“It
is not a classic market share game, not about who wins the current
market. I always think about the next five years; who captures more of
the growth. That’s what we want to do with both the brands,” added
Narayanan.
Today, both Myntra and Jabong serve a very similar
mass-premium market. The company is working on changing that. While
there will be more integration in terms of supply chain and sourcing,
Narayanan has put together a team that will work on defining each
brand’s space over two years.
Ultimately, in the next one
year, Myntra’s goal is to turn around Jabong and help use the brand to
propel itself toward profitability.
Myntra claims its profit
has increased by 20 basis points this year alone, putting the company
on track to become profitable towards the end of next year.
(Published in Business Standard)
