Jabong FY15 sales cross Rs 1,000-cr mark, discounting leads to three-fold loss


December 15, 2015

Sagar Malviya, The Economic Times

Mumbai, 15 December 2015

Lifestyle online retailer Jabong crossed the Rs1,000 crore sales mark in the year to March, doubling its revenue from a year ago but deep discounting has led to a nearly threefold increase in the net loss.

Xerion Retail, which runs Jabong, posted a loss of Rs 43.6 crore on sales of Rs 1082.9 crore, as per a Registrar of Companies filing. A year ago, it had sales of Rs527 crore with a net loss of Rs16.6 crore. Sales of the company, incorporated four years ago, amount to a third that of Shoppers Stop, India’s largest department store chain started 25 years ago.

India’s ecommerce market is set to rise to $103 billion by FY20 from $26 billion now, according to Goldman Sachs. At this stage of evolution, online retailers have to go through years of operating losses, given high initial investments as well as the incentives they provide in the form of discounting to attract consumers online. At the same time, several online retailers are said to be getting more circumspect with discounts as they seek to shore up their balance sheets.

Jabong, which was started in a one-room office at Golf Course Road, Gurgaon, in December 2011 is now part of Global Fashion Group portfolio, a subsidiary of German online business developer Rocket Internet. Both key cofounders Praveen Sinha and Arun Chandra Mohan quit this year amid speculation that the company is on the block. A week ago, Sanjeev Mohanty joined Jabong as CEO and managing director from Italian fashion brand Benetton.

"Jabong is transitioning from a startup to a professionally managed profitable ecommerce business. We are putting together a strong leadership team," he told ET. "Our focus will be on more and more curation, building unique assets and increasing assortment."

High growth and losses are par for the course at ecommerce companies, an expert said.

"There is a management churn issue but it is more difficult to bring losses down if you have to show high growth trajectory," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "For Jabong, loss is not a problem as long as they have enough cash on the balance sheet and there is constant product injection in its portfolio to excite consumers."

India’s biggest homegrown ecommerce companies Flipkart and Snapdeal are flush with cash as overseas investors in the two companies look to get a piece of a market that’s set to surge further. Amazon India too has indicated that it may exceed the $2 billion that CEO Jeff Bezos had pledged to spend last year, with sales growing more rapidly than expected. In comparison, Jabong has raised about $100 million from a consortium of investors including Swedish investment giant AB Kinnevik and Rocket Internet.

Myntra, owned by Flipkart, and Jabong were considered the leaders in the fashion category, but Amazon India is gradually getting aggressive with the segment consistently among its top three. During the festive season, Amazon saw its fashion segment grow fivefold from a year ago.

Apart from this, most lifestyle product makers are either shying away from offering heavy discounts for their wares or giving price-offs for old merchandise, something that goes against Jabong’s business model of offering fast fashion or the latest collection.

Hence, the online retailer has launched over a dozen global brands such as Dorothy Perkins, G Star Raw, Tom Tailor and Bugatti Shoes exclusively for India that also helps them earn higher margins. Just two months ago, Jabong helped British brands Topshop and Topman enter Indian market through its platform.

"We are focusing on growing the ‘just-in-time’ marketplace model where we don’t hold inventory risk," said Mohanty. "This is helping us create efficiencies and de-risk a lot of our business, while allowing us to expand the number of vendors and substantially increase the number of products listed on our platform, which now stands at close to 400,000 SKUs (stock-keeping units). We also continue to increase our assortment to offer more choices to visitors on Jabong."

(Published in The Economic Times.)