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July 27, 2016
Nivedita Mookerji, Business
Standard
New Delhi, 27 July 2016
More
than two years after Flipkart founders Sachin Bansal and Binny Bansal
had announced acquisition of fashion portal Myntra at a high-street
restaurant in Bengaluru, the action shifted to New Delhi’s Connaught
Place for a similar deal on Monday night. While the Bansals had bought
Myntra for $300 million in May 2014 to go strong in fashion, they have
acquired German investor Rocket Internet-backed Jabong for $70 million
to stamp out competition in the high-margin fashion space.
It’s
a wise deal, according to analysts, as fashion is increasingly turning
out to be the route to money-making, profitability and success for
online players. Not a surprise then that well past dinner time, at
around 11 pm, the large conference room of Khaitan & Co, legal
advisors to Flipkart, turned into a party place where congratulatory
messages came thick and fast. The deal that promises to make Flipkart a
leading force in fashion segment — estimated at about Rs 3 lakh crore —
came after hectic weekend parleys. About 12 persons representing legal
teams, merchant bankers and advisors agreed on the deal while the
Bansals called in to say “well done”.
If in 2014, Flipkart had
scripted the Myntra deal with an eye on competition from Amazon, this
time too it is believed to have kept the same rival in mind. Vinay Joy,
associate partner at legal firm Khaitan & Co, said the deal was all
about synergy at a time when Amazon is trying to grow strong in fashion
vertical and entering new categories. Recently, Amazon announced fresh
investment of $3 billion and the global giant has often said that it
has an open cheque book for India. Consolidation in the space makes a
lot of sense as “Flipkart will become the go-to site for fashion,” Joy
added.
Flipkart CEO Binny Bansal stated that the company has
created the biggest fashion shopping destination through acquisition of
Jabong, a portal that has been on the block for long. “Myntra and
Jabong are all set to define the next generation of online shopping
offering the best of brands to Indian consumers,” according to Bansal.
Devangshu
Dutta, chief executive at consultancy firm Third Eyesight, reasoned
that the internal DNA of Jabong and Myntra were more
merchandise-oriented than trading-oriented, a differentiation that is
of significance to go big in fashion. The fact that fashion is a
high-margin sector would mean that any player doing well in this space
would make money that much quicker, he said. The margins in fashion
could go up to as much as 50 to 60 per cent in case of own labels and
at least in low two digits in other formats of fashion, Dutta pointed
out. In contrast, margins in electronics are at low single digit.
Kunal
Bahl, CEO of Snapdeal, which was seen as a frontrunner in the race to
acquire Jabong, however, told Business Standard in a recent interview:
“I look at net margin; fashion in India is also sold with plenty of
discounting. Selling shoes on a deep discount is like selling mobile
phones.” Snapdeal already has a fashion portal Exclusively.in under its
banner.
It may take a while for Flipkart plus Myntra plus Jabong
to beat physical retailers which are strong in fashion space, but as
Arvind Singhal, founder, Technopak, summed up, with the latest deal,
Flipkart has prevented Jabong from turning a threat if it was to be
acquired by a powerful player. “It’s a very intelligent deal,” said
Singhal.
(Published
in Business
Standard)
