The Indian Ecommerce Industry has been focusing on price points and deep discounting rather than service differentiation and customer experience. Finally they are being punished for this approach. The bottom-line for any business is to make profits, losses will only logically lead to a business shutting shop. In this age where – start-up and venture capital buzz words, entrepreneurs seem to have forgotten why is that we do business. The reason to engage in business is basic as old as time itself to create livelihood and to result in profits. Erstwhile president and COO of Softbank, Nikesh Arora, went on the record to say that, if 2015 was a year of tremendous funding, it also witnessed shake-out.
The Indian E-commerce Industry has scaled down from 500 firms to 10, in the last year. Businesses such as Flipkart, Snapdeals and Jabong need to concentrate on customer experience and service differentiation rather than deep discounting. Since the inception of the industry a decade ago players have focused on two aspects of business – attracting more consumers and increasing the total value of goods sold. To do this online retailers have discounted products, out of their own pocket, to attract buyers. Investors have finally started asking tough questions and raised their concerns around the practice of deep discounting. Flipkart’s story: Flipkart was founded in 2007, and is headquartered out of Bengaluru. It has established itself as the home-grown player in the Indian e-commerce space, with a reported gross merchandise value (GMV, or the total value of goods sold) of $10 billion.
Flipkart is one of the most funded technology start-ups in India, having raised a total of $3.15 billion, according to CrunchBase, a start-up database platform. In the ninth year of business, Flipkart now has over 46 million registered users, 33,000 employees, 14 warehouses, and gets 10 million daily page visits. The company has recently witnessed several negative developments. These negative developments are the classic symptoms of what ails the Indian e-commerce industry. Earlier in the year the company’s valuation was trimmed by investor Morgan-Stanley by $4 billion. This move came earlier in the year when the company posted another year on year loss of Rs.2000 crores. The valuation of the company was cut from $15 billion to $11 billion. The share prices came down from $103.97 per share from $142.24 in June 2015. Also the company has seen many changes in leadership with Binny Bansal replacing Sanjay Bansal as CEO. They have also other key senior players like Mukesh Bansal – once rumoured to be the next CEO.
Another senior leader, Punit Soni, has left. Soni came to Flipkart from Google last year, but was not given a defined role following management changes in January. With these numerous changes in leadership one can only say that the climate at Flipkart will be volatile and strained .The company also seems to struggling with a clear cut strategy. The company decided to shut its mobile site, however later went back on its decision. Post that there were rumours that the company planned to shut their website altogether. This was a strategy that Flipkart’s subsidiary, Myntra, had opted for in May 2015 and abandoned in December. For now, Flipkart is available across all channels. Snapdeal’s Story: Snapdeal, trails right behind Flipkart as India’s second largest e-commerce platform, in terms of GMV. Snapdeals has long been looking to dethrone Flipkart for the elusive number one spot. Kunal Bahl, Snapdeal CEO has gone on the record to say that the company was on the verge to overtake Flipkart. The target date that was set was March 2016.
However, as of March 2016 Snapdeals reported a GMV of $ 7 Billion and a financial loss of Rs.1326.01 crore, shooting up five times from 2014-15 loss of Rs.264.6 crores. In terms of comparing Flipkart and Snapdeal valuations the score is $11 billion vs $6.5 billion. The company seems to be facing the same problems that are biting at the heels of Flipkart. Kunal Bahl also seems to want to focus on a strategy of increasing number of users. The company reports that they have a million transacting users daily, which is greater that both Flipkart and Amazon (India) put together. However Snapdeal is not making the cut when it comes to wooing mobile app users. The company did not make it in the list of 15 most installed mobile apps in India .The study was released by Jana, a Boston based mobile internet company. If these woos were not enough, the company also ran into trouble with its employees.
The company has faced alot of negative publicity with layoffs running rife. Is the tide turning ? : These developments at Flipkart and Snapdeals are a signal for the entire e-commerce sector in India. Get your strategy straight and run a tight ship. There are trouble waters ahead. Major players including Shopclues.com are finding it hard to raise money with VC s, these days. The VC s no longer have confidence in the Indian e-commerce sector. E-commerce sector in India, in 2015, saw an investment in tunes of $9 billion. The new year has seen a series of disinvestments like Rocket internet wanting to cut its losses in Jabong and Foodpanda . Softbank has also seemed reluctant to invest in e-commerce, let’s just say $100 million cheques from Softbank are harder to come by. DST and Naspers has also been quiet in the e-commerce space. The valuation bubble seems to be on the verge of bursting.
A recent survey carried out by VCCircle has indicated that the interest in e-commerce is waning. 46% of the participants indicated an interest in investing in start-ups in the consumer service space. Only 23% still have confidence in investing in the e-commerce sector. Over the last few years, e-commerce start-ups have received largest investments from VC s. Kashyap Deorah, serial entrepreneur and the author of In The Golden Tap: The Inside Story of Hyper Funded Indian Start-ups, a book about India’s start-up landscape said. “Doing business in that space had become territorial warfare with funding being the biggest weapon .The fake economics created by the e-commerce unicorns had created some bad habits in the ecosystem. Those will go away now and we can start building a more sustainable ecosystem.” The Flipkart and Snapdeals of the industry are facing apocalyptic dooms day scenarios is because they seem to have forgotten the basic principles of business – profiteering.
The buzzwords of day seem to be gross merchandise value (GMV or total value of goods sold) and company valuations. Investors have been myopic in the past and only looked things like registered users and daily page visits. However these are of no consequence if the business does not make profits. The flaw in the business plan is at a basic level.