In a little over a year ago, the promoters of Flipkart and Snapdeal were engaged in a war of words over who will be a greater force in the fast growing Indian e-commerce market. One year and a lot of 바카라Amazon-forced바카라 developments later, Flipkart is on the verge of devouring Snapdeal in a deal forced not by competition or organic growth but by investors looking at justifying their investments in the e-commerce market.
In the last few weeks, the decks have been cleared for Flipkart바카라s takeover of arch rival and fellow e-commerce major Snapdeal which has been sinking over the last year or so with sales slumping and Gross Merchandise Value (GMV), the primary measuring tool of an e-commerce company바카라s success, going down significantly. Not only has it not been able to match Flipkart바카라s growth, it has also become difficult for the beleaguered company to raise any more funds from investors, who are now looking for returns on their investment. In April, it reduced office space by 60 per cent. A couple of months earlier, it resorted to a massive downsizing to reduce costs and has been a low hanging fruit for acquisition.
But is there any value that anyone can derive from Snapdeal바카라s acquisition? Will Flipkart gain anything tangible as a company by acquiring a sinking ship?
Apparently, not. Experts and analysts across the spectrum feel that unlike Flipkart바카라s other acquisitions, such as Myntra, which have added value or products to the company바카라s portfolio, the Snapdeal takeover may not add any value to Flipkart as a company. That is because both the companies were in similar lines of business and Snapdeal is unlikely to bring in any assets to Flipkart. 바카라This is not one of those strategic business mergers,바카라 says retail expert and Technopak CMD, Arvind Singhal. 바카라This is a financial merger forced by investors to salvage their investment in Snapdeal,바카라 he says.
The deal seems to have been forced primarily by Snapdeal바카라s key investor Softbank, with Flipkart바카라s investor Tiger Global also looking to play in. Softbank, which has reportedly put in over $900 million in Snapdeal, is looking to get some value from its investment.
Once the merger finally takes place, Softbank will become part of Flipkart바카라s investors and salvage some of its investment in Snapdeal by getting some equity from Flipkart as part of the deal which is certain to be part cash and part equity. In turn, Softbank can give Flipkart the $1 billion fund which it is desperately looking for to build up a long-term fight against Amazon. Obviously, the deal makes sense for the investors who, instead of having two bleeding investments, will now have one.
But it is certain that Flipkart itself will not gain anything out of this apart from investors and investment. Both Flipkart and Snapdeal are in the same line of business and offer almost the same products. Although they both claim to have between 25 and 35 million customers, considering the fact that the total number of people shopping online in India is about 40 million, there will be a lot of overlap.
On paper, Snapdeal has about 3,00,000 sellers on its website, while Flipkart reportedly has a little over 1,00,000. But even this will not help. K. Vaitheeswaran, India바카라s e-commerce pioneer and founder, Indiaplaza, says 바카라How many of these Snapdeal sellers sell month바카라on-month and how many will bring products that Flipkart does not have will be insignificant. What is also important is that the number of Stock Keeping Units (SKUs), or the number of unique items a seller has, being brought onto Flipkart would be insignificant as well if not zero.바카라
There will be significant duplications at Flipkart though. It already has a logistics company, Ekart Logistics, which is not doing so well and Flipkart has restricted its operations and currently even outsources operations. Snapdeal바카라s logistics unit, Vulcan Express, may come with the deal.
Snapdeal also has a successful mobile wallet, Freecharge, which may also come with the deal if it바카라s not sold before the merger. There are rumours of Paytm and others looking to acquire Freecharge. Flipkart, on the other hand, launched its mobile wallet 바카라Flipkart Money바카라 in March, 2016, over a year after shutting down its payments gateway 바카라PayZippy바카라. In September 2015, it had acquired 바카라FX Mart바카라 which is into payments services and in April 2016, it acquired 바카라PhonePe바카라 wallet. In August 2016, it integrated Flipkart Money into PhonePe. In addition to this, Flipkart has also agreed to acquire eBay India. It will now have to think of how to deal with these duplications and reduce costs.
Vaitheeswaran adds, 바카라For the next six months or so, there would be distractions for Flipkart as it will inherit people and businesses that it does not need. It is certain that in this period they will cut the flab and integrate the businesses. The problem is that with Amazon around and growing the way it is, Flipkart does not have those 6 months to spare.바카라
The management problems Flipkart has been having is another story. It is in serious need for money to strengthen its arsenal against Amazon, which is growing by leaps and bounds. In January, Tiger Global effectively took charge of the company and inserted its own man Kalyan Krishnamurthy as the company바카라s CEO. Since then, the company has been steadily losing top executives. In fact in the last six months, Flipkart has lost at least eight of its key executives.
Last month, Flipkart바카라s COO Nitin Seth left the company. Seth was appointed COO after Krishnamurthy took over as CEO in January. The same month, Ashish Agrawal and Hari Vasudev, both senior vice presidents, engineering, had quit. This was soon after Saikiran Krishnamurthy, who headed Ekart, senior vice president Surojit Chatterjee, who headed products, and chief marketing officer Samardeep Subandh quit. In December, Sharad Agarwal, vice president who headed data strategy and Raghuram Talluri, head of customer experience at Myntra, also left the company.
바카라The sheer quantum of management changes and top people losses does not give me much confidence about Flipkart and what they wish to do,바카라 says Singhal.
One thing is certain. Flipkart needs investments to fight against Amazon바카라s financial and operational might and the Snapdeal acquisition will bring on board investors like Softbank and help it get the investments it needs.
Singhal adds, 바카라From Flipkart바카라s point of view, it will require multiple billions of dollars in investment as the current $1.4-1.5 billion is good only for a year or so. It will require more capital and they are far away from a capital market listing. Snapdeal바카라s acquisition will bring in new investors for Flipkart. So, Flipkart is not actually acquiring a company, but investors.바카라
Also, the acquisition will reduce a competitor from the horizon for Flipkart. 바카라This will take away a major competitor from the market. Now the focus of the business would be on how best they can engage with Amazon,바카라 says Harish H.V., Partner, India Leadership Team, Grant Thornton LLP.
But it is not Amazon alone that Flipkart has to think about. Chinese e-commerce major Alibaba is also waiting to break in. It has already made an investment through Paytm. It is only a matter of time before Alibaba sets up shop in India independently. Also, with the homegrown Reliance Jio following a route similar to Amazon with payment gateways, wallets and having physical retail presence, it may also enter e-commerce with the entire bouquet of services in the near future. And all of them have deep pockets while Flipkart operates through borrowed money.
The next few months when Snapdeal integrates into Flipkart바카라s fabric will be crucial for Flipkart. It has to be careful to reduce costs and duplications to have enough arsenal not just to survive in the market but to fight the might of Amazon. As of now, it will have new investors to stand by it. But it has to perform even before they start asking questions and look for returns.
