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Flipkart's Myntra acquisition to herald e-commerce consolidation?

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Flipkart's Myntra acquisition to herald e-commerce consolidation?

Flipkart and Myntra ended months of speculation by officially announcing the acquisition of the online fashion retailer by Flipkart. Financial details of the deal were not disclosed.

As per the terms of the agreement, Myntra will continue to operate as an independent entity. Mukesh Bansal , founder of Myntra will join the board of directors of Flipkart. Additionally, Bansal will also be in charge of the fashion division of Flipkart. All employees of Myntra will get stock options in Flipkart.

Last year, Amazon, the world’s largest e-retailer entered the Indian market and has been pushing aggressively to develop its presence in the country. Both Myntra and Flipkart rank among the top five e-commerce players in the country in terms of marketshare and both will be hoping that by pooling in their resources, they will be able to fend off the Amazon juggernaut as well as an increasingly competitive Indian e-commerce market.

The e-commerce sector has grown exponentially in the last few years, though some feel that there is now a need for consolidation. Priyesh Jain, Founder, stated the industry was in need for consolidation for a long time. “With hardly any entry barrier and low capital requirement, there have been too many players in the market. Consolidation will continue as larger players look to build up their presence in categories that they have no presence in,” he said.

Vishal Tripathi, Principal Analyst, Gartner also expects the e-commerce sector to see further consolidation. “It is very difficult for a new player in the industry because of cost pressure and increasing competition. Also, if the new government brings in 100 per cent FDI in retail, then we might see even more players entering the market,” he mentioned.

On being asked whether a joint Myntra-Flipkart brand will be a more direct competition to Amazon, Tripathi suggested that it was more a case of another option for consumers and brands. “Amazon has deep pockets and a much bigger and older brand name (than other Indian players) but it depends more on how good an experience you can provide to the consumer,” he said.
So what does it mean for the smaller players? In the competitive market, how does a new brand differentiate and survive? “There is always a way to do things differently. For example, a niche segment could just be someone entering an old category but finding new ways of doing things,” opines Jain.

Echoing this thought, Praveen Sinha, Founder of fashion and lifestyle portal Jabong said there is enough room for a number of players in each segment. “The e-commerce space is expected to be a $18 billion business in the next few years, so there are opportunities for new players. In every geography, you usually have 4-5 bigger players with maybe one dominant player. So, there is enough potential, especially in the fashion space,” he said.

Others, meanwhile, feel that consolidation might not necessarily be the best thing for the nascent e-commerce sector. Swati Bhargava, Co-founder & CEO of felt that the Flipkart-Myntra deal makes sense for investors and will create a “more formidable competitor to international brands like Amazon." However, she cautioned that it remained to be seen whether customers ultimately benefit. “It could translate into lower prices for shoppers as joint logistics and associated costs could decrease. At the same time, early consolidation and lack of competition could even hurt our still evolving e-commerce economy,” she said. This possibility was also echoed by Jain who admitted that if a smaller player manages to develop a niche segment, it could attract the fancy of the biggies.

Sinha, on the other hand, says consolidation was seen in the e-commerce space even earlier and welcomed the new investor interest. “We have seen a lot of traction from investors recently. After a lull period, a lot of positive attention is coming back in the e-commerce space,” he opined.

According to an Assocham report released earlier this month, India’s e-commerce market reached $8.5 billion in 2012 and rose 88 per cent to touch $16 billion in 2013. The survey estimates the country’s e-commerce market to reach $56 billion by 2023, driven by rising online retail.

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