On Tuesday, Flipkart announced the acquisition of Jabong from Global Fashion Group. As per reports, the valuation of the deal is for $70 million. The acquisition of Jabong is believed to further strengthen Flipkart Group’s position as the undisputed leader in fashion and lifestyle segment in India, especially at a time when it is facing stiff competition from Amazon India.
In fact, Global Fashion Group was looking for buyers for over a year. Among the list of potential buyers, names of Snapdeal, Paytm, Future Group and Aditya Birla Group had also come up. In 2014, Amazon India held talks with Jabong for a potential buyout, but the deal fell through in the beginning of 2015, after Jabong asked for a $1.2 billion valuation.
In 2014, Flipkart acquired Myntra for an estimated deal size of $300 million. That was a strategy adopted by the company in response to Amazon’s ramp up of its year old India operations, and to tackle competition from arch rival Snapdeal. Flipkart used Myntra’s platform to experiment the app-only model. In 2015, Myntra had shut down its mobile and desktop websites. Flipkart also had plans of soon converting to an app-only model. However, the idea didn’t work and last month Myntra again relaunched their desktop website. Even the prized Silicon Valley hire Punit Soni, Chief Product Officer at Flipkart also quit the company recently, although he was hired from Google in 2014 with the intention of helping the player transform the market place into a mobile-first platform.
What does this deal mean?
We spoke to brand consultants and digital experts in order to understand what this deal means for the consumers and whether Flipkart took the right decision by acquiring a ‘loss making company’ like Jabong.
Saurabh Uboweja, CEO & Chief Brand Strategist, Brands of Desire said, “It is a clear indication of the long due consolidation in the industry and a sign of things to come. Jabong had been damaged beyond repair since the exodus of their top leadership and funding constraints from last year. Since then it has been a case of damage control for them and reduction of further loss of equity before an emergency treatment could rescue it back. For Rocket Internet, its parent, things have been far from rosy over the last 2 years, with many of their portfolio companies around the world nose-diving. Jabong was their star in India after they saw their other companies give in one after another.”
He further added, “The industry will benefit and so will Myntra as it will reduce the competition between similar platforms which means lower discounts and promotions going forward. The customers will certainly be the biggest losers as they will not have access to super deals anymore.”
Hitesh Gossain, CEO and Founder of Onspon.com cited, “It is a win-win situation for both the parties. In the Western countries, aggregation and consolidation is happening, the generic categories are taken by Amazon and there are a lot of niche categories. Similarly, in India as well, the generic play categories are not going to last long, vertical level aggregation has to happen. It would have been fantastic if the trigger would have come from a brick and mortar store. But it is a beautiful deal and I would like to track it.”
Naresh Gupta, CSO, Bang in the Middle said, “Myntra buying Jabong will make the former stronger. They get one more brand in their arsenal which they can use strategically. Myntra will have the flexibility with Jabong. Though I suspect that Myntra will want to keep Jabong alive for a long time, but it may turn Jabong into a non-fashion retailer, may be like personal care products etc. If Flipkart has put in the money, then I guess expansion in size of company must have been a big driver to consider having this deal. For the consumer it may eventually mean one choice less.”
Will Flipkart benefit in the long-run from the deal?
Ramanujam Sridhar, Founder, CEO, Brand-comm explained, “In earlier times, acquiring a brand was a straight forward situation. The company saw if there was a gap in the market place and if the brand has a role in the over-all portfolio. However, with the involvement of VC, their philosophy is different from any of the marketing company. They are probably aiming to have 1 player in a category eventually. If you ask, is this buyout adding any value to Flipkart’s portfolio, my views are mixed. Yes they will be acquiring new consumers, especially at a time when everything is not hunky dory for the company, it is a pure play investment decision to increase their market share. On the other hand, Amazon has also got their act together and is growing in size and presence immensely. But coming to the merchandises, there is no differentiation; the same brands are available on both Myntra and Jabong, so as a consumer I am confused.”
Echoing similar views, Uboweja said, “Flipkart gains from what is left out of Jabong, though it is yet to be seen if the remnants are worth the fight. It is difficult to determine clearly what does Jabong have that Myntra doesn’t. Jabong would end up losing its brand identity almost certainly as it merges its operations with Myntra. For Flipkart, it has been a clinical destruction of Jabong as they pumped funds to move the market share from Jabong to Myntra, even at the loss of its own equity at Myntra. In a way, it is a very attractive deal for Flipkart as it looks to consolidate and lead in the fashion & lifestyle category of e-commerce.”
According to Anshul Sushil, co-founder, Boring Brands, Jabong was not making profit, so instead of getting shut down, it being bought over is any day a good option. Also, a lot of brands have exclusive tie-ups with Jabong; and in case of a shutdown, consumers would have been affected. From the consumer point of view, Jabong is very sales driven and they have garnered a lot of attention in the tier ii and tier iii cities. Myntra on the other hand has a very urban imagery. So this deal will surely help Flipkart get more eyeballs.”
For the record, at its peak in June 2015, when Flipkart raised $700 million from global investors, it was valued at $15.2 billion, the highest for an Indian venture capital-backed company. Since then, the company has seen five mark-downs by global mutual funds, as the company has lost both market share and a perception battle to Amazon. Along, with this, there have been several high-profile exits from Flipkart as well. So things were anyways not looking very bright for the e-commerce player for a long time. But, whether Myntra acquiring Jabong is a well-thought strategy or not, only time will tell.