The Indian ecommerce story is witnessing a new twist. This after one of the serious contenders in this space — Snapdeal, which was once cited as an example of India’s rapidly growing ecommerce industry, is finally in merger talks to save its plunging fortunes.
The last two years especially have been tough for the company which tried to rebrand itself in an attempt to stay relevant and spent Rs 200 crore to make it happen. However, nothing worked in its favour and from the pinnacle of success to the crisis of survival, the crushing failure of Snapdeal has baffled us all.
Calling the Snapdeal story a classic example of short term approach, Ramesh Bhat, former Professor, IIM Ahmedabad, while explaining Snapdeal’s debacle says, “I think many of the e-commerce companies, Snapdeal in particular, were following a short-term approach without any clarity or vision, and without standing to their values. There is always a trade-off between maximizing gross merchandise value and costs; oscillating between the two always creates a distortion and if this continues for some time, it will create serious sustainability issues. Snapdeal was a victim of this oscillation.”
Bhat says in addressing such trade-offs, the finance function needs to have the complete DNA of what drives efficiency and profits of the organization. “For example, if a company has to reduce costs, one does not shut down a key driver of efficiency such as the closing of a warehouse where sellers have stocked their inventory. The cost and finance functions are deeply tied to operations and business, and thinking in a delinked manner will create serious issues. The management of assets seems to be an issue. Their warehousing policy and the acquisition of warehouses might not have generated a good return on investment leading to a short-term focus,” he adds.
Insisting that the ecommerce space was cluttered with me-too business models at the cost of profit, Harish Bijoor, Brand Expert and Founder, Harish Bijoor Consults Inc. stated, “Snapdeal was all about a parri passu business model in a cluttered market where everyone was trying to eke out a living. The ones who survive are the ones who are deeply funded and those with a deep desire to be different. The ecommerce space is cluttered with me-too models that seem to want to please all, even at the cost of the basic metric of business called profit. When there are five big players offering the same set of products at literally the same prices, with literally the same degree for customer service at play, with logistics efficiencies being largely the same as well, there is little scope for brand play. Ecommerce in India denigrated to commodity play. And in a commodity play, the early burnouts are the ones who run out of funds early. Snapdeal was that early one. For now, expect more to follow.”
Kritika Saxena, Deputy Chief of Bureau (Mumbai), CNBC-TV18, who has covered Snapdeal-Flipkart news extensively thinks that the company invested in aggressive expansion without thinking of long term financial viability. “Snapdeal bit off more than it could chew. It expanded too aggressively and too fast. A lot of capital was invested in aggressive expansion without keeping in mind that investment must be linked to financial viability. That clubbed with the fact that the sector had too many players in the market and what Snapdeal had to offer didn't really stand out. Though, it started out with a very clever business proposition, they failed to reinvent to stay relevant in the face of their peers. They were competing with the likes of Amazon and Flipkart who were bigger and had more financial muscle. Snapdeal didn’t have resources to be resilient and they were not able to realize that, and hit the pause and reset button,” she states.
“Snapdeal was always in reaction mode rather than thinking proactively and trying to create the differentiation factor. If one examines their offer pattern, it will suggest that they always followed Flipkart or Amazon with no differentiation strategy. No company can sustain just by copying others. It would be interesting to find out why the investors assumed a passive role and not put a serious mentoring system in place to manage these frictions as it happens in most situations. There seems to be a bigger failure,” Bhat further explains.
Saxena, who believes that the ecommerce space will witness a never-before-seen era of consolidation in the coming time, adds, “It's a war of survival where the smaller ones can get eaten by the bigger ones if they are not watching. You will see only Amazon and Flipkart as the main players that are here to stay, armed with a war-chest of funds. All small ecommerce players will have to learn from Snapdeal’s mistake. They need to be able to innovate and reinvent themselves. What this era will bring is aggressive competition, between Amazon and Flipkart and others that are trying to stay relevant.”