Right from birth to baby steps to exponential rises to pivots to crashing halts—to even buyouts. Indian e-commerce—both in terms of Indian companies and companies that have entered India—though big on drama, still only make up 3% of India’s $650-billion retail industry.
Three percent. Why should a 3% market share matter?
Because within retail, e-commerce has occupied the limelight over the last 10 years. According to the India Brand Equity Foundation (IBEF), India has been the fastest growing market for the sector, and will grow at an almost implausible 51% rate. Plus, how entertaining is the sector? There’s Flipkart stumbling before being scooped up by international retailer Walmart; there’s Amazon entering India and capturing both the market and people’s imagination; there’s Snapdeal…
While focusing on the loss-making business that’s e-commerce—the four big e-commerce companies Flipkart, Amazon, Snapdeal and Paytm Mall raked up losses of over Rs 10,000 crore in the year ended March 2019—there are three larger stories that emerged in the past decade. From three different companies.
One of a crazy stroke of luck. Flipkart.
One of parental support. Amazon.
And one of trying till you die. Snapdeal.
All have something in common. The existential struggle for e-commerce in India. For an industry touted to grow to $200 billion by 2027, according to global financial services company Morgan Stanley, Indian e-commerce has a long way to go. Morgan Stanley had, in 2018, predicted this $200-billion growth by 2026, but pushed it back by a year early in 2019. This was the second time it revised its estimate.
The company blamed this new revision on India’s latest Foreign Direct Investment (FDI) rules. “The new regulations released in December 2018 strive to tighten the functioning of ecommerce companies in India….We believe these regulations will pose headwinds to growth in the near term as some of the prominent companies restructure their businesses, processes and contracts, to be compliant,” Morgan Stanley said in a report.
Even without the latest FDI rules, though, it would be very hard for this fast-growing e-commerce industry to get to that $200 billion number in eight years. We wrote about this over-projection in mid-2018.
To get to that figure, the market size has to grow to 10X from its current size in a period of eight years. Possible? Sure, if you believe in pies in the sky. It is also interesting that not so long ago, the same analyst firm had predicted that the e-commerce market in India would be $120 billion in 2020. It is fairly certain that the actual number won’t be even half of this figure, which probably explains why the company silently shifted the goalpost from 2020 to 2026.
That being said, the three characters in today’s story have done everything in their power to stay afloat. Or in Snapdeal’s case, resuscitate. So, without further ado, let’s dive into the decade that was.
Snapdeal could’ve been the poster-boy of this decade—given that it started out in 2010, became one of India’s first unicorns in the first half of the decade, etc. Except it eventually got trumped by Flipkart in 2017—courtesy a $1.4-billion fundraise led by Chinese conglomerate Tencent, American tech giant Microsoft and e-commerce major eBay.
But Snapdeal founders Rohit Bahl and Kunal Bansal weren’t the sort to give up easily. Right from the start. They were willing to open the company up to just about any quick fix, leading to multiple pivots. So open were the duo to keeping Snapdeal fluid in its ambition that we wrote this back in 2016:
“What if Snapdeal could be a WeChat without the chat, Bansal and Bahl asked rhetorically.”
Pretty much anything, essentially.
Snapdeal started strong. It attracted nearly $2 billion in funding from blue-chip investors such as SoftBank, eBay, Bessemer, Nexus and Ontario Pension Fund in its early years. But it just couldn’t sustain.
Things got so dire that Jason Kothari—infamous for laying off hundreds at previous companies, including Housing—was roped in. He became the Chief Investment and Strategy Officer (CISO) and was credited with a Snapdeal 2.0 programme to turn the company around.
Except, insiders at Snapdeal told us otherwise. Here’s a revealing snippet from our late-2017 story on Kothari:
People close to Kothari claim he was handpicked by the investors but senior employees in Snapdeal say that the board was surprised when Bahl pitched his name as someone who would lead fund raising for the company.
The company did not innovate. Neither did it add any new technology or vendors. Kothari let the company run on autopilot. What was Kothari’s role in Snapdeal at the time?
“No one knows. He really didn’t do anything,” says a former FreeCharge (Kothari was also CEO of the recharge company) staffer. “It was left to us to run the company.”
By June 2018, Kothari had left the building to join yet another e-commerce, Infibeam. Yet another unicorn, too. We wrote about the almost-mystical Infibeam in mid-2018; shortly after, Kothari moved to the company.
Today, Snapdeal claims to be making a full recovery. Its filings earlier this year showed a significant uptick of 84% in operating revenue.
But as we noted in our story in August this year, “contrary to the company’s claims of reducing operating losses by 70%, there is, in fact, a 32% YoY increase in like-to-like losses.”
All that glitters…
Can’t be snapped up.
It Flipped out
For all of Snapdeal and Flipkart’s rivalry in the first half of this decade, for a close second there, Flipkart was actually considering buying Snapdeal. But it didn’t (freeing up $1 billion for other purchases).
Awkwardness aside, this would’ve been a big purchase during Flipkart’s shopping spree. The Sachin Bansal and Binny Bansal-founded company was raising funds and spending as fast as it could. We called its growing warchest a “curse of the capital” back in 2017.
And we made you wonder just what the hell was going on:
“Flipkart in talks to pick up a stake in BookMyShow”
“Flipkart eyes more acquisitions, in talks with Swiggy…
Notice anything curious?
If you are scratching your head wondering why all the recent chatter regarding Flipkart has been about acquisitions and investments in seemingly unrelated sectors, join the club.
Between 2013 and 2015, Flipkart raised capital seven times. That’s some $3 billion just there. Its valuation grew with the money growing in the bank—Flipkart’s valuation grew 10X from $1.5 billion to $15 billion in this period.
But come 2016, Flipkart would change too much internally. We wrote about this sudden shift.
It was a company that could do no wrong. A golden unicorn that everyone wanted to touch.
And then, the ninepins started falling. Exactly a year ago, in January 2016, CEO Sachin Bansal resigned and was replaced by his fellow co-founder Binny Bansal. A month later, former Myntra CEO Mukesh Bansal, whose company Flipkart had acquired for around $300 million in May 2014, also moved on.
And two days ago, Binny himself was relieved of his CEO post by Kalyan Krishnamurthy, a nominee executive seconded by Flipkart’s bigger investor, Tiger Global.
We’d also made a little prediction about Krishnamurthy’s tenure. That he’d have to dress up the company for an IPO in 1.5 years or make a sale to a strategic buyer.
And boy oh boy, was Flipkart lucky in landing the second deal. And that too with Walmart, no less.
Mid-2018, financial newspapers were falling over themselves to write about the Walmart acquisition of Flipkart. After all, it was a whopping $20 billion deal—of which, $16 billion was all cash—with Walmart buying a majority stake of 77% in Flipkart.
Flipkart got real lucky.
Not only did it avoid an IPO situation—which could’ve gone south just as well—Flipkart, thanks to Walmart being a public company, is now one by association. In a piece we wrote around the time, we noted:
Walmart has already informed its shareholders that Flipkart’s financials will be reported as part of its international business segment.
What a win.
E-commerce is anything but easy. And Flipkart has found a way to maintain top spot. As we wrote in the story:
Flipkart’s CEO himself, recently admitted that there are only 10 million buyers who actually transact online in India every month.
Except now, all Flipkart has to worry about is how it needs to further Walmart and its own empire in India.
To do so, it’s first attacking hyperlocal delivery. Starting with grocery, but with the intention to build a hyperlocal system for anything from eggs to a smartphone.
We wrote about Flipkart’s inroads in hyperlocal in September this year.
The company is trying to crack the existing $400-500 billion Indian grocery market. The current penetration of e-commerce in grocery is just 0.5%.
As we wrote in our story:
Already, the e-commerce giant has made its ambitions for its groceries arm ‘Supermart’ clear. Flipkart expects grocery to be one of its top categories in the next 3-5 years. To do this, it intends to expand the online-only Supermart stores beyond India’s major metros and into tier-II and -III cities in the coming years, says its grocery head Manish Kumar.
Flipkart started Supermart in 2017 after a short-lived hyperlocal grocery pilot in 2015. The service is now operational in five cities, primarily selling staples, packaged food, snacks and beverages.
Except Amazon launched its own fresh grocery delivery platform—with the promise of 2-hour delivery—Amazon Fresh in August.
Amazon’s Amazin’ e-commerce
Flipkart was once called the Amazon of India. And then Amazon India launched its website in 2013.
Unlike its Indian competition, Amazon India was backed by its American parent—this meant access to all that the American e-commerce giant rolls out. It has a support system in place, with the offer of entertainment (Amazon Prime), devices (Alexa), and now even music (Amazon Music).
This has been a bit of an unfair advantage for Amazon. It always had brand recall on its side.
We wrote about this phenomenon in late-2017:
Amazon’s primary goal is not to get the customer to buy some item in a one-off transaction. Instead, it wants to become the default and de facto destination every time the customer wants to buy anything at all. Its primary weapon in this regard is the Amazon Prime program, and it is easy to mistake Prime as a fungible customer loyalty program that can be easily copied and emulated.
Free/faster delivery and earlier access are merely the initial hooks to draw the customer into the program. Thereafter, Amazon’s entire apparatus is designed to keep you there to such an extent that the customer doesn’t even bother to look at alternative sites when she needs to purchase something. Prime Video and Amazon’s devices are in turn designed to capture the customer’s share of time, and this increased engagement surface area is seamlessly finessed into purchases.
In the US, nearly 1/3rd of households are Prime subscribers (90 million members as of September 2017), and even in India, 30% of the orders on Amazon are already coming from Prime customers.
But India is never a cakewalk. Not even for parent-supported Amazon.
It has taken Amazon multiple grocery attempts to land up with Amazon Fresh, for starters. As we wrote in late-2018:
Through the myriad iterations of its food retail operations—Amazon Now, Amazon Pantry and Amazon Prime Now—Amazon has been struggling with customer experience. If a customer ordered food and grocery through Amazon Now, she was guaranteed delivery within two hours. Using the pin code of the locality, Amazon would source the order from its various partner stores (BigBazaar, Hypercity, More). But Amazon had limited visibility of the inventory at these stores. It didn’t control the inventory. Say you order 20 food and grocery items, but the local store that Amazon uses to fulfil this order only has 15 of them at that point in time. When trying to make the payment, you will have to remove these items from your cart. Do this multiple times and you get an angry customer who won’t return to your app or website. And a whole lot of angry reviews. That ruins the customer experience, and eventually, the credibility of the brand.
Amazon eventually gave in and bought Aditya Birla Group’s More chain of stores in September 2018—a local player that knew the market—in a Rs 4,200 crore ($573 million) deal with private equity firm Samara Capital owning the majority of shares.
More was not the only local player Amazon extended an olive branch to. In a bid to enter India’s fashion retail—and compete with Flipkart’s then-Holy Trinity of Flipkart-Myntra-Jabong—it tied up with good old Indian retail chain Shoppers Stop in September 2017. (It also lost out on Jabong to Myntra.)
It made a Rs 180 crore ($24.8 million) investment in the offline retailer in an attempt to build an omnichannel model. It’s safe to say it didn’t pan out too well.
Mostly because Shoppers Stop wanted out. As we noted in our story in March this year:
The choice for [Amazon] was easy—one of the oldest brick-and-mortar retailers in India and a pioneer of the one-stop departmental store model, Shoppers Stop. It had been around for the longest time, watching the retail industry shape up in India since 1991. If there was a grand old daddy of fashion retail in India, it was Shoppers Stop.
And Shoppers Stop needed Amazon. Like how.
Shoppers Stop derived less than 2% of its sales from omni-channel, and drew just around two million monthly visitors on its site. Amazon, in comparison, had around 320 million monthly visitors.
A marriage of equals this wasn’t.
Eventually, Shoppers Stop got around to listing its brands on Amazon again (it actually pulled out for a bit there), but it didn’t amount to much.
Amazon’s tryst with fashion in India has been less than ideal. As we noted in July this year:
It’s not that Amazon fashion is doing poorly in India, but that it has remained in stasis. The numbers bear evidence. While Flipkart, Myntra and Jabong (FMJ) together hold 70% of India’s online fashion retail, Amazon is barely in the rear-view mirror with 21%, an industry insider said.
In fact, some industry sources says Flipkart Fashion, on its own, is bigger than Myntra. Today, nearly 60-65% of Flipkart’s shipments are fashion and fashion accessories, but that yields only 20-25% of sales. That’s because its average selling price (ASP), as far as its fashion catalogue is concerned, is half of Myntra’s. Amazon’s top-sellers in fashion are accessories—a low-ASP, low-margin category with high shipping costs. It has yet to figure out a way to compete against Myntra in the high-margin sub-categories.
Of course, by September—thanks to Walmart’s intervention in Flipkart’s working—Myntra started looking a lot different, too. Walmart’s favouritism towards payments app PhonePe among Flipkart’s portfolio of companies relegated it to a different function.
As we wrote:
Myntra’s growth has been slowing. It has missed its internal gross merchandise value (GMV) targets two years in a row, two former executives at the fashion portal said, requesting anonymity. This has seen its GMV growth fall from 56% to 45% in the last two financial years, one of the executives added. Under Walmart, Myntra has seen a shift in goal from profitability to increasing revenue, three former employees at the company said.
Fashion aside though, Amazon has been making strides—extending its tentacles to try and capture all sorts of markets.
And finally, it seems to have figured out grocery with Fresh—a hyperlocal grocery distribution chain which delivers over 5,000 items—including fruits, meat and dairy. It could very well trump Flipkart in the hyperlocal race.
That’ll be another story, if it were to occur. Or even if Flipkart got ahead—Amazon, as we can see, hasn’t been very good at catching up to Flipkart.
Either way, one can trust these e-commerce giants to keep it interesting. Probably not $200-billion interesting though. In fact, not even $50 billion by 2020, as predicted by analysts (source: UBS India Internet Report, Apr 2015).
According to our analysis, the real number for the upcoming year is just over $10 billion. It’s a deep data dive we carried out mid-2018:
But according to our analysis, the actual figure comes close to $11 billion [for 2020]. Not 7% of India’s overall retail market. Closer to 2% now, with little hope of getting close to the target. Shocking, but there’s a way to understand this—an analytical, numbers-driven approach, using data from as many sources as we could tap into.
We suppose there’s a whole new decade to look forward to.