The Flipkart-Myntra Deal: Looking Beyond The Figures

By | May 23, 2014
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In what was the biggest corporate acquisition in the history of the Indian ecommerce sector, Flipkart completed the takeover of Myntra – an online fashion shopping portal – yesterday. From capturing a larger market share and staying ahead of other competitors, to combining business synergies – there seems to be a host of advantages for both parties from this deal.

It’s the business acquisition deal that has been in the news for many months now. The deal was finally done and dusted yesterday – with Flipkart taking over Myntra for an estimated sum of $300 million. According to Sachin Bansal and Mukesh Bansal – CEOs of Flipkart and Myntra.com respectively – the deal has every potential of generating additional business synergies of the two hiterto competing shopping portals. The acquisition was formally completed yesterday, and we here take a look at some vital aspects about it:

 

  1. Largest ecommerce acquisition in India – With Myntra being valued at more than $300 million, this deal is easily the biggest ever acquisition in the Indian ecommerce sector. The actual price of the takeover is yet to be confirmed, but it is likely to be upwards of Rs. 2000 crores. Mukesh Bansal himself is going to make a cool Rs 430 crores (might be slightly more).
  2. Need to stave off competition – Flipkart has not issued any official statement on this, but clearly it was getting worried about the growing competition in India. Well within a year of opening retail operations in the country, Amazon has garnered a mighty impressive overall sales value – and could have posed a serious threat to Flipkart’s leadership position in the near future. Snapdeal, a domestic rival company, was also catching up fast. The acquisition offers Flipkart a more solid base to stay ahead of its rivals.
  3. Myntra will continue to operate independently – Although the Flipkart-Myntra deal is a 100% takeover, there will be no immediate merger of the two companies. Mukesh Bansal will be moving over to the Board of Directors of Flipkart, and would head the fashion department. All other employees of Myntra are likely to be offered stock options. An initial public offering (IPO) might be announced, but not within the next few weeks.
  4. Huge growth potential of the online retail sector – Ecommerce in India is a $600 billion sector, with trends suggesting a rapid increase in this value in the next few years. In fact, out of the 160 million web users (approximately) in India, only around 20 million shop online. Flipkart and Myntra have joined hands to tap this ‘addressable’ market more effectively. The two companies will together have over 52% of the total market share – and as the sector grows further, revenues will soar too.
  5. Mutual benefits on offer – Flipkart might be the present leader in online retail shopping in India, but it does not come close to rivalling the fashion apparel collection of Myntra. According to experts, more than 30% of the income of average Indians go towards buying fashion apparel. The takeover, hence, would give Flipkart automatic access to this potential revenue source. Myntra, on the other hand, would benefit from the technical expertise of Flipkart (right from backend operations, to packaging and delivery). Together, they can become a much stronger brand than each on their own.
  6. No exodus of employees – Most mergers/takeovers between software agencies, mobile app companies, and other firms in the tech domain are accompanied with a mass exit of employees from one or both companies. The Flipkart-Myntra deal is not going to be anything of the sort though – since both companies have the same set of principal investors, Accel Partners and Tiger Global. Since Myntra would remain an independent entity, it can hire and expand its own workforce as well.
  7. $100 million being pumped in – Amazon is not going to challenge the superiority of Myntra in the fashion apparel sector – and this is something the owners of Flipkart wish to build on. Sachin Bansal has categorically stated that Flipkart intends to go really big on its apparel collections on sale. As an initial thrust, $100 million will be pumped into this department, with more cash forthcoming as the business expands.
  8. Successful track record of acquisitions – Having two major common investors has not only blocked off risks of loss of manpower – it has also helped both Flipkart and Myntra approach the deal with greater confidence. Previously too, Flipkart had taken over Letsbuy, while Shersingh had been bought by Myntra (both with the backing of Accel Partners). These deals worked out perfectly, and chances are high that this $300 billion acquisition will also reap rich rewards over the long-run.
  9. Following the Alibaba model – Six years back, Sachin Bansal and his team were a fan of the Amazon model of business growth, but not any more. After several visits to China and interactions with business heads over there, he has come to the conclusion that the overall online behavior of customers and the market size makes the option of following the Alibaba growth model more sensible. With the Chinese ecommerce giant also in the news for an upcoming IPO in the US, it will be interesting to see what further inspirations Flipkart can take from its strategies.
  10. Technological synergies – Online shopping in India has come a long way from sitting in front of computers and buying products. To target the burgeoning volume of mobile web users, both Flipkart and Myntra have their own mobile apps. As the two come together, they would have more consumer data to analyse than before – and their apps and online promotional drives would become more effective. Better segmentation, targeting and positioning of products means only one thing. Higher sales!
  11. Cutting down on losses – For a site like Flipkart, which has a daily visitor count in the range of 3.5 million, the concept of ‘loss-minimization’ does not immediately come to mind. However, the fact remains that – in 2013 alone, Flipkart lost out on around Rs. 282 crores (something that was sidelined by the high overall revenue figures). The scenario with Myntra was the same, albeit on a lower scale. The acquisition deal will help the companies to chase big margins now, instead of only revenues.
  12. Lesser domestic competition and more choice for customers – While the Indian ecommerce market is large enough to accommodate startups, the Myntra takeover will reduce unhealthy competition among the companies. Already, portals like Jabong, Snapdeal and Naaptol are competing with Flipkart for grabbing the eyeballs of prospective buyers. Since Flipkart’s relatively sizeable fashion department will be merging with Myntra’s apparel collection – all the sale proceeds would accrue to a single entity. Myntra will remain the fashion leader, while Flipkart will continue to head the country’s online retail sector.

 

The impending entry of Walmart is yet another probable cause for Flipkart to loosen the purse strings for taking over Myntra. The two companies will remain operating their own websites – with no immediate plans for complete consolidation. Flipkart launched its fashion division a couple of years back – and it seems that Sachin Bansal and his team has understood that this is the sector which would keep its dominance in the Indian market intact!

 

Hussain Fakhruddin
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Hussain Fakhruddin

Hussain Fakhruddin is the founder/CEO of Teknowledge mobile apps company. He heads a large team of app developers, and has overseen the creation of nearly 600 applications. Apart from app development, his interests include reading, traveling and online blogging.
Hussain Fakhruddin
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