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Flipkart had built its clientele by offering deep discounts. Of late, such offers have been rare because the company is trying to reduce the cash burning rate.
When the CEO of a company openly admits his poor performance, everyone knows there is something wrong with the company. Sachin Bansal, one of the poster boys of Indian e-commerce, said two weeks ago that he was asked to step down as CEO of Flipkart, the e-commerce company he cofounded, owing to performance issues. Binny Bansal, the other cofounder, took over the position.
Flipkart, once considered the crown jewel of the Indian e-commerce industry, has been going through a rough patch owing to management reshuffles, layoffs, profitability issues, a drop in sales and stiff competition. “There are rumours that Flipkart still has around $1 billion in the bank and even if the company does not make any profit and receive fresh funds, it can survive for one more year. But, that's it. New funds need to come. Initially, when the going was good and there was investor confidence, the company offered high salaries to its senior people. All that is slowly going down as there has been no real profits and investors are putting pressure on the company to generate cash,” said Kris Lakshmikanth, CEO of the recruiting firm Head Hunters India.
Flipkart had built its clientele by offering deep discounts. Of late, such offers have been rare because the company is trying to reduce the cash burning rate. This and lower spending on advertising seem to have led to a drop in sales. “Reduced discounts were mostly because of the investor pressure and Flipkart is saving up for the upcoming festive season. Amazon was heavy on discounts and sales throughout the first two quarters; combined with this, its strategy to focus on customer experience boosted its sales,” said Krishna Choudhury, business analyst at RedSeer Consulting, a research-based advisory firm.
The cut-throat competition with Amazon has been bleeding Flipkart. “Mobiles and tablets are one of the largest categories in online shopping. Amazon recently had a number of exclusive tie-ups with big mobile brands which were earlier with Flipkart. This certainly helped it gain market share considering the sales and also the high-ticket size of mobiles,” said Choudhury.
He is of the opinion that Flipkart’s management shuffles and experiments with strategies throughout the year have influenced the drop in its market share. Lalit Sarna, who was payments product lead at the company, and Sunil Gopinath, the product lead for its marketplace division, quit Flipkart in July. Its chief product officer Punit Soni quit in April.
Flipkart shut down its fashion brand Myntra’s website in May 2015, assuming that customers preferred mobile apps to websites for online shopping. But the app-only model backfired, as Myntra's sales went down. The website was restored in June this year. Experts say Amazon strengthened its position during this period. “The decision to shift to a mostly marketplace model last year and the app-only push took away its focus from achieving customer excellence. Plus the regular exits of senior management played a part. However, the e-tail industry is expected to reach $80-100 billion by 2020, and the Indian market being quite diverse, there is room for more than one player. Even if Flipkart has a small piece of the market, that won’t be a bad picture for the company,” said Choudhury.
The problem is, that might not be the case. As per a report by RedSeer Consulting, the Indian e-tail industry is experiencing a slowdown. After witnessing a steady growth in 2015, the numbers for the first two quarters of 2016 showed a dip. The report suggested a fall of 19 per cent in the first quarter and 5-10 per cent in the second. However, the growing number of online shoppers could change it. It is currently 23 million and would touch 100 million by 2020.
The Indian e-tail industry is dominated by electronics, which contributes more than 73 per cent to the total sales. Going forward, however, the strongest growth is expected in the fashion category, which could contribute 36 per cent by 2020.
To achieve growth, however, e-tailers will have to expand beyond their current core customer segments. The RedSeer report suggests that the industry players will need to increase the comfort level of tier-2 city shoppers, deepen the understanding of customers, localise advertising campaigns and continue to invest in reliable and fast delivery.
Alok Shende of the Mumbai-based Ascentius Consulting said many e-tailers had been facing the problem of low repeat business. E-tailers like Flipkart, he said, were driven mainly by management strategies which were short-sighted. “The need of the hour is to have a strategy which looks at things with a long-term view,” he said. “The current strategy is superficial in approach and does not have the required vision expected to survive in the market. I feel that the e-commerce market is now settling down and will continue to grow,” he said.
Lakshmikanth said a Chinese or Japanese investor might invest in Flipkart in the next year, as many of them were interested in the Indian e-commerce market and Flipkart had a well-developed infrastructure and brand name. “However, in case of no funds Flipkart may cut the salaries of its employees. The cuts are likely to be more at the senior level. There is a possibility of further layoffs,” he said.
The festive season, which is round the corner, will be a testing time for Flipkart as much of its revenues comes from this quarter. How the company deals with the competition in this season will determine its future.
