Case Study- Flipkart
Innovation is Whatever brings value to the consumer-it takes forms, sometimes it’s a breakthrough in technology and sometimes it’s just about thinking different in the way approach problems” says Andrew Garrihy, Chief marketing officer for western Europe at Huawei.
India’s E-commerce Space
India’s e-commerce space today is mainly dominated defined by 2 players-Flipkart and Amazon. Flipkart is the fashion leader. After acquisition of Myntra and Jabong, Flipkart commands more than two-third of India’s fast growing online fashion retail market. Amazon is the tech power. Over 20 years of learning in technology and online retail business has resulted in faster execution and fewer mistakes. Amazon excels in providing powerful search and recommendation engines to users.
India’s apparel and lifestyle market is worth $70billion, and currently only 2% of that is online. According to a recent Google report, the report also states that fashion will outstrip consumer electronics as the largest online retail category, accounting for about 35% of consumers total online spending by 2020.
For a vast multilingual nation like India, building an e-commerce company was indeed a tough task for Flipkart. Some of the factors like weak infrastructure, myopic bureaucracy, and above all, an ingrained distrust of the merchant class made the task even more challenging.
The Bansal’s, the founders of Flipkart were confident on one thing, that India was ready for E-commerce. The country highly fragmented retail sector, mostly ruled by mom-and -pop stores with poor services were the major problems identified by Bansal’s which had the potential to get converted into opportunities for building up a new business in 2007.
Flipkart found the right gap in the market and offered relevant products and services that fitted those areas perfectly. Finding that few Indians use credit cards, Flipkart pioneered cash on delivery . In Mumbai, it deployed dabbawallas, the famed lunch delivery network, to get packages to customers. Its pledge to take back unwanted goods for a full refund was a big propeller. Two of its strongest ethos of customer-friendliness and genuineness of its products connected very well with the Indian Consumers.
The Company added third-party sellers to its platform and set up it’s own logistic company, Ekart in 2009, with warehouses and an army of delivery personnel. By 2011, sales had reached $100 million, and very soon Flipkart was seen in different categories- sports, equipment, electronics, baby goods and more.
In 2012, Sales in the Indian e-commerce market were estimated at $1.6 billion. Flipkart , Jabong & Myntra, all home-grown players were leading the Indian e-commerce market at the time some of the major tactics which helped these players to gain market share in the Indian market were Cash-on-delivery payments, liberal return policies, free or subsidies shipping and in-house logistics. Since its founding nine years, Flipkart has become the nation’s most valuable start-up which introduced online shopping to the Indian masses.
Amazon launched its Indian website on June 5th ,2013 with the third-party marketplace model instead of selling directly. This forced consolidation in Indian market and Flipkart acquired the online clothing retailer Myntra in 2014 followed by Jabong in 2016. This deal further Strengthened its number one position in the fashion and lifestyle e-commerce category with an estimated market share 60-70% .
In this hyper competitive market, Consumer is having last laugh and is being pampered with choice, service and experience. Each player is continuously forced to innovate and take steps that add value to its consumer in a “real and meaningful way”. Stuart Eames, Operational Improvement Manager at Waitrose put it very well “If you don’t evolve, If you Don’t do something better or Different to the Competition you end up not being around.”
Changing Models of Business Enhancing Value
New companies indulge in market expansion activity and have high spent in the initial period hoping for future gains resulting in negative cash flow (Known as burn rate) . In a bid to acquire maximum customers, Flipkart indulge in aggressive agent on Marketing and discounts, biggest being in October 2016 “Big Sales” resulting in its burn rate at its highest two years ago. As of 2017, its burn rate is said to be $40-50 million per month, according to industry estimate. Flipkart Successfully lowered its burn rate by 5-10% every quarter in 2016 and wants to sharply accelerate this process.
The board has asked Flipkart to bring down the burn rate to one-fourth by March 2017 and is forcing Flipkart management to think differently to grow and to streamline its operations. The company also decided to slash the budget of Myntra by about 10% and re-allocate these funds to itself to fight the ongoing war against Amazon. To ease its cash crunch situation, Flipkart plans to save $150-200m by Dec 2017 and is also in talks with Walmart stores for investment of $1B. At the same time, Amazon’s CEO Jeff Bezos pledged in June 2016 to invest another $3 billion in his company’s Indian operations, bringing the total to $5 billion, which definitely sounds a big threat to Flipkart, the home-grown e-tailer.
To bring in sharper focus on it’s core business model and make it nimbler, Flipkart is Consolidating the operations of its logistics and supply chain arm. Delivery to customer’s doorstep even in the remotest location popularly termed as last-mile connectivity plays a vital role in the online business and Ekart, the in-house logistics arm, has been able to provide this service efficiently and forms the backbone of its business. Flipkart has also started monetizing Ekart and offers warehousing solutions and end-to -end logistics and supply chain capabilities to other clients.
The Two fashion verticals, Myntra and Jabong, owned by Flipkart, commands a 45% market share in this verticals. They are bringing together their back-end operations and supply chain for stronger integration.
They are also integrating their private brand portfolios in order to give a push to the trifling private label business at Jabong. Despite such Integrations, the consumer-Facing platforms continue to run independently as the consumer segments and geographies targeted by each of them differ widely. While Jabong’s main revenue source is North and East, Myntra is big in South and West. Similarly, Jabong’s consumer base mainly consists of Women and first-time shoppers, while Myntra targets more towards men and Effluent Consumers.
Changing Models of Business Enhancing Value
The Online stores from the inventory model moved to third-party marketplace model where independent merchants in their network sell products directly to shoppers. It turned out to be a viable way to work in order to overcome the problems posed due to poor logistics and high costs of inventory. Further movement has come in when many online commerce companies have now started venturing into the hybrid model of running online stores with selective physical presence.
Global E-commerce giant Amazon in 2016 opened a brick-and-mortar store in New York. In India, players like Furniture e-tailer Pepper fry and eyewear seller Lenskart have Explored the offline route as well.
E-tailer are under pressure to grow profitability and hence, Fashion e-tailer Myntra has created “top-selling” outdoor lifestyle brand, ‘Roadster’ , Which has a current sales of Rs 600 crore, contributing 8% to the overall revenue and expected to reach sales of Rs 1,000 crores by 2019. Seeing this kind of Growth potential of this brand, Myntra, in association with one of its Franchise partner, has in March 2017, Launched the first retail store for its private label Roadster in Bangalore.
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