Flipkart: Reason behind popularity of e-commerce

7 years back a computer engineer from a leading Indian institute co-founded

what is the largest e-commerce company in India today. We are talking
about the very well know company Flipkart founded by Mr. Sachin Bansal
and Mr. Binny Basnsal in 2007. With an investment of just Rs. 4 lakh in total
they started the company that today generates crores everyday. When it
was just four years old, the company used to sell 15 products per minute. It
took a lot of hard work and time in reaching there. "We didn't draw our
salaries (from the business) for almost a year and a half," says Binny. The
idea behind the site was a “price comparison website” but they finally
decided upon an e-commerce portal.

Flipkart started as an online book retailer. Later they expanded themselves

in areas like fashion & technology. Other areas are also in pipeline like
furniture and white goods. "In March 2011, we announced that by 2015, we
wanted to hit USD 1 billion in GMV. At that point in time, our run rate was
USD 10 million. Today, we are really proud and excited to announce that we
have hit a run rate of USD 1 billion GMV one year before our target," Flipkart
co-founders Sachin Bansal and Binny Bansal in a statement.

Strengths of Flipkart:

1. Regular penetration in all possible areas. They started with books,

entered later in fashion, electronics, apparel etc.
2. Inflow of investment: They have taken seven round of investment from
investors like Naspers, Tiger Global, Accel Partners, Dragoneer, Morgan
Stanley, Sofina and Vulcan Capital.
3. Excellent service: They deliver the product within a span of 24 hours.
4. Earning Customer`s trust: Easy returns policy which helped consumers
to trust them more.
5. Internet reach: Indian youngsters have become so active on internet in
the past decade and so has their tendency to shop online.
6. Convenience: It’s extremely convenient to shop online, comparing the
product price & features sitting in the comfort of your home.
It now uses technology to sell everything from apparels to consumer
durables, and has its own logistics firm and is valued at nearly Rs 10,000
crore. Now the question is why acquire Myntra? Let us know few things
about Myntra.

Myntra: Online Fashion Store

Myntra was founded in the same year (2007) when Flipkart. It started with
T-shirts, mugs, greeting cards, calendars, key chains, diaries etc. and later
in 2010 expanded itself to retail fashion and lifestyle products. Myntra gain
lot of popularity as an online fashion retail store.
It gained funding from companies like Tiger, Kalaari, Premji Invest, IDG &
Accel Partners. In February 2014, Myntra raised additional $50 Million
Funding from Premji Invest and few other Private Investors. It was founded
by Mukesh Bansal, Ashutosh Lawania and Vineet Saxena. Myntra received a
lot of awards also in e-commerce.

Strengths of Myntra.com:

1. Excellent service: They kept their delivery time 24 hours which turned
out to be a big reason for their popularity.
2. Return Policies: They have kept a very easy return policy which is very
important in online shopping. They provide a 30 days return and exchange
guarantee.
3. Schemes & Discounts: They provide discounts throughout the year with
attractive point system for loyal customers thus increasing the loyalty.
4. Convenience: They offered the convenience of buying online, trying and
returning which was an instant hit amongst avid online shoppers.

The Merger of two big players

Why did Flipkart pay nearly 330 million $ for Myntra.com? Both of them
were seen as rivals. Apparel & fashion industry works in a very different
way. Flipkart`s model was mass selling while in Fashion uniqueness is
important.The main reason behind Flipkart wanting to take over Myntra is
that, Flipkart did try to enter in Apparel & Fashion but it could not make that
space. Myntra`s delivery service has been great. Myntra with its return
policies, offers, premium points & delivery service gained many customers.

This acquisition resulted in coverage of the only area left viz. apparel &
fashion. With the growth of internet in India, e-commerce is likely to see a
robust development. Now Flipkart is an e-tailer with a wide range of
products. They are likely to use the Myntra`s customer base, product
partnerships & delivery services. Though they have planned to keep
everything separate and function as individual entities.

On the other hand as per one of the the co-founders of Myntra.com , it was
better to join hands with the biggest player and then fight against the other
competitors.
Abstract

The acquisition of Myntra (India’s largest fashion e-tailer) by Flipkart (India’s biggest e-tail company)
brought together two of the biggest e-tailers in India. Made possible by common investors, the
acquisition would enable Myntra to leverage on Flipkart’s infrastructure, while allowing Flipkart to
strengthen its portfolio of product offering. This consolidation is seen as a response to taking on Amazon
which has made big plans for Indian market.

Introduction

It was midsummer in 2014 in India when the country’s leading e-tailer Flipkart made the hottest and
most awaited announcement of the Indian e-commerce industry – the acquisition of Myntra, its rival
and leading e-tailer in the fashion and lifestyle segment, a vertical in which Flipkart was lagging behind
its competitors. On this occasion, Sachin Bansal (Sachin) and Binny Bansal (Binny), co-founders of
Flipkart, said, “We believe that the future of fashion in India is e-commerce. Myntra has a strong team
with excellent domain knowledge. They also have the best relationships with lifestyle brands.

This partnership will strengthen both our positions in the fashion space. We will continue to work as
independent entities and grow together as leaders in the Indian fashion and lifestyle industry.” Arvind
Singhal, Chairman of Technopak Advisors Pvt. Ltd., said, “The Flipkart and Myntra merger will create the
first Indian e-tailing powerhouse, and provide a big fillip to India's still nascent but very promising e-
commerce industry.”

However, not all experts were of the same view. Mahesh Murthy, co-founder of Seedfund , said, “While
this (deal between Flipkart and Myntra) may be good for investors, it might not be so good for the
entrepreneurs and staff of these companies.” Swati Bhargava, cofounder of Cashkaro.com , said
“…Consolidation of top two out of five players is probably not great from a customer perspective. It
reduces competition and perhaps incentive for continual improvement...

Indian Online Retail (E-Tail)Industry

The online retail space formed about 0.55% of the overall Indian retail industry (about Rs. 25.3 billion),
and included organized and unorganized retail. The online retail industry constituted just about 7.9% of
the organized retail industry in India (Refer to Figure 1). Indian e-tail industry players mostly followed an
inventory-based model or a non-inventory-based model also known as the marketplace model . In
August 2014, the players which followed the inventory-based model were Jabong.com , Myntra.com,
Firstcry.com , zovi.com (all were online retailers) and players that followed the non-inventory-based
model were Flipkart.com, Snapdeal.com , ebay.in , and Amazon.in (all were marketplaces). Industry
experts felt the Flipkart and Myntra deal could start a phase of consolidation in the Indian online retail
space which was worth about Rs. 139 billion (about US$2.32 billion) in 2012-13.

The first RadioShack store was started in 1921 by two brothers, Theodore and Milton Deutschmann in
Boston, US. The store primarily sold ship radio equipment and ‘ham’ radios . The brothers named the
company after the small wooden structure on board ships that carried the radio equipment, which was
referred to as the ‘Radio Shack’. RadioShack had to its credit the first audio showroom in the US that
provided comparisons of speakers, amplifiers, turntables, and phonograph cartridges.

Excerpts

Flipkart: Leading E-tailer In India

Flipkart.com (Flipkart), often referred to as the ‘Amazon of India’, was started by two ex-Amazon
employees, Sachin Bansal (Sachin) and Binny Bansal (Binny), (not related) in October 2007 with an
investment of Rs. 0.4 million. The company started as an online book seller with 50,000 book titles and
got its first order about four months after its launch. , Two years later – around December 2009, it had
grown to become the largest online bookstore in India. Once it picked up momentum, Flipkart started
offering various products under different categories.

In 2010, it began selling DVDs/VCDs, mobile phones etc. In March 2011, the company was doing
business with a Gross Merchandise Value (GMV) of around US$10 million. Gradually, it added more
categories on its website, www.flipkart.com, such as cameras, laptops, home appliances, e-learning,
healthcare and personal products, and clothing.

Myntra: Leader In Fashion E-Tail

Myntra.com (Myntra) was founded by Mukesh Bansal (Mukesh) and Ashutosh Lawania (Lawania) in
February 2007 in a three-bedroom flat in Bengaluru, Southern India. Vinneet Saxena (Saxena) and
Raveen Sastry (Sastry) also joined the company as founders the same year. All four founders invested Rs.
5 million in the company. Myntra was started as an on-demand online personalization platform for
products and gifts where the customer could personalize products such as mugs, T-shirts, calendars,
key-chains, diaries, etc.......

Funding From Various Leading Venture

In October 2007, Myntra got an undisclosed amount of first funding from Accel Partners (Accel) and
Sasha Mirchandani . After that the company generated a series of fundings from various venture
capitalists at regular intervals. By February 2014, Myntra had generated funds of U$115 million plus in
six rounds of funding .....

Acquisition By Myntra

In November 2012, Myntra acquired Exclusively.in Inc and its brand Sher Singh (www.shersingh.com) in
exchange for cash and equity. On this acquisition, Mukesh said, “We have been working on a private
label initiative within Myntra and wanted a team with strong design and inventory and Sher Singh has
done that really well. It made sense to acquire the team.” In April 2013, Myntra went in for its second
acquisition, buying FITIQUETTE for cash and stock. Mentioning the significance of this acquisition,
Mukesh said, “Myntra aims to create the most compelling fashion shopping experience for Indian
consumers at per or better than global standards. FITIQUETTE developed pioneering technology for
solving the fit/size problem online. This acquisition will not only help us improve the experience
significantly, but will also enhance our technology team with addition of top tech talent.....

Financal Growth Of Myntra

In 2008, Myntra reported revenues of Rs. 40-50 million with a customer base of 150-plus companies and
50 colleges. The company also reported a monthly growth rate of 10-30% with a gross margin of 25-
60%, depending on the product. Myntra stated that it would break even by the end of the financial year
2010. In 2010, it was generating Rs. 10 million of revenue every month. In August 2012, Lawania stated
that the company had close to 8,000 transactions per day and was shipping about 11,000-12,000
products every day with a margin of 35-40%. In Financial Year (FY) 2012-13, Myntra reported revenue of
Rs. 4 billion.......

The Deal

In January 2014, The Times of India reported that Flipkart had approached Myntra with a merger
proposal. Initially, the offer was to merge Myntra with Flipkart. However, later, Flipkart changed the
offer and agreed to run both companies (Flipkart and Myntra) independently. Experts said that two
common investors campaigned for the deal – Tiger Global Management, LLC (Tiger) and Accel. If the
deal went through, then it would save both investors from injecting fresh capital into the loss making
duo. In addition to this, the merger would create the undisputed leader in the Indian online space and
keep the competitors of both companies, such as Amazon and Snapdeal (competitors of Flipkart) and
Jabong (competitor of Myntra), at bay.......
Synergies

Myntra was in the high margin fashion segment and was the leader in this category. Flipkart wanted to
establish itself in this segment ever since it had launched men’s clothing in October 2012. Vijay Kumar
Ivaturi, member of Indian Angel Network , said, “Flipkart wants to be a horizontal, multi-category, and
scale player. Hence, it seems like a good strategy to acquire a category (fashion) player for scale and
depth.” The deal helped Myntra gain access to Flipkart's logistics network and it was able to deliver its
products to more than 9,000 PIN codes (before this deal it could do so only in 9,000 PIN codes) and
cover more than 100 cities (before this deal it was only 30 cities). In July 2014, both websites (Flipkart
and Myntra) had 26 million unique visitors followed by Jabong and Amazon with 23.5 million and 16.9
million unique visitors respectively. .......

Road Ahead

After the deal, Flipkart and Myntra had a total 50% share in the Indian online fashion segment. BS
reported that both were looking to achieve a 65% share by late 2015 or early 2016. To achieve its target,
the company had a plan. According to Mukesh, “Recently (around mid of 2014), we set up a fashion
incubator, in which 15-20 people will be given support in manufacturing, sampling, supply chain, etc, to
grow private labels. After a year, three-four private labels might be acquired by Myntra”. Both
companies also planned to take over some private brands whether online and offline. .