Did Flipkart make a mistake by acquiring Jabong? Snapdeal’s response may explain why!

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Flipkart welcomed Jabong into its fold 2 days ago after its online fashion   arm Myntra acquired the ecommerce firm. Snapdeal also showed interest in acquiring Jabong among others and for a while it was ready to strike a deal. However, Flipkart got in the way of Snapdeal’s plans. Or did it?

Snapdeal doesn’t mind losing?

As it may appear, Flipkart stole Jabong away from Snapdeal putting its rival at a fashion disadvantage. Snapdeal can kiss its dreams of replicating the Flipkart-Myntra effect in online retail now. Most online marketplaces would be upset about soiled plans, but not Snapdeal.

A day after Flipkart’s acquisition of Jabong, The CEO and founder of Snapdeal, Kunal Bahl was relieved and quite chipper about the way things turned out.

Jabong not a clean enough target for Snapdeal to acquire

According to Bahl, Jabong is not a clean target and that is why he is relived his company did not buy the fashion portal.

“We have a high bar when it comes to governance, regulations, and compliance. Unless a company can clear that bar, we have issues,” he stated in an interview.

So did Jabong not clear this bar? Bahl said we can assume so and to encourage the Snapdeal team he wrote in a note on Tuesday, “M&A is very exciting when you are doing it. The real work begins after that, and the surprises come after that. I am happy for the people who got all this cash for a company that has all these issues.”

Acquisition becomes a no go when the company to be acquired has governance and compliance issues. Bahl said, “We acquired FreeCharge earlier, a company that was squeaky clean. We have a very high bar, maybe the others don’t. To me, this is black and white, there is nothing in the middle.”

Will Flipkart be able to handle Jabong’s losses?

According to reports, Jabong has many problematic areas due to its binge spending on advertisements and discounting. The online fashion portal is making huge losses but has managed to reduce them noticeably.

There are also allegations about ex-Jabong executives who may have violated several corporative governances. This could cause legal issues for the firm, interfere with its functioning and devastate its new owner’s plans.

Flipkart now controls 70% of India’s online fashion market. If everything goes according to plan the etailer could do some sever damage to other etailers dealing in online fashion on a smaller scale.

What will Snapdeal do with its spending money?

The next step for Snapdeal will be building its very own fashion business. Bhal plans on spending a total of $100 million which the company saved for buying Jabong.

Fashion is the future of online retail. It is expected to prime category by 2020. As per the numbers online fashion has huge growth space because only 1% to 3% of all fashion is online. This is a result of non-branded fashion ruling 90% India’s fashion market.

“The capital that you invest here will be used to build the most phenomenal business in fashion. We will invest $100 million in fashion, which would have gone into someone else’s pocket,” Bahl claims.

So when can we expect the Indian etailer to present an extraordinary fashionable experience? And what about it will be different from Flipkart’s?

2 Comments

  1. Vinayak Goyal Reply

    It seems to be a mere excuse to overshadow their failure to acquire Jabong.
    Snapdeal execs have been ridiculous negotiators till the lower rung of executives(experienced it, really!), I can really imagine how the top execs would have been trained by snapdeal to negotiate and get the every last penny out of Jabong.
    But the sad part is, you cannot win by forcing your partner, in this case Jabong( p.s. in our case it was us, and they always wish to get out of seller every penny, so he doesn’t make any money. But hey! Snapdeal makes money by applying all the charges they possibly can. Ofcourse unless you are one of their favorites, then you can sell your products at Rs.100-200 higher than competition and still be listed at the very top, even if you got worse ratings than person selling the same stuff at a cheaper price).

    Nevertheless, Snapdeal always knew about the internal issues with Jabong while they were negotioting, so they did when they acquired stakes in GoJavas(Jabong Logistics Arm). Why they didn’t they raise this type of issue when they acquired GoJavas which infact had way more personal beneficiaries than in case of Jabong itself. Well because they did gain in negotiations due to this issue itself.. they probably got stakes in GoJavas at lower price due to this issue in the company but were unable to crack a deal with Jabong, so raised the issue of personal beneficiaries to divert their failure to be seen as a pseudo-success.

    P.S. This was my understanding of the scenario and I may be incorrect at some points, you are welcome to correct me. Nevermind.

  2. Vikas Reply

    Very well said vinayak goyal

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