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?