Flipkart is in the middle of a crisis. One it can only blame itself for, believes Haresh Chawla, a partner at one of India’s most respected and experienced private equity firm, India Value Fund Advisors (IVFA). He claims everyone is looking the wrong way. The online marketplace’s snail pace growth is alarming. Flipkart has been at the center of Indian ecommerce but its innovation well seems to be drying up, which explains why its revenue or sales numbers are stagnant.
Over the last three years market leader Flipkart managed to grow its GMV by over 200%. Now the ecommerce giant seems to be tripping over its own feet and Amazon is ready to go in for the kill.
The Cause of Flipkart’s Undoing
Haresh Chawla says, the cause of Flipkart’s stumbling is its ignorance of everything other than the sale of the smartphones. The exclusive sale of Motorola phones amounts to at least half a billion dollars. The smartphone category represents more than half of the etailer’s GMV and now the ecommerce market is about to experience a drastic change.
Lavish spending by the marketplace has only brought its rival Amazon closer to the top position and has pushed investors to look for more suitable solutions.
An unconventional approach
Remember when Flipkart said it would go app only in a year? Intense debates within the company lead to the plan being called off. Going through with this plan would have been the most customer unfriendly decision the marketplace every made. To add to it neither the company nor the market was ready for Flipkart’s app only strategy. Mobile phones may contribute to a significant growth in online consumers, however most online shoppers close the deal through desktop access at work and mobile phone browsers.
They discontinued their mobile payment strategy with Payzippy and invested in ngpay in 2014. But no results were reaped. Since then they have struggled in designing a wallet and even a simple loyalty program. Even their Ping chat feature failed to gain much attention.
More app inefficiency
Compared to the Amazon mobile app Flipkart is far behind said Haresh Chawla in his article. He pointed out these faults with the app:
- The search feature is poor and the app experience and mobile site are non-intuitive
- The personalization and recommendation deliver a suboptimal experience
- Unconventional products are hard to find
- The Amazon reviews and Q&A section was way ahead of Flipkart
He also stated “I am sure everyone at Flipkart knows that this gap exists but the firm ignored it and was solely focused on pushing deals. Why?”
Lack of logistical sophistication
Haresh Chawla wrote, eKart can show immediate profitability and overlaying third party businesses allows it to bare costs over large volumes, giving Flipkart and eKart more room and leverage to improve operations. It also serves as a hedge for investors.
With Indian logistics becoming sophisticated, more long term improvements in automation, technology and resources are in order. And spinning off on itself will guarantee no success, stated Chawla. Should eKart compete in the market and raise resources independently, the moment new shareholders come along and the contract with Flipkart becomes one of arm’s length, one of the businesses will suffer margin contractions. As Flipkart’s business leverages eKart’s biggest gain! Flipkart’s shareholders will demand the value be captures by them as preferred or equity.
GMV is the focus
Flipkart was shortsighted by its growing GMV. It tried pushing this metric by concentrating more on selling smartphones as smartphones are worth more than the average ecommerce transaction size. Now add deep discounts to the equation and the GMV will soar even faster because it’s not only the end customer buying, mobile shop owners also buy in bulk from online marketplaces. The main focus on this category and as a result the other categories suffered along with the product experience.
Did you really need this?
Flipkart keeps spending on the unnecessary. Amazon on the other hand believes in frugality. According to their principles they only spend on what is important to the customer. Flipkart on the other hand threw caution to the wind and replaced frugality with free lunches and trend-setting paternity leave. To be a successful retailer you need to watch every penny and not paying attention to the details will definitely come back to haunt you.
Who’s leading the team?
The internal tug of war between the managers and top level managers has led to leadership issues. According to the article, Flipkart has hired the wrong people for the task now that its management is shaky.
Myntra is the issue?
Flipkart has shelled out 1,150 crores to Myntra since 2014, when it acsquired the online fashion portal. Myntra sustained a loss of Rs. 740 crores in FY15, compared to the loss of Rs. 173 the bear before. The logical reason for this monumental loss is the additional expenses of advertising and undercutting product costs. But Myntra says it is trying to increase its app users, in light of Reliance’s entry into online fashion.
Flipkart has left itself wide open and Amazon is more than ready to take a hit. Amazon has been in the business for 20 years now and any missteps by Flipkart are a huge advantage to the foreign marketplace. What Flipkart needs to turn the tables around is a group of seasoned professionals to plan, execute and cut costs.