Myntra renegotiates contracts signed by Jabong and foreign brand; Is there an agenda here?

Ever since Myntra acquired Jabong in July, the online fashion portal has been making plans to boosts its acquisition’s financial health. Myntra decided to combine its revenue with Jabong’s to meet Flipkart’s growth mandate. This tactic is expected to bring the etailers maximum growth in the shortest amount of time.

Now, two persons aware of recent matters between the two fashion portals claim that Myntra has renegotiated contracts signed by Jabong with to foreign brands like the Arcadia Group with labels such as, Top man, Topshop and Dorothy Perkins.

One of the persons aware of the situation states, “Now it (minimum guarantee) has been reduced. Plus, they now can sell these brands on all three platforms – Jabong, Myntra and in some cases on Flipkart as well.”

Jabong and foreign brands

Arcadia, a London-based group of brands, signed a deal with Jabong in 2014. With the help of its brands Jabong managed to sell exclusive high-street fashion brands like Dorothy Perkins. Subsequently the other brands from the group were available on the online fashion retail website.

UK’s largest fashion retail group, Arcadia has 600+ stores in 35countries around the world. In India its brand Dorothy Perkins receives 70% of orders for dresses. The rest of its sales come from categories like bags, shoes and accessories. All these products are priced almost at par with international rates at Rs.1,800 – Rs.3,000, the foreign brand group mentioned last year.

Myntra attempts to improve Jabong’s financial health

Both Myntra and Jabong management is trying to achieve profitability by December 2017, at the EBITDA (earnings before interest, tax, depreciation and amortization).

Ananth Narayanan, Myntra’s chief executive officer says, “We are going to push for both and we are going to look for EBITDA profitability together.”

In November Narayanan mentioned, “The unit of economics – when you sell every individual item, taking into account supply chain and return costs and margins – has turned zero for the first time for Jabong. There has been massive improvement around supply chain, reduction in discounting and increase in ASP (average selling price). We have gotten rid of a lot of lower ASP items.”

The etailer is expected to grow 30-50% in the financial year that ends in March 2018. It seems focused on attaining this goal. Jabong recently attained a 50% increase in profits and terminated its non-perfuming sellers with a 30-day notice.

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