Why so much buzz around Flipkart-Myntra deal?

The founders of neither Myntra nor Flipkart have accepted or talked about the merger talks in progress. They are probably waiting till the deal is finally through and don’t want any speculative talks to disrupt the process. But why is there so much buzz and hype about the possible merger?

Now with both companies talking directly to one another without the intervention of anyone in between like investment bankers, the result would mean the first big consolidation in the Indian ecommerce world. Both companies were started in 2007 and the top management, along with their legal and finance teams are in advanced talks discussing valuation and gross merchandise value.

With a solid hold on the fashion segment, Myntra is aiming for $60 billion (Rs 3.6 lakh crore) sales and is already set to overtake one of the most established brick-and-mortar fashion destination Shoppers Stop. Flipkart also wants to make a mark in the fashion segment and would gain significantly from a merger with Myntra.

Why the buzz?

• It will set off the biggest competition in ecommerce with reason for big players like Snapdeal and Jabong to get worried. All of them target upper middle class consumers with the convenience of online shopping based on doorstep delivery and the variety of products offered.

• Consolidation would bifurcate between the high-end shopping and mass market shopping markets. High end shopping market is targeted at upper middle class customers looking for faster delivery of their desired products. Mass market is unstructured with local brands aimed at tapping the price-conscious customers.

• Since both companies want to keep their individual identities, the back end operations would be synergized leading to better and highly efficient operations. Sharing their consumer base and logistic operations would save on a lot of hassles in the back end.

• With the growth and popularity of global giants like Amazon, only consolidation could give a significant home-grown ecommerce giant as competition.

E-Retail highlights

• In February 2014, Flipkart crossed $1 billion (Rs 6,000 crores) in sales. Myntra crossed Rs 1,200 crore).

• So far, Myntra raised funding of $125 milliom (Rs 760 crore) and Flipkart $560 million (Rs 3,400 crore).

• Future Group has launched ‘Big-Bazaar Direct’, a big ecommerce initiative.

• Retail business giants like Reliance and Tata are getting set to venture into ecommerce.

• Global ecommerce giant Walmart is set to enter the Indian ecommerce market.

• Current ecommerce value of $3.1 billion (Rs 18,600 crore) is expected to reach $76 billion (Rs 4,56,000 crore) by 2022.

Opportunity provided by consolidation of ecommerce players for Indian Online sellers

• Global giants are established and find it easier to accelerate their pace of growth as and when required. Home-grown players are often limited in terms of capital. A merger or consolidation paves the way to compete and take on the global players.

• Consolidation enables smoother and more efficient back end operations thus making the process of online selling easier for sellers and more satisfactory for customers.

• Better deals and offers can be given to customers which will bring in more traffic to the portals and increase sales.