‘Myntra Will Turn Profitable In 18 Months’
Flipkart’s chief of commerce sees the ‘mobile-only’ strategy as the future of retailing, as mobile provides better search and geopositioning and exact recommendations
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BW Businessworld met Mukesh Bansal, chairman of apparel e-retailer Myntra and head of e-commerce at Flipkart, on a day when the pink newspapers were screaming that he had thrown a challenge to rival Snapdeal that by next March Flipkart would be spinning $10 billion in sales. The posturing by Bansal came as a response to Snapdeal chief Kunal Bahl’s assertion that his company will surpass Flipkart by the fiscal-end with $4 billion in sales. During the interview, Bansal was a little embarrassed about the $10-billion figure though he maintained it was the official target for Flipkart. At Myntra, he has emerged as a big risk taker by betting on an app-only strategy, where the larger e-commerce companies, globally, have not dared to tread. Bansal, co-promoter of Myntra, sold his business to Flipkart in May 2014 for a valuation that is believed to be close to $400 million. Ananth Narayanan, the newly appointed chief executive officer of Myntra who accompanied Bansal to the interview, talked about Flipkart, Myntra and the future of eTailing in India. Edited excerpts:
It seems you have declared war against Snapdeal, after they claimed $4 billion in sales by next March...
Bansal: There is no war with Snapdeal or any other company. We are now focused on the long term. At the macro-level, the e-commerce industry is small. We still have a long way to go; in terms of percentage, the industry is still in single digits when compared to the opportunity in the overall retail market. We are creating large sustainable businesses. Retail is a $600-billion business today and will grow to $1 trillion in five years. Organised retail is growing very slowly, though. Most of the organised retailing will happen through the online space. In developed countries, online retailing is about 15-20 per cent of the overall retail; in India, it is still 1.5 per cent. In the apparel space, the opportunity is worth $80 billion, though it is very unorganised. There are not many brands. Fashion offers great margins and there is an opportunity to build our own brands. Myntra can be the largest fashion retailer. Some of our brands are already big.
How much of the luxury apparel market has Myntra captured?
Bansal: If you subdivide fashion, then there is the value segment, mid-premium segment, premium segment, and luxury segment. The middle classes consume the premium segment, where the average price per unit is Rs 1,000. In the large brands segment like Nike and Puma, Myntra’s business is 20 per cent of their turnover. In gross domestic product growth, the middle class is at the front. We need to create brands for this class because consumers are going to become sophisticated and our platform offers that opportunity.
The apps-only strategy is good. But why are you restricting your market by cutting out computers and other formats?
Bansal: We have a perspective on this mobile-only strategy. Our market, the mass-premium segment, is driven by mobile today. For a player focused on a fashion vertical through the Myntra app, we can give them an experience that is dramatically different. Mobile provides better search, geo-positioning, and will also give exact recommendations.
People can come to us for fashion advice and the platform becomes customised to their experience. You can also send notifications in the app, which is original and delivered to the unique customer. Today, we have 150 million people using smartphones compared to only 20 million people who use laptops; 150 million is a huge market. We sell 40-50 times more on smartphones than laptops. And every laptop user has a high-end phone. With the smartphone, you can target customers uniquely. The experience is superior.
There were media reports that you have suspended plans to go app-only for Flipkart. Is that true?
Bansal: It is not true. We are looking at a window of 1-2 years (for a mobile-only format) for Flipkart. Technology on mobile is evolving rapidly and we need to stay at the cutting edge of it. Mobile is a bigger focus for Flipkart. We are building the app. There is no plan for a public announcement, but we are currently building a lot of features. When we are ready, we will make the announcement. It will be out in a year. When we made Myntra an app, it was easy because it is one particular category and it was a slam dunk for us to make that decision. But with Flipkart, we have categories like washing machines, which need a different kind of experience to be delivered to the customer, who are searching for such items.
Narayanan: Yes, in Myntra’s case, the category is such that it is emotional, and therefore, there are a lot of impulse purchases. For that category, mobile is the right way to go. After we switched over, people moved to the app quickly. This is a long-term decision. There are a lot of trends covered in the app for the user. Influencers like stylists and designers are also posting fresh content on the app. The degree of personalisation is going to get better. Recommendations are getting better and better. They show what you can mix and match.
Bansal: For a large meaningful player, we are the first in the world to become an app. Big Internet companies are taking cues from our app. Online shopping in India has leapfrogged today; look at how we have leapfrogged land line phones and personal computers. Infrastructure in India is different because of mobile and will have new businesses emerge. We will have 50-60 crore smartphones in three to four years. Even smaller towns will have access to smartphones, and there will be so many new paradigms in India. This will create a whole new economy. Even poor villages will have access to Rs 2,000 smartphones.
What draws people to an app, and will you spend a lot on advertising? What lessons have you drawn from your consumer research?
Narayanan: Growth will happen organically when people will download an app. A compelling experience will bring people to the app. Two things have happened. First, consumers have evolved. Our segment is 18-35 years (in age), which is a large chunk of India. Second, the Internet, and with it smartphone usage, is part of India’s growth story. People want to come back for a lot of experiences we are providing; the pilots look very encouraging, especially the social experiences our apps provide. Mobile is clearly the way forward.
Bansal: Yes, broadband did not take off, but smartphones are growing with the networks built by mobile operators. There are 16 crore smartphone users and the number is only going to grow. Year 2016 will be a 4G story. We need to move first because we can learn faster and evolve with customer feedback.
Your colleagues in Myntra say the company is going to break even in a year or so. We believe your margins are good, as high as 60 per cent in some products. Is that correct? Are you going to be profitable soon?
Bansal: The ballpark estimate is 12-18 months. We will be the first company in this business to become profitable.
Narayanan: The reason for the belief is because this category enjoys high margins along with supreme mobile experience and the quality of our selections. This makes consumers loyal. Our selection of brands, the curated content, less discounting — which is not our play — are all important factors. There are independent brands with us. Myntra’s fashion brands are different. We are investing in the long term; we can scale up faster because of the growth of mobiles. We are investing in the supply chain for these brands. There are also brands being developed by us. We have a dual play — we have a market place and have our own brands, too. As people’s incomes grow, they will spend on brands. We are a vertical fashion destination with a deep understanding of the supply chain. We have developed our own fashion brands from denims to ethnic wear. We have as many as 11 brands, including the denim brand Roadster, Dressberry and Anouk. These are comparable to high street brands but cheaper than the big brands. Ours can become better than high street brands in terms of quality too. The product design and personality is also very good for in-house brands, and some of them are already in the Top Three in their category. Myntra’s fashion brands today generate 20 per cent of our business.
Many in your industry talk of an imminent shakeout. A lot of those who can’t get the next round of investors will shut down, others will merge and there will be consolidation. What do you think?
Bansal: In 2011-12, there were many other companies. A bunch of them shut down. It is a natural evolution that some succeed while others shut down. It is because when there is opportunity a lot of businesses start operations. There has to be a right team, technology, the product offering and there needs to be an ability to capture the market, otherwise businesses fail.
There is a slowdown in China. Even Jack Ma and Alibaba that were growing at 150 per cent a year notched up only a 25 per cent growth last quarter. Do you see the same curve in India?
Bansal: We must ponder at what point of time that could affect us. Being just 1.5 per cent of the total retail market, the eTail industry has a long way to go. Only when we are at 20 per cent can we say that we are flattening out. India is what China was five years ago. Business cycles will come and go. Chinese eTailers like Alibaba will be big even after five years. Infrastructure is not growing faster than the smartphones.
Flipkart has been showing steady losses. In FY14, it was Rs 1,100 crore, before that it was Rs 500 crore. Some reports claim that for every rupee of revenue, Flipkart loses Rs 1.70. Is that true? How long are you going to burn cash? Or is there no intent to ever make a profit?
Bansal: No, that is not our intent. We do intend to make profits. In terms of unit economics, we are better than any of the other players out there. I think everyone is losing money. Yes, for every rupee of sales we are losing money; but we are better than others. I think we are growing. Profitability matters in the long run. Today, the trade-off is between growth and profitability. If we want profitability, we can get to that stage very quickly. But we have to slow down on growth. We have to grow our market share and that is the focus today. Today our run rate is $5 billion and reaching $10 billion is not be a problem.
(This story was published in BW | Businessworld Issue Dated 05-10-2015)