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BW Businessworld

Flipkart: The Big Deal

Flipkart is popular because of the global HR practices it has adopted to ensure that employees benefit the most

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We are bigger than the US steel” they are fond of saying in Hollywood. Flipkart can say much the same. With Rs 10,000 crore in revenues in fiscal year 2014-15, Flipkart is the third-largest retailer by revenues after Future Group and Reliance Retail.

Beyond the myriad cases that the company is fighting for allegedly flouting foreign direct investment (FDI) rules, the eTailer has proved that there is a case for mobile-based commerce in India. Although eTail is less than 1 per cent of the total retail pie of $550 billion, it is poised to corner least 5 per cent of the total retail pie by 2020.

But such growth is a big ask because even the offline organised retailers are now using eTail as a sales channel platform. In the end, eTail and offline organised retail could well become 12 per cent of the total organised retail pie in India by 2020.

Currently, only 7 per cent of the country is organised, according to a report by KPMG. That said, Flipkart still makes it to the top of the Most Respected Company survey in the eTailer segment. It is largely popular because of the global HR practices it has adopted ensuring that employees benefit the most. Flipkart has a team of more than 1,000 engineers who are building a formidable platform to customise the experience for each shopper. It involves designing the app, the back-end distributed computing engines, and the analytics drawn from the data collecting by delivering in over 60 cities.

“The aim is to understand shopping habits across different locations and connect them with sellers that are local. This is possible with the crunching of a lot of data,” says Sachin Bansal, founder of Flipkart.

The company has so far raised $3.15 billion in 12 rounds of funding and has made six acquisitions. The founders may not have a controlling stake in the company, but they have enabled it to acquire some of the best startups to speed up their dominance in the market as a tech-enabled retailer.

However, there are questions raised by analysts who point out that a company with 15,000 employees is really not in the business of technology. Even the government is yet to define the nature of eTailing. Is it a marketplace? A platform? Can it be thought of as a logistics company? Or just an investment arm? Or is it all of the above? The government promises to get back with a reasonable definition soon.

“eTail is here to stay because of the growth of mobile-based shopping. But the players are yet to figure out a business model that can generate cash even if they are not profitable,” says Harminder Sahni, founder of Wazir Advisors, a retail consulting company.

Offline organised retailers like Shoppers Stop, Arvind Lifestyle, Future Group and Reliance Retail are yet to announce their omni-channel retailing strategies. Are they going to fall behind in the mobile revolution?

“Mobile is a channel that we are embracing. We need offline stores to become delivery or pick-up points,” says Kabir Lumba, MD of Lifestyle, which runs more than 42 fashion and apparel stores in India.

However, Flipkart has its own set of problems because it has been burning far too much cash in operations. On the one hand, they are making good on the discounts offered by sellers. On the other, small stores that use Flipkart as a channel complain that Flipkart’s associate distribution company WS Retail, is given preference. Large brands, who work with WS Retail, give a guarantee on the purchase, when bought with this distribution company. Products sold by small sellers carry no warranty.

Flipkart’s returns policy is also considered a let-down by many. The product, when returned, does not entail the money refunded to the bank account but instead is credited to the Flipkart account of the consumer, which means a user is compelled to purchase a product again. Amazon India on the other hand takes all returns and refunds the money, no questions asked. Flipkart’s major competition is indeed Amazon India. The global e-commerce giant has been tying up with kiranas stores to sell grocery. It is also using them as physical delivery platforms.

For now though, Flipart does close to 100 million deliveries a year — almost double Amazon India. But it has to work on a strategy to bring in steady revenues and also to generate cash. For this, it has created an advertising platform for brands to leverage on customised buying habits. Flipkart’s subsidiary Myntra, the fashion shopping app, is already poised to become a $1-billion company and has launched eight brands that can be positioned to be sold in offline retail too. The brand strategy and the personalised advertising business can bring revenues. But these will not be enough. They must have a strategic investor in the long-run or sell to a large global player like Walmart, who is looking to invest in India because it is the world’s largest consumer market after China.

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(This story was published in BW | Businessworld Issue Dated 11-01-2016)