India's biggest online retailer Flipkart is buying a smaller rival Jabong for $70 million (Rs.470 crore) in cash, according to Jabong's parent company Global Fashion Group (GFG).
The acquisition will help Flipkart to compete with its bigger rivals Amazon and Snapdeal, according to analysts.
GFG which is backed by Germany's highest-profile startup investor Rocket Internet SE and Sweden-based investment AB Kinnevik said the transaction is a decisive step in GFG’s strategy to refocus its business on core markets and further accelerate its path to profitability.
Fashion retailingFlipkart's unit Myntra, an online fashion retailer which is buying Jabong said it aims to create India’s biggest online fashion retailing business.
“We see significant synergies between the two companies especially on brand relationships and consumer experience,” said Ananth Narayanan, chief executive of Myntra in a statement.
Flipkart would combine Jabong's business with Myntra, creating a firm with a base of 15 million monthly active users and offering luxury brands such as The North Face, Swarovski, Timberland and Lacoste.
Binny Bansal, chief executive and co-founder of Flipkart said fashion and lifestyle is one of the biggest drivers of e-commerce growth in India. “This acquisition is a continuation of the group’s journey to transform commerce in India,” he said in a statement. Flipkart had acquired Myntra in 2014 in a deal estimated to be worth $370 million to compete against online retail giant Amazon which entered the Indian market in 2013.
Amazon battleThe acquisition of fashion platforms is a move for Flipkart to not only further penetrate into the red-hot category but also maintain its leadership position in the market and keep Amazon at bay, according to Sandy Shen, research director with the e-commerce team at research firm Gartner. “We expect major players to keep acquiring niche and smaller players,” said Ms.Shen.
According to Pragya Singh, vice president at retail consulting firm Technopak, with this acquisition, Flipkart has strengthened its position in the Indian fashion segment and at the same time deprived its competitors of strengthening their fashion offering.
“This has come at a time when Amazon has emerged as a serious competitor in the space,” said Ms. Singh. “This move strengthens Flipkart’s position in the high-margin fashion category as compared to Amazon and Snapdeal.”
Ms. Singh said this deal is in continuation of the trend in the Indian e-tailing space — with consolidation continuing. She said this is now moving to big ticket consolidation with unsustainable businesses and investors looking for exits looking at alternate options.
Investor interestIn the last one year, Technopak has increasingly seen business model sustainability and profitability coming into focus as compared to just scalability. “Start-ups in the space will need to be differentiated and sustainable to attract investor interest,” said Ms.Singh.
Jabong was co-founded by IIM-Calcutta alumni Praveen Sinha and Manu Kumar Jain along with Arun Chandra Mohan and Lakshmi Potluri in 2012. Mr.Jain and Ms.Potluri left in the early years while as Mr.Sinha and Mr.Mohan who were leading the firm also quit last year.
The GFG Board concluded that Jabong’s position as India’s leading fashion e-commerce destination would be best served through a business combination with a local player.
Having reviewed multiple options over a period of several months, the GFG Board resolved to sell Jabong to Flipkart Group.
With net revenues of 126 million euros and adjusted earnings before interest, taxes, depreciation and amortisation of 56 million euros for the 12 months ended March 31, 2016, Jabong represented 13 per cent of GFG’s net revenue.
