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Flipkart, Myntra merger to set stage for online combat

Apr 17, 2014

The two e-tailers talking directly with each other without involving any investment banker: Sources

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Speculation that leading e-commerce company Flipkart will merge with online fashion retailer Myntra has been around for long. In separate interviews to Business Standard earlier this year, the CEOs of the two companies, had denied that a merger was in the offing.

Now, in the midst of advanced talks, both sides have clamped down and are not ready to utter a single word that may risk the deal. “Speculative” is all that Mukesh Bansal, founder and CEO of Myntra, said when asked whether the company had changed its mind from a few months ago and was heading for a deal with Flipkart that could result in the first big consolidation in Indian e-commerce.

The two companies were talking directly with each other for the proposed deal without involving any investment banker, sources said. And at this point, the Bangalore-based firms, both started in 2007, are learnt to be just focused on this transaction. Legal and finance teams, besides the top management, are believed to be in the thick of things, talking valuation and target gross merchandise value. The companies, however, refused to comment on the matter.

Sachin Bansal, chief executive of Flipkart, had earlier said the company would look at acquisitions whenever an opportunity arose. Mukesh Bansal of Myntra, without mentioning Flipkart, today said, “We are open to a strategic partnership if it helps us accelerate the fashion business.” Mukesh Bansal is eyeing an annual revenue of Rs 20,000 crore by 2020, up from Rs 1,200 crore now.

He is betting big on the fashion business, estimated at $60 billion (Rs 3.6 lakh crore), and claims Myntra is already half the size of the largest offline fashion store, Shoppers Stop. Flipkart, too, is looking at fashion as its biggest promise area and sees significant gains in merging with Myntra. It is learnt that Flipkart and Myntra will remain separate entities even after the merger.

The deal is being watched primarily because of the competition it will set off in e-commerce. Along with Flipkart and Myntra, Snapdeal and Amazon also target upper middle-class consumers for convenience shopping. All of them market themselves on ease of delivery and range of products offered. “There is reason for players like Snapdeal or Jabong to get worried,” an analyst said.

Snapdeal called consolidation an “inevitable product of the inventory-based business model”, adding that leading brands would converge towards pure marketplace platforms like Snapdeal. The company refused to specifically comment on the threat from the merger. While Myntra is still an inventory-based player, Flipkart recently announced its transition to a digital marketplace, which hosts retailers on the site and has no cap on foreign investment.

In 2012, Flipkart had acquired letsbuy.com, a portal selling electronic products.

Experts pointed out that consolidation would bifurcate the market between high-end shopping targeted at upper middle-class consumers looking at faster delivery and the mass market of unstructured categories and local brands catering to price-conscious consumers. “We have seen similar trends in the US where eBay is known for cheaper price points and Amazon is a brand looking at drones to revolutionise delivery in e-commerce,” said Sanjay Sethi, CEO of shopclues.com.

But most say the merger will be a success story. Since both players are be keen to keep their individual brand identities, the key advantage from the merger will be the synergies at the back end. The two can share their consumer base and logistics. The real savings with the merger would be at the back end, said Arvind Singhal, chairman & managing director, Technopak, a retail consultancy.

Common investors in Flipkart and Myntra have been pushing for a merger, according to sources. Instead, Myntra raised Rs 300 crore from Premji Invest and other investors recently. Renegotiated terms may have revived the deal talk.

Consolidation was a necessity when global giants like Amazon were expanding in India, said experts. Amazon would aim to be the number one in any market, added Technopak’s Singhal.

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* Flipkart crossed an annual gross merchandise value of $1 billion (Rs 6,000 crore) based on run rate for February 2014, Myntra hit Rs 1,200 crore GMV. Both companies were founded in 2007

* Flipkart has raised funding of about $560 million (Rs 3,400 crore) and Myntra $125 million (Rs 760 crore) so far

* Key players in retail business like Reliance, Tata may soon venture into e-commerce; Walmart has announced its online plans too

* Future group has already launched ‘Big-Bazar Direct’, a mega e-commerce initiative

* E-commerce is expected to be a $76-billion (Rs 4,56,000 crore) industry by 2021, up from $3.1 billion (Rs 18,600 crore) now

Source: Business standard

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