Sachin Bansal stands up to face a full house on Friday midway through a town-hall meeting at Flipkart, India’s largest e-commerce company. What he admits is uncharacteristic of top executives at large Indian companies: the company and its management screwed up badly in the last 12 to 18 months.
And, as a result of the underperformance, almost everyone in its top rung, including himself, has paid the price.
In a tightly framed video, Sachin, Flipkart’s executive chairman, is seen stepping up to the stage for less than a minute in the middle of a presentation by current CEO Binny Bansal. (The intervention seems unplanned but you can never be sure.)
Sachin, dressed in a black Puma-branded, zippered sports jacket, asks for a show of hands in the room from those who believe that the Flipkart management is being unfair. As the camera stays focused on him, an air of disbelief clouds his face. “That’s quite a few of you ,” he says. “That’s actually not true!”
“Just look at who was management six months ago, one year ago, and who is management today. It’s completely changed. Right? Yeah, I mean, nobody is here. I have changed. I was the CEO and I have changed. It was performance linked,” Bansal, who was CEO of Flipkart until Binny took over in January, tells the nearly 200 Flipsters — as the company’s insiders call themselves — present. He is responding to complaints from among the 30,000 Flipkart employees (including its delivery fleet) that rank and file were being unfairly targeted and given pink slips after a recent performance review.
Sachin’s intervention comes across as genuine and there’s applause. With an embarrassed grin, Binny is now left to fend more questions from its employees in what looks like a company cafeteria.
All this is in a video of the meeting that FactorDaily has reviewed.
Judging by the questions, one thing is clear — Flipsters are anxious and worried about job cuts. In the last few months, new market realities have set in. Growth in India’s ecommerce market has plateaued in the last year or so, hedge funds that made large bets on India are backing off, and the deep-pocketed Amazon is vacuuming business from competitors. Come appraisal time in June, Flipkart was forced to look at its staff rather stringently. Media reports have put Flipkart sacking some 700-1000 people in the last couple of months.
Some faith had to be restored urgently at Flipkart, India’s most storied startup in recent years.
Which is exactly what Binny had been doing on stage for the hour or so before Sachin stepped up. The last two weeks, top managers at Flipkart have called over 20 townhalls to address concerns of employees and get their feedback.
India’s largest ecommerce company has been in mission mode to fend off aggressive rival Amazon, assuage employees, win back the confidence of its customers, and tackle the payments market (the last being an incredibly critical push in dominance of the Indian ecommerce market).
But, to start with, step 1: raise the morale of employees.
Binny, dressed in a green Flipkart-branded T-shirt, had a few things on his agenda on Friday (August 19): detail the performance assessment process, give its employees visibility on the market and business, talk about wins, the way forward, and take some questions.
“When I said there won’t be any layoffs, I didn’t mean we will not let anybody go. We will not have layoffs for cost reasons was what it was meant for.”
“When I said there won’t be any layoffs, I didn’t mean we will not let anybody go. We will not have layoffs for cost reasons was what it was meant for,” Binny said, referring to an earlier townhall meeting when he had assured there wouldn’t be any layoffs. (That meeting and Flipkart’s efforts to pull itself out of the hole it was in was reported richly in this story.) Flipkart made its appraisal process this year a lot more stringent and performance-driven and many employees were placed closer to the base of the bell curve as the company’s growth had slowed in the last 18 months.
Binny pointed out that rival Amazon had taken away its loyal customers and one of the solutions to keep that from repeating was to keep the performance bar very high. “We cannot have the same bar we used to have when there was no competition,” he said, adding in the past the company had grown between 100% and 300% in most years since it started in 2007.
He said that the company was well capitalised and had a runway — as in, funds would last — of more than three years.
On the business front, Binny walked employees through a SWOT (strength, weakness, opportunity, threat) analysis. He said that Flipkart still had top talent, great brand recall, a strong supply chain and balance sheet. But it also saw weakness in terms of customer experience, culture, speed and quality of execution. As we reported earlier, Flipkart has identified areas such as customer experience, selection and availability of goods, logistics unit eKart, and payment as opportunities for it to focus on. It listed Amazon’s aggressive moves to take away Flipkart’s customers and Paytm’s* brand perception as a payments company as threats.
In the April-June quarter, Flipkart, Binny said, had improved its gross profit margin by 400 basis points (a basis point is one-hundredth of a percentage point) over the previous quarter. And, in the past couple of months it had improved by another 200 bps, he added. He called out fashion e-retailer Myntra as one among the operationally profitable units of Flipkart. “The goal is to be EBITDA profitable in the next 12-18 months,” Binny said. Ekart’s speed of delivery has improved, though its ability to service outside clients has been slow. And, in other wins, Binny said, the company has won exclusive phone sales deals back from Amazon. The American e-retailer had stolen Motorola-branded phone away from Flipkart. Xiaomi, a brand which first went with Flipkart, had launched its newer handsets on Amazon.
Binny’s big idea to improve net promoter score (a measure of how happy its customers are) was by picking a core set of products and categories and improving its pricing, quality and other parameters. The company has been able to define its core selection in the quarter, said Bansal. Overall net promoter score has gone up from 32% in June and it will be around 45% in August. “This is the most important metric,” he said. The plan is to raise it to the mid-50s.
The gap between Flipkart and rival Amazon has narrowed, as the latter successfully clawed marketshare from Snapdeal. According to their estimate, Snapdeal’s market share has come down from 24% in October 2015 to 14% in the quarter ended June 2016. Amazon grew its share from 29% to 35% in the same period.
Compounding problems at Flipkart is the flat growth in Indian ecommerce. About 26 million units were shipped by all online retailers combined in the April-June quarter, nearly at the same as the number of units in the previous two quarters. “The market hasn’t grown and that’s way more concerning than how we are doing against Amazon,” said Binny, voicing his concern at the state of demand for online retail in India.
Growth would return only with innovations, he said. Flipkart, Binny emphasised, helped grow the Indian ecommerce market by introducing cash on delivery payments and in-house logistics (put in place in 2010), and a 30-day purchase replacement guarantee in 2011.
This quarter, Flipkart’s leadership will focus on creating strategies to grow the market, identify big bets, compete better with Amazon and rebuild growth momentum. Binny said Flipkart planned to push two innovations in the coming weeks: zero per cent EMIs to push purchases and Flipkart Assured, a programme under which deliveries would be guaranteed in two to four days (and shrunk to a day) at no extra cost. Drawing attention to this will be three-four television commercials with trademark advertising featuring children acting as adult customers.
Binny drew attention to other positive developments at Flipkart. The company has improved its speed of delivery, product quality, customer service, and quality of seller services drawing insights from its data platform. It has also reduced the cost of shipping its products, and scaled its marketplace. The company also acquired fashion retailer Jabong for $70 million in July to add to Myntra’s heft in the fashion retailing market. Between the two companies, Flipkart now has 65% market share in fashion retailing. The company also scored a few points over Amazon when J K Rowling’s latest book Harry Potter and the Cursed Child released in India. Flipkart delivered two of three orders on the day the book released.
Flipkart is also planning a major entry into the payments business with nearly $100 mn of investment over the next few months.
Flipkart is also planning a major entry into the payments business with nearly $100 mn of investment over the next few months. The company has built PhonePe, a payment app on top of the government-led Unified Payments Interface and is ready to roll in less than a month. It will be able to send, receive and request money from others with ease.
At the town hall — August 19 will likely be a milestone in India for reasons other than Sindhu PV playing in the Rio Olympics badminton women’s single finals — Binny laid out Flipkart’s overall goals for the next few months: win customer loyalty, strengthen market leadership, build a sustainable business model, drive long-term differentiators, improve organisation health and performance.
To a question on why Flipkart hasn’t won the marketshare that Snapdeal lost, Binny said that the company (Flikpart)’s customer experience “sucked,” delivery was slower, and selection wasn’t great. At the end of the nearly 1.5 hour townhall meeting, Bansal reiterated that the company needed to up its game on consumer experience and growth. “If we do that, there is no way any competitor can stop us.”
A Flipkart spokesperson said that the company freely shares performance metrics and encourages people to ask questions. “We are also probably the only large company in India to have this open and collaborative culture,” the spokesperson said in an e-mail. “While the performance management philosophy was part of the last townhall discussion, an overwhelming majority of the time was spent on discussing the great strides that Flipkart had made in its business performance.”
While Flipkart’s revenues are already higher than those of several top brick-and-mortar retail companies, the big question has been its ability to last a tough fund-raising environment. It is clearly India’s most important startup in current times and its ability to pull out of tough times are being closely watched.
In FactorDaily’s last piece on Flipkart, we had quoted Rutvik Doshi, director at VC firm Inventus Capital, as saying: “If Flipkart loses to Amazon and Ola loses to Uber, limited partners will stop investing in India and go back to their familiar territory of investing in Silicon Valley companies.” In that interview, Doshi had also told us about how the fate of future generations of Indian entrepreneurs hinged on Flipkart’s success. “The entrepreneurship ecosystem will remain starved of capital and will lose out” if Flipkart fails, he had said.
Edited by Josey Puliyenthuruthel
Lede image & visuals: Nikhil Raj
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.
Note: Updated on Monday, August 22 at 3.50 pm with grammar and typographical edits. In addition, an incorrect number for units delivered daily by Flipkart has been removed from the copy.