Founders of Flipkart — Binny Bansal and Sachin Bansal — have left the company. Now it is left to the company’s board, with four Walmart representatives (among other members) with Kalyan Krishnamurthy as the CEO to run the company and continue its battle against Amazon, the world’s largest e-commerce firm.
Walmart acquired 77% of Flipkart paying $16 billion in May to get a stronghold in the e-commerce space, an area which it has struggled to build a presence. Now Walmart wants to be the leader of the Indian e-commerce business, leaving Amazon behind.
Recent reports, however, suggest that Amazon is marginally ahead of Flipkart in terms of gross merchandise value (a measure of sales without considering promotions and discounts). Amazon’s GMV measures at $7.5 billion, while Flipkart is at $6.2 billion. If Flipkart group companies — Myntra and Jabong — are taken together, it records $7.5 billion.
Flipkart executives FactorDaily spoke with said that the focus will be on making an impact and grow the business faster. One area that the company will focus on for growth is grocery — a vertical that Flipkart has entered and exited twice before and Amazon has been steadily building for three years.
“Back then Flipkart didn’t have Walmart to back it,” said a Flipkart executive, who wanted to stay anonymous. “The company focused on improving GMV and valuation, even though it was at the cost of selling a disproportionately large number of mobile phones.” More than half of Flipkart’s GMV came from mobiles.
But mobile phones had a problem. A buyer would buy a mobile phone only once a year, at best. Now, Flipkart will up its ante against Amazon with its focus on grocery and home furnishing — verticals that are expected to bring the customers multiple times to the platform.
With Flipkart’s focus on daily need products, the management expects that existing customers will come back more. In the offline world, out India’s $670 billion retail market, $380 billion comes from food and grocery, making its more than half of the total retail market. That has not happened in e-commerce, where food and grocery continue to be lower single digit contributors to online retail.
Next 200 million buyers
If Flipkart has to be more relevant, it will have to cater to a wider set of buyers — not the ones who want to buy mobiles, or apparel, or appliances. “Food and grocery,” a second source, said, “will bring more buyers to Flipkart.”
This will also align with the broader vision the company has for itself. “Flipkart continues to expand the market with a vision to get the next 200 million customers into e-commerce and experience its benefits,” said a Flipkart spokesperson.
Flipkart was late to the party, but thanks to Walmart, it is quickly ramping up the grocery business. It has already started operations in Bengaluru, Hyderabad, Chennai and Pune. The company has set up an independent supply chain for grocery, said the spokesperson.
“In addition, our private label in grocery is a farm-to-fork model that empowers farmers and producers,” the spokesperson added. Supply chain and private labels are areas where Walmart is a leader. Flipkart Supermart is the private label in the staples category, which promises quality, better savings, and convenience.
While the minuscule penetration of grocery is an indication of the scope for future growth, according to the spokesperson, there is room for innovation that will result in “generating repeat business and ensure customer retention”. “With Walmart as a partner, we believe we can leverage specific learning in grocery and supply chain,” the spokesperson said.
The company is expected to pour in a billion dollars to build the grocery business in the next couple of years, according to sources.
But it won’t be easy. “Grocery is by far the biggest and the toughest business in e-commerce,” said Arvind Singhal, chairman of Technopak, a retail consulting firm.
And, it has its shortcomings. “In e-commerce, you have to look average transaction value. Grocery has a lower transaction,” Singhal added.
Path to profitability
Lower transaction values have lower margins due to higher handling charges. Add to that, losses of e-commerce companies have only grown in the past years. That is something that Walmart doesn’t want.
While Walmart wants to expand the categories and get newer buyers, where it will have to spend money, it is also looking at taking Flipkart public in the next two-three years, the first source said.
“It is not easy to take a company public unless you have stability,” said Singhal. “If not profitable, Flipkart should be able to show that it is on the path to profitability.” Which means for the next two-three years revenue growth has to be significantly faster. It cannot rely on spending to grow revenue. So losses should come down.
Also, for Walmart, it was important to put good governance at the centre of the organisation if it has to go public. “That will take a couple of years,” said a third source, also a company executive. “The new people from Walmart are keeping everything under a tight watch.”
Walmart has got Emily McNeal as group CFO, Flipkart. Others like Daniel De la Garza has joined at chief ethics & compliance officer, Grant Coad as head of legal, Dawn Ptak as VP and group controller, and Rajneesh Kumar as the group chief corporate affairs officer.
There are two more things that the company thinks will help in making the company more profitable and trustworthy. Building the Flipkart Plus offering, which offers gaming to members apart from faster delivery, special offers, among others. It also offers special offers on partner platforms like Bookmyshow, Gaana, MakeMyTrip, Zomato, Ixigo and others.
Flipkart Plus is an Amazon Prime rival, except that Prime offers a large bouquet of video content. “It is not just being GMV focussed anymore,” said the first source.
With Walmart in the driving seat, it might acquire the remaining 23% of Flipkart in the next two years before going public, said the third source. “You don’t become the most accepted retailer (in the world) if the Walmart Way wasn’t the right way,” added Singhal. “On the contrary, Flipkart has a stable owner as opposed to an investor. Now Flipkart has the same advantage that Amazon has in India.”
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