Flipkart acquires Jabong: E-commerce crying for consolidation, say experts

Flipkart-owned Myntra on Tuesday announced that it has acquired Jabong from Global Fashion Group for $70 million, a move that marks further consolidation in India’s booming e-commerce industry.
With this move, Flipkart is clearly trying to preserve its position as India’s No.1 e-commerce marketplace in the face of fierce competition by Amazon India.
While mergers and acquisitions is not new in the e-commerce sector. Attrition and consolidation has been going on for the last 2-3 year. Experts now feel the sector, which is dominated by players chasing growth at the expense of profitability, is clearly feeling the effects of consolidation and more so there seems to descend some sense that growth cannot happen at the expense of business health, and large size is not the only measure of success.
Read: Myntra’s Jabong: Then and now
“Yes, consolidation is happening and more than that rationalization will happen. It means that many small, medium and even some large players will shut down as they will neither get funded nor be acquired, ” says Founder & Managing Director of Wazir Advisors, Harminder Sahni.
“There is very little room for multi-brand online stores in such a competitive environment. If you look at the US market, we have Amazon and in China its Alibaba. So let us see which one will survive in India. We can also see most brands opening their own EBOs online like Adidas and Lacoste have done. For instance, Madura is talking about shutting down their common portal and starting individual sites for each brand. Companies like Amazon and even Flipkart may become technology suppliers to these brands and even offer warehouse and delivery services for a fee to brands’ independent sites,” he adds.
Corroborating this thought, Senior Vice President of Retail & Consumer Products division at Technopak, Ankur Bisen, says,”As we move on from customer acquisition to customer retention and revenue and profit, consolidation is going to happen. The e-commerce market world-over is polarised and that’s what we will see in India.”
“80 per cent of the market will be dominated by two or maximun three marketplaces, for instance, Alibaba, Amazon and may be one more, who are more category agnostic. The remaining 20 per cent, will be dominated by niche vertical players who differentiate themselves strongly in terms of product and offering, experience like curation, socialisation or other value added services. The rest of the players will become possible acquisition targets,” he adds.
Fashion, which offers higher margins to online retailers compared with mobile phones and books, is expected to overtake consumer electronics as the largest category at 35 per cent of total online spending by 2020, according to a June report by Google and consulting firm A.T. Kearney. Over the last few years, the segment has sprouted various players, including Limeroad, RedPolka, Wooplr, Voonik, among others, who tries to differentiate themselves from the existing large players, by the way of consumer experience and product.
For instance, RedPolka, which differentiates itself as a fashion curation startup, operates on the presumption that the growth for niche players is yet to happen.
“Consolidation has been a part of e-commerce journey, for than matter every other sector, world-wide. It was inevitable in India and we might see one or more consolidation in marketplace models, which works with no clear differentiation, in the future. Having said that, I believe the niche segment has demand and the growth for niche players like us is yet to happen nationally and internationally,” says Founder RedPolka, Vishakha Singh.
What it means for Flipkart and Jabong
With Jabong in its arsenal, Flipkart has clearly strengthened its position in the Fashion & Lifestyle segment in India. Myntra, which itself was acquired by Flipkart in 2014, will now have access to a combined base of 15 million monthly active users.
Experts, however, say it will be interesting to see how Myntra will handle the acquisition since both companies enjoy equal brand equity.
CEO Third Eyesight, Devangshu Dutta, says “Jabong seems to have got a lease of life through this acquisition. On its part, Jabong has reduced its emphasis on discounting last year, and if it continues its focus on strengthening its product direction and merchandising capabilities, it may not only do itself a favour but also Flipkart. Whether operationally it will retain an independent position or be merged in some way with Myntra remains to be seen.”
Sahni asserts, “Myntra surely has a plan to revive Jabong. They (Myntra) even have funds to do so. They may transform Jabong to be something completely different. Or may make Jabong a destination for more affordable fashion and Myntra for more edgy fashion. It will be interesting to watch.” he concludes.