Jabongs acquisition could be Flipkarts

smartest move since it took over

Myntra
The acquisition of online fashion portal Jabong by Flipkart-owned Myntra today might come as
a surprise to many. But if you connect the dots, it is quite simply the best thing that could have
happened for both companies.
Jabong, which according to sources raised about $250 million, got acquired at a price of $70
million in an all-cash deal. Sources say that it will continue as a separate entity, at least for now.
Flipkart had some great competition Reliance Industries (which owns AJIO Life fashion
portal), and Aditya Birla group were also contenders, along with Snapdeal, to buy Jabong.
Although cost of customer acquisition has discouraged chairman Kishore Biyani from stepping
into e-commerce, Future Group was also reportedly keen on the deal.
Traditional retail titans showing interest in buying Jabong is a matter of curiosity,
butFlipkart/Myntras acquisition makes more sense for Jabong in terms of expertise needed for
strategising in marketing, category management and logistics. After all, the offline leaders
online presence has not had the impact that Flipkart or Myntra have had.
Experts agree that despite the tough phase, Flipkart is in a strong position of owning
fashioncompared to all other general merchandisers. Fashion is the highest margin category and
it demands differentiation.
Praveen Sinha, Co-founder and former Managing Director of Jabong, told YourStory: I was
always convinced in terms of the fashion portals importance to general merchandiser. This
acquisition, and interest from multiple players, confirms that view.
Tough times
Jabong, owned by Global Fashion Groupa collaboration between Jabong investors Rocket
Internet and Swedish investment bank AB Kinnevikhas been in trouble for quite a while.
Despite GFG raising millions in the last one year, Jabong was facing severe fund crunch.
In an email to YourStory, GFG spokesperson said: "The transaction will de-consolidate our
highest loss-making operation while delivering capital that can be deployed in high-return
opportunities across GFGs footprint." Jabongs revenue reached 32.6 million in 1Q16, with an
adjusted EBITDA of -11.9 million or -36 percent, improving more than 20pp from 1Q15. The
spokesperson added: The level of competition in the Indian e-commerce market has been such
that we have not recouped the capital invested. Deconsolidating Jabong will make GFG
stronger and more effective in its ability to compete."

On the other hand, Flipkart too has had a tough year with double devaluation, top leadership
leaving, and tiffs with sellers. Reports have been echoing the possibility that the global giant
Amazon might just overtake them as the largest marketplace in the country. But Flipkart does
have an upper hand in one very important category fashion. Its acquisition of Myntra in 2014
gave it an edge over both Snapdeal and Amazon.
Fashion contributes to 20 percent of GMV in online retail in India, and 37 percent of online
retailers' revenues, according to a report by Redseer Consultants. Ensuring that Myntra remains
the market leader is important for Flipkarts sustainability. Experts agree that acquisition of
Jabong effectively keeps Myntra uncontested- as no other fashion portal has that magnitude.
Arvind Singhal, Chairman for advisory firm Technopak, said: Despite all the troubles Jabong is
the second biggest name in fashion e-commerce after Myntra, especially from consumer point of

view. Myntra has acquired Jabong so it doesn't fall into the hands of a competitor. He added
that there may not be an immediate impact in terms of turnover or in valuation for Flipkart.
Serial entrepreneur and angel investor Kashyap Deorah believes that this is a defensive
acquisition to ensure the competitor does not get the business. Flipkart is still focussed on
GMV growth and this is a way to acquire growth when organic growth is slowing down, he
added.
The downward spiral
Started in 2012 by Praveen Sinha and Arun Chandra Mohan and incubated by Rocket Internet,
Jabong had a visible edge over its competitor Myntra which was a gift personalisation
platform that then pivoted into a fashion marketplace model. Somewhere along the way, Jabong
lost focus with indiscriminate expansion of product categories, brands, merchants, and
discounting, and its sales growth fell to a mere seven percent in 2015, from 136 percent in 2014.
The founders left the company in September 2015.
The grapevine was that GFG was not keen on its Indian business they raised $339 million at a
valuation of $1.13 billion (1 billion) in April, followed by $25 million in July. In fact, GFG

said today on its blog: Following a strategic review of its Indian operation, the GFG Board
concluded that Jabongs position as Indias 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 has resolved to sell Jabong to Flipkart
Group.
To be fair, none of Rocket Internets bets in India had fared too well for them: Fabfurnish was
sold for Rs 15 crore while it had raised about ten times more than that, and Food Panda too is
struggling.

Mukesh Bansal, Co-founder and former CEO of Myntra, said: The deal helps consolidate
Myntra and Flipkart's leadership position in fashion. Myntra has established, especially, in the
last 18 months that it is the clear leader in fashion and acquiring Jabong will strengthen this.
He added that he has no direct knowledge of the deal.
Revival of Jabong
Jabong has been working on restructuring the business since Sanjeev Mohanty joined,starting
with hiring the top leadership team. Former eBay India Head B Muralikrishnan joined as COO,
and Snapdeal Category Management VP Rahul Taneja came in as CBO. Jabong had announced
that it will be cutting down on low-margin brands to have better quality customers. But it did
make a mistake by not capitalising on Myntras app-only strategy launched in 2015. We lost
sight of our core strength at the time, and lost the opportunity, CEO Sanjeev had told
YourStory in an earlier interaction.
More recently, there have been structural changes too. Jade Services, the B2B entity that owned
Jabong, ran a B2C arm Xerion Retail which sold about 90 percent of retail till a few days
ago. However, last week, Livemint reported that Jabong is shifting from its inventory-led model
to a marketplace model to comply with rules on foreign direct investment (FDI). Xerion Retail
has been replaced by three vendors- Bren Trading Pvt. Ltd, Ravenna Fashion Pvt. Ltd and
Wearhouse Products Pvt. Ltd.
All these developments took place at a time when a PricewaterhouseCoopers investigation
commissioned by Rocket Internet had found anomalies in the functioning of Jabongs logistics
arm GoJavas. Be that as it may, one cannot deny Jabong's value among customers. Therefore,
the acquisition will surely help Myntra as much as it does Jabong