Bengaluru/New Delhi: India’s largest e-commerce firm Flipkart is running out of time to meet aggressive targets set first by chief executive officer Binny Bansal and then by Kalyan Krishnamurthy, the representative of Flipkart’s largest investor, Tiger Global Management, who is now effectively running the company’s key retail and marketplace business.
Flipkart wants to achieve three key goals, among others, by September, according to three people familiar with the matter. One, generate monthly gross sales of Rs.3,700-3,800 crore by expanding sales of smartphones, large appliances and fashion; two, achieve a net promoter score (NPS), a key metric of customer satisfaction, of 55 partly by improving the speed and consistency of product deliveries and improving its product returns management; and three, break even at the gross profit level by cutting staff costs, discounts and other expenses.
Separately, Flipkart has also set a broader goal of generating Rs.6,000 crore in monthly sales by March, the people cited above said.
On all three metrics, Flipkart is currently far behind its targets, the people said. Monthly gross sales are estimated at roughly Rs.2,000 crore; NPS is around 30 or 50, depending on how it is measured and who you speak with; and two key product categories of mobile phones and large appliances, which together contribute more than half of Flipkart’s sales, are in the red.
These targets exclude contributions by Flipkart’s units, Myntra and Jabong.
“Our internal numbers and targets are confidential data and as a matter of policy, we do not share these figures externally,” said a company spokesperson in an email response to Mint. According to the company, the numbers stated by Mint were incorrect.
The idea behind the stiff targets is to get Flipkart in shape for October’s Big Billion Day which is the most important sales event of the year for the company but also drives a hole in its finances.
Achieving these targets, or getting close to them, is seen as crucial for Flipkart in its efforts to raise its next round of funds at a valuation it can command rather than being forced to take cash at a distressed value. While Flipkart is well funded for now, it will need to raise cash at some point soon to refill its coffers. Not just that, Flipkart needs to regain the initiative it has lost in the expensive market share battle with arch-rival Amazon India (Amazon Seller Services Pvt. Ltd) and at the same time, cut losses as investors put pressure on the company to get ready for an initial public offering at some point.
Yet, these goals are, in some ways, contradictory. If Flipkart cuts discounts, sales growth will suffer. But if it doesn’t cut discounts, gross margins will not make the desired climb to break-even.
Flipkart’s aggressive sales goal also comes in the context of the weakest first half for online retailers in recent memory. Because of lower spending on discounts and advertising, online retail sales dipped to an annualized $12 billion in June, compared with $13 billion in March and $15 billion in December, according to estimates by research and advisory firm RedSeer Management Consulting.
“Kalyan has been ruthless since returning. He’s moved people out of the business side whom he thought were underperforming. There’s tremendous pressure now. He’s made it clear that if you don’t perform you’ll be out. But the targets are nearly impossible. Growth hasn’t come for a while so how are you supposed to grow double but cut costs at the same time?” said one of the people cited above.
Flipkart changed its CEO in January, promoting Binny Bansal to the hot seat while Sachin Bansal became executive chairman after a disastrous year when its big bets—a proposed app-only push, an abrupt shift to marketplace and replacing its old leadership team in one go—backfired.
While investors expected Binny Bansal to deliver a sharp improvement in results, Flipkart’s sales were still sluggish until June. The company did cut losses but at the cost of sales growth.
The company’s slow progress prompted Binny Bansal and the board to bring back Tiger Global’s Krishnamurthy, who was interim finance chief and categories head at Flipkart until he left in November 2014. Tiger Global has poured nearly $1 billion into Flipkart and the reputation of Tiger’s Lee Fixel, Krishnamurthy’s boss, is riding on this bet.
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It is now primarily up to Krishnamurthy as categories head to deliver the turnaround in results.
As part of the turnaround plan, Krishnamurthy has brought back two old hands, Amitesh Jha and Sandeep Karwa, to business roles, the people cited above said. Jha and Karwa were among the key leaders in Flipkart’s mobile and electronics categories in 2014 when exclusive deals with Motorola and Xiaomi drove the company’s sky-rocketing sales growth. Jha and Karwa later moved to roles in supply chain and product management, respectively.
There are four vice-presidents in charge of categories now: Jha, Adarsh Menon, Ajay Yadav, and Rishi Vasudev.
Flipkart confirmed the news.
Yadav, ex-chief operating officer at The Mobile Store, has a particularly important job: to strike exclusive deals with key smartphone brands and turbocharge Flipkart’s growth in smartphones, the single largest and most important product category for e-commerce companies.
In 2014, to use Binny Bansal’s words, Flipkart had “revolutionized” the business of smartphones in India by launching the high-quality, low-cost smartphone brands of Moto and Xiaomi. These launches not only catapulted Flipkart’s sales into the billion-dollar range but also played a big part in driving the expansion of the overall e-commerce industry in India.
However, Flipkart ended up losing exclusivity of these brands while cash-rich Amazon India started grabbing important exclusive partnerships, such as that with China’s OnePlus, by offering better terms.
Now, Yadav has been charged with expanding Flipkart’s portfolio of large exclusive smartphone deals beyond LeEco, the three people cited above said.
Krishnamurthy has also postponed Flipkart’s renewed attempt to build a private label business, said the people. In May, Binny Bansal had proposed building a large private label business, given the fat margins these products offer.
But Krishnamurthy has put this plan on the back burner and is instead pushing Flipkart executives to focus on its core business. In 2014, Flipkart had poured hundreds of crores of rupees into making and marketing Digiflip tablets, Flippd clothing and Citron home appliances but failed to build these into top brands.
Krishnamurthy is also driving Flipkart’s shift back to a retail-heavy model from marketplace, said the people cited above.
Flipkart is shifting a majority of its sales toward a few sellers and moving away from the marketplace model, Mint reported on 5 April.
The shift is partly because Flipkart’s customer experience suffered last year when it tried moving a majority of its business to a marketplace model. The sales on Flipkart are currently dominated by a handful of sellers including WS Retail, a third-party seller that works closely with Flipkart and was once owned by the Bansals. The company’s focus on improving NPS is part of its larger efforts to improve its image with customers.
In an interview on 23 May, CEO Bansal had stressed the importance of wide product selection, low prices and fast product delivery.
“Everyone at Flipkart now has net promoter score and customer satisfaction as their most important metrics. NPS breaks down into what product selection is available, how fast it is available, whether it is available all the time, and at what price. And of course, the other big focus is on execution. E-commerce is a business where you’re selling products every day. So you need the execution rigour to make sure that every day, we are providing the best customer experience,” Bansal said then.