Markdowns, high profile exits, job cuts mark a forgettable 2016 for start-ups

The e-commerce market saw little or no growth—a most worrying development that shocked online retailers, investors and analysts alike


Photo: Bloomberg
Photo: Bloomberg

Bengaluru: For Indian Internet start-ups, last year turned 2015 on its head. Valuation markdowns, executive departures, job cuts, market share losses (to American rivals) and a lack of big-ticket fund raises dominated headlines last year.

Flipkart Internet Pvt. Ltd bounced back in its market share battle with Amazon India with good sales in the festive season of October-November, even as the company grappled with management issues and successive markdowns in its valuation.

ALSO READ | Has Amazon overestimated the size of India’s e-commerce market?

Finally, Flipkart’s largest investor, Tiger Global Management, took control of operations at the company this month. Kalyan Krishnamurthy, who re-joined Flipkart in June, was named CEO of Flipkart, replacing Binny Bansal, who became group CEO.

The change came after the board reportedly lost confidence in the Bansals’ ability to run the company. In 2016, Flipkart was locked in a survival struggle with Amazon, which upped the ante by announcing an infusion of an additional $3 billion in India, a market it cannot afford to lose especially after bowing to Alibaba in China. Snapdeal, backed by SoftBank and Alibaba, is now considered to be out of the race after failing to secure the large amounts of fresh capital it needed to stay in contention.

Flipkart started 2016 on a shaky note, as the company anointed co-founder and erstwhile chief operating officer Binny Bansal as CEO. Sachin Bansal was made the executive chairman; industry executives say it was a consequence of Flipkart ceding ground to Amazon and its failure to scale up the advertisement business and the app-only debacle, believed to be Sachin Bansal’s brainchild. Among others, Flipkart’s much vaunted customer service level also took a hit, denting its customer base to Amazon’s advantage.

Not only this, senior executive Mukesh Bansal, who took up key roles in Flipkart after selling off Myntra to Flipkart, Ankit Nagori and Punit Soni, Flipkart’s celebrated hire from Google, also quit the company.

All along, Amazon was nipping at the heels of Flipkart, outspending the latter in marketing, offers and discounts. Flipkart was also hit by a series of markdown in valuations by mutual fund investors such as Morgan Stanley, Valic, Fidelity and T Rowe Price. The lowest valuation assigned to it was $5.54 billion by Morgan Stanley in November. Though Flipkart brushed aside the impact of markdowns, industry experts believe it could adversely impact Flipkart’s fundraising efforts.

While Amazon was pushing the pedal hard, the entire e-commerce ecosystem was dealt a body blow by a government regulation on foreign direct investment. In March last year, the government allowed 100% FDI in online retail of goods and services under the so-called marketplace model through the automatic route.

ALSO READ | Flipkart, Tiger Global’s unlikely burden

At least three conditions attached to the government’s approval, however, could either hurt e-commerce companies or force them to find new ways to get around them: first, no group company or seller on a marketplace can contribute more than 25% of the sales generated; second, marketplaces cannot influence product prices and third, small sellers will now have to take responsibility of the quality of goods and after sales support.

As the e-tailers had to put sale events on hold and go back to the drawing board to restructure their business structures, sales slowed. Mint reported on 14 April that Flipkart’s sales hadn’t grown month-on-month since November 2015, and Snapdeal’s monthly revenue declined, though the companies denied the development.

All said, Flipkart seemed to have got its act together during the festive sales in the October-November period, traditionally considered the best in terms of sales for e-tailers.

Flipkart outsold Amazon India during the first sale event of the all-important festive season, recording unit sales of 15.5 million compared with 15 million units for the US-based online retailing giant. Flipkart generated gross sales of at least Rs3,000 crore from its five-day flagship sale Big Billion Days, Mint reported on 8 October.

Amazon said it received orders for 15 million units during Great Indian Festival, its Big Billion Day rival sale event.

Amazon said then that its single highest-selling product was the Prime subscription, and groceries were among its other big sellers. Snapdeal, on the other hand, claimed to have sold more than 10 million units during its Unbox Diwali sales.

ALSO READ | Flipkart remains most popular e-commerce brand in India: RedSeer report

According to RedSeer Management Consulting, cumulative gross sales by e-tailers in October stood at $2.2 billion, the highest ever in the history of e-commerce in India.

But the revival hit another roadblock: demonetization of high value currency notes on 8 November. According to RedSeer, number of transactions fell about 15-20% in the three weeks after demonetization, as against the first week of November, in a market where cash on delivery is the preferred payment option.

On the whole, the e-commerce market saw little or no growth—a most worrying development that shocked online retailers, investors and analysts alike. They can only hope for an improvement in 2017.

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