New Delhi/Bengaluru: An over-dependence on Snapdeal and Jabong for business has led to a meltdown at e-commerce-focused logistics company GoJavas, which suspended operations last week and is on course to lay off a majority of its workforce across verticals, said four people aware of the developments.
The company, which was in talks with Snapdeal (Jasper Infotech Pvt. Ltd) for an acquisition, suffered a blow after the talks fell through, according to media reports. Snapdeal subsequently snapped ties with GoJavas, choosing instead to route its deliveries through its in-house logistics arm Vulcan Express and third-party delivery companies.
Jabong, another key client of GoJavas, was sold to Flipkart Ltd for $70 million last month, resulting in loss of business, said two of the four people cited above, on condition of anonymity.
Snapdeal and Jabong together accounted for more than 80% of GoJavas’s overall business.
Consequently, GoJavas, starved of cash and big clients, suspended operations indefinitely last week. The company has given at least 1,500 employees—delivery executives and those employed at its delivery hubs—15 days’ notice, said one of the two people quoted above.
Several employees, including a part of the senior management at its corporate headquarters in Gurgaon, have also been asked to leave, this person said.
“Essentially, they were handling about 10% of their usual volumes which prompted the management to resort to lay-offs. Last week, they gave notice to the entire last-mile staff, essentially delivery personnel and hub in-charges. They are not getting into delivery again,” the person added.
According to the second person, Snapdeal is planning to scale up Vulcan Express and has started last-mile deliveries—delivering to customers—using Vulcan’s logistics fleet about three months ago.
Earlier, Vulcan used to handle shipments from merchants to Snapdeal’s warehouses.
“Snapdeal works with multiple logistics partners for its fulfilment requirements and a large part of our shipments are handled by Vulcan Express, our in-house logistics company. We continue to deliver the fastest in the industry and as per committed timelines,” a Snapdeal spokesperson said in an email.
According to the company’s website, GoJavas’s other clients include online eyewear retailer Lenskart (Lenskart Solutions Pvt. Ltd), online dietary supplements store Healthkart (Bright Lifecare Pvt. Ltd) and Paytm (One97 Communications Ltd).
Mint reported on 8 August, citing an email response from GoJavas, that the company was making changes to its operational model to be more flexible and provide additional services, and had suspended operations owing to technical issues.
On Tuesday, a spokesperson said: “As a result of the efficiencies that this new model will bring, there will be some realignment and optimization of our existing manpower, both in the field as well as in the head office. GoJavas has always taken pride in its people and remains committed to assisting all impacted employees in their search for opportunities. GoJavas will also meet all its contractual obligations to all its employees and its clients. It is difficult to confirm the exact time of the roll-out as thorough load testing is taking place internally. Till such time as that is completed, we are not serving any client.”
Interestingly, Snapdeal has pumped significant cash into GoJavas so far, which implies that if GoJavas shuts shop, one of Snapdeal’s major investments in the logistics segment will go down the drain. The Alibaba-backed online marketplace owns a 42% stake in GoJavas and has invested about Rs.237 crore in the company since March 2015.
In April, GoJavas named former executive of fast-moving consumer goods firm ITC Ltd, Amitabh Coomar, as its chief executive officer after the departure of Vijay Ghadge, who was chief operating officer. Ghadge now runs Snapdeal’s in-house fulfilment unit Vulcan Express as chief operating officer.
Snapdeal has committed $200 million towards logistics and training sellers, Mint reported on 30 July 2015.
On 2 August, Snapdeal announced the start of six new logistics hubs across the National Capital Region, Lucknow, Hyderabad and Kolkata, owned by Vulcan.
Logistics and supply chain are the backbone of e-commerce firms as sound infrastructure helps reduce delivery costs and ensures faster delivery which, in turn, helps win over customers. GoJavas primarily competed with Flipkart’s logistics firm eKart, Delhivery (SSN Logistics Pvt. Ltd), Ecom Express Pvt. Ltd and Dotzot, the e-commerce-focused arm of DTDC Express Ltd.
In February, in its effort to tap the rising opportunity in the logistics space, Flipkart opened eKart to third-party e-commerce firms. “Some companies want captive logistics units because they can guarantee a certain delivery experience and customer experience improves. However, from a costing perspective, many a times third-party logistics service providers are cheaper because they bid more aggressively for contracts. If you are catering to multiple e-commerce firms, rates can be subsidized,” said an investor with a venture capital firm on condition of anonymity.
Online retail sales could go up to $48-60 billion by 2020 from $4.47 billion in 2014, according to a report by financial services firm UBS Group in April 2015.