Jabong will be among the first Indian e-commerce firms to turn profitable: Nils Chrestin6 min read . Updated: 28 Oct 2015, 03:24 PM IST
Nils Chrestin on Global Fashion Group's plans for India and how it plans to turn the online fashion store Jabong around
New Delhi: As Global Fashion Group (GFG), the company that owns online retailer Jabong.com, looks to overhaul the senior management team and pump in fresh capital to revive its slowing fashion business in India, interim chief executive officer (CEO) Nils Chrestin talks about GFG’s plans for India and how it plans to turn the firm around. Edited excerpts from an interview:
So, what was the idea behind creating GFG?
We are creating the world’s largest fashion destination for emerging markets and there is no other company that offers this. We have the ability to take regional markets to the international platform.
Though companies such as Zalora, Namshi, Jabong and Lamoda were operating as independent companies, we have always had a connection with each other as we have always had consistent shareholder overlap.
Last year, we decided to put all of it together and leverage the scale we have.
We can create a business for brands across 28 markets, help them grow their customer base and grow their brand equity and we have seen that proposition work really well with the brands that we want to (bring) on board our platform.
In total, GFG has raised €1.4 billion in funding in a couple of years and now we are in 28 countries and almost everywhere, we are the No. 1 fashion business. GFG today is valued at €3.1 billion.
What is the kind of growth you are seeing at GFG?
Last year, we did €630 million in revenue and that is real revenue. India is interesting in that sense because a lot of companies are throwing a lot of GMV (gross merchandise value) numbers around and I have never seen somebody deconstruct them for the public. I think a lot of people don’t understand what real revenues are. Frankly, I can double my GMV tomorrow, but is it the right way of building a sustainable business? No.
When do you expect to turn profitable and how?
We are in the growth phase where companies around us are investing in discounting and marketing. Now that is one way of gaining market share but that is not a sustainable way of building a business.
Ultimately at some point, the e-commerce space needs to follow the patterns of the offline retail space where you have a full-price season and you have the end-of-season sale… there is no reason why that should not be the same.
In the interim, you can try and buy market share through investments. If that is your only strategy, then you are building a very transactional customer base… the moment you stop giving discounts, they will not come back to you. You need to bring a great offering, great content and have a great customer experience and that is what Jabong and the other companies are focused on.
For now, we are making investments as well but we are sensible. There are sometimes when more investments have diminishing returns. We (Jabong) will be among the first ones to turn profitable in Indian e-commerce.
Jabong seems to be losing market share to horizontal e-commerce firms. What according to you is going wrong?
Everyone focuses on fashion… it is a lucrative category. If done right, it can have close to 40-60% gross margins. What I always say is that on horizontal platforms you buy clothes and on platforms like ours you buy fashion. I think that is what we are focused on globally. We have done that in all our markets and I am confident we will be in a position to do it in India as well.
There are only two players in the vertical space and we are the most recognized fashion destination. We are the same size as what some of the other competitors are quoting in GMV. They don’t publish real revenue. We went through a transition period and it is coming to an end now and this Diwali, we will shine a new light on Jabong.
It will be a prosperous period post this Diwali with a new management team and fresh capital. We have a multi-year view. We are not trying to maximize some short-term valuations by throwing about GMV numbers for an exit.
Vertical platforms have struggled in the country due to lack of capital. How do you plan to sustain on that front given your focus on profitability?
If you take a long-term perspective and want to build a sustainable business, then short-term ups and downs do not matter. People coming in and wasting a lot of money should not distract you. We have raised a lot of capital and we are healthy in terms of capital. We have invested that very smartly. This is how we will continue to look at the Indian market as well…
India will probably take longer, but that is fine because by that time we will have other regions that will be profitable and generating cash flows for us. We have the luxury to take a very global perspective here. We are prepared to invest longer in India.
What went wrong with the current management team at Jabong?
Nothing went wrong. They built an incredible business, a real consumer brand. It’s the most recognized fashion destination in India. And I think they deserve a lot of credit for that. As it happens with every company, at some point in time, the management changes, there are transitions, people are off to new challenges.
Is it a matter of concern when founders start leaving at this stage?
No, it is not a matter of concern. It happens all across the globe. Founders at some point step out and hand over to a new management team.
The next phase here for Jabong is to take the company from that start-up environment to a professionally run company, focused on building a sustainable long-term business.
Ultimately, Jabong should be a couple of billion in revenue for GFG.
Are there any other companies in GFG where the founders have left?
No. Jabong is making that transition at the moment.
Are you looking to manufacture in India?
India is obviously a potential hub for private manufacturing as well. So, made in India resonates very well with us. We see tremendous opportunity here in the Indian market to manufacture. We are already manufacturing and have a couple of private labels.
There has been talk of Jabong being up for sale...
In general, there is lot of speculation in the market. The truth is that we are finalizing the transition to a new management team and we have sufficient capital available from GFG for Jabong to grow its business.
Have you ever explored a sale option?
As management and shareholders, we have to evaluate all options and pick the one which is most exciting, creates the largest shareholder value and is the most beneficial for employees and customers. That is what we are doing now.
So, as I said, we would not be doing our jobs as management and shareholders if we didn’t explore all options at any point.
Can we see an individual investor coming into Jabong?
We are always exploring all options. So if somebody wants to invest in any of our regions, then we will consider it. That’s what we will do as managers and shareholders.
Do you expect the burn to go down at Jabong?
You have already seen it come down a bit versus last year and this is very much in line with us building a sustainable business. We continue to invest in marketing. You may have seen our television campaign. We continue to give away goodies to our consumers. So we are giving away phones, televisions, travel vouchers to Singapore and other places, food vouchers. We continue to invest where we think it adds value to our customers. When it comes to a point where it becomes inefficient, we will not do it.
Priyanka Sahay contributed to this story.