Jabong turning into marketplace as Snapdeal bid looms

Online fashion retailer Jabong.com is shifting from an inventory-led model to a marketplace model as it aims to comply with rules on foreign investment ahead of a potential sale to e-commerce firm Snapdeal.com, said three people familiar with the development.

Xerion Retail, which has been selling most of the goods on Jabong till last week, has now made space for three more vendors: Bren Trading Pvt. Ltd, Ravenna Fashion Pvt. Ltd and Wearhouse Products Pvt. Ltd.

Global Fashion Group, which owns Jabong, is in advanced discussions with Softbank-backed Snapdeal to sell the online fashion retailer. The deal is estimated to be around $50-75 million largely in cash, which would allow existing investors Rocket Internet and Kinnevik AB to exit Jabong. Mint reported in July that Snapdeal was one of the front-runners to buy Jabong.

“Given Snapdeal is a pure marketplace, buying an inventory-led business with foreign capital would have invited trouble from the government,” said one of the three people on condition of anonymity.

Under India’s rules announced in March, foreign direct investment (FDI) is not permitted in inventory-led e-commerce firms which directly buy, stock and sell goods to their customers. However, online marketplaces where multiple vendors hawk their products can accept FDI through the automatic route. Still, no seller on a marketplace can contribute more than a fourth of its sales.

Jabong is run by Novarris Fashion Trading Pvt. Ltd, a wholly owned subsidiary of Jade e-services Pvt. Ltd. Jade, in turn, is owned by Global Fashion Group.

Jabong started out as a platform owned by Jade, the business-to-business entity that received FDI and sold goods to Xerion Retail (the business-to-consumer entity), which in turn sold products to customers on Jabong’s site. Jade had leased out the license to run Jabong.com to Xerion. After the new structure, Xerion as a company will cease to exist and the license of the brand Jabong.com has been transferred to Novarris.

“As India’s leading fashion marketplace, we are proud to connect over a thousand sellers who benefit from increased distribution with millions of customers who enjoy the best combination of choice, cost and convenience. We look forward to onboarding more sellers and customers, while enjoying good and equal working partnerships with all parties,” said Sanjeev Mohanty, chief executive and managing director at Jabong, in an emailed response to Mint’s query. “We have no comment to offer in relation to speculation regarding a sale of the business,” he added.

Snapdeal declined to comment.

Following the new rules, Mint reported that e-commerce firms such as Jabong and Myntra will be forced to rework their already complex corporate structures that deploy a mix of inventory and marketplace.

Until now, Xerion Retail sold most goods on Jabong, working as a front-end of Jade and selling directly to customers. Over 90% of Jabong’s sales came from Xerion Retail until mid-2015. The company has been moving towards a marketplace model since the new management under chief executive Sanjeev Mohanty took over in October 2015 and started focusing on profitability.

However, Jabong’s marketplace model could raise questions.

“These sellers have largely been identified and floated by the company and continue to work on the same terms and conditions as they were working with Xerion before,” said a second person among the three cited above.

According to data available with the Registrar of Companies, one of the sellers, Bren Trading, lists its directors as Sanjeev Dhull and Anuj Baijjal. Dhull was a director at Xerion Retail, the company that was running the platform Jabong.com till last week.

Similarly, another retailer Ravenna Fashion, lists Rajeev Suresh Samant, the owner of Sula Wines, as its director. But according to two of the people mentioned above, the company is believed to be run by the existing management of Xerion. The case is no different with Wearhouse Products, which is owned by Sanjay Kumar, a Delhi-based businessman with interest in real estate, Anika Bahadur and Sakshi Bahadur but largely operated by the team of Xerion, according to these people.

Mint could not gather any more details on Kumar and his business interests.

While Jabong will have other sellers or brands sell directly on its platform, the three new sellers will dominate the business, explained the three people cited above.

Jabong was recently in the news after a pseudonymous Twitter account holder alleged that co-founder and former chief executive officer Praveen Sinha made personal gains from business dealings at the fashion website.

Sinha denied the allegation and claimed he had been unfairly accused of wrongdoing.

The news comes at a time when Jabong’s investors have managed to find a suitor for the struggling business and are close to sealing the deal.