Business News/ Companies / Start-ups/  Flipkart’s Myntra acquires Jabong in $70 million ‘discount’ deal

Flipkart Ltd has acquired Jabong through its unit Myntra in a cut-price deal that values the online fashion store at $70 million, moving to preserve its position as India’s No.1 e-commerce marketplace in the face of an onslaught by Amazon India.

Flipkart, which beat other Jabong suitors such as Snapdeal, will pay cash for the acquisition, according to a statement by Global Fashion Group (GFG), which owns Jabong.

GFG has been looking for a buyer for Jabong for more than a year now. GFG held discussions with several firms, including Snapdeal, Future Group, Aditya Birla Group and Amazon.

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“Fashion and lifestyle is one of the biggest drivers of e-commerce growth in India. We have always believed in the fashion and lifestyle segment and Myntra’s strong performance has reinforced this faith," said Binny Bansal, co-founder of Flipkart.

“This acquisition is a continuation of the group’s journey to transform commerce in India. I am happy that we will now be able to offer to millions of customers a wide variety of styles, products and a broad assortment of global as well as Indian brands," he added.

The sale marks one of the most dramatic declines in India’s online retail business. At the end of 2013, Jabong was worth as much as €388 million (about $508 million). In that financial year (year ended March 2014) Jabong reported sales of 38 crore. Even though its sales increased to 869 crore in the last financial year, Jabong’s value collapsed because of a combination of leadership issues, market share losses and a funding crunch.

For Flipkart-Myntra, the acquisition of Jabong will boost sales at a time when Flipkart is struggling to revive growth, and struggling to protect its leadership in a market where Amazon has made rapid strides.

Jabong offers more than 1,500 international high-street brands, sports labels, Indian ethnic and designer labels and over 150,000 styles from more than 1,000 sellers.

“Jabong has built a strong brand that is synonymous with fashion, a loyal customer base and a unique selection with exclusive global brands. The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform. We see significant synergies between the two companies, especially on brand relationships and consumer experience," said Ananth Narayanan, chief executive, Myntra.

Jabong, which matched larger rival Myntra in sales until early 2014, has ceded market share since then, as Myntra’s parent Flipkart spent lavishly on advertising and discounts to lure customers.

At the end of May, Jabong reported a 14% increase in revenue to €32.6 million for the March quarter. The Gurgaon-based firm’s adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) loss narrowed to €11.9 million from €16.3 million in the same quarter a year earlier.

In the past year, the company has been hit by an exodus of senior management executives, a funding slowdown and strong competition from Myntra and Amazon India.

In September 2014, German investor Rocket Internet merged Jabong with four other online fashion retailers in Latin America, Russia, the Middle East, South-east Asia and Australia to create GFG.

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GFG, which is jointly owned by Rocket Internet and AB Kinnevik, houses the German e-commerce company’s fashion businesses from emerging countries, including Jabong, Latin America’s Dafiti, Russia’s Lamoda, Namshi in the Middle East and Zalora in South-East Asia and Australia.

Earlier this month, Jabong expedited its sale process as Kinnevik and Rocket Internet were reluctant to pump more capital into the company in a gloomy e-commerce market.

The valuation of GFG, which was €3.1 billion in July 2015, slid to $1.13 billion (€1 billion) after barely 10 months. In May, GFG said it raised $339 million (€300 million) from Kinnevik and Rocket Internet at a valuation that was a third below the previous round’s.

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Updated: 26 Jul 2016, 07:57 PM IST
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