Flipkart Group, which was valued at $25 billion in July, when it raised $1.2 billion led by US-based parent Walmart, has made multiple investments in recent months, in fresh produce startup Ninjacart, logistics firm Shadowfax, Arvind Fashions Ltd’s Arvind Youth Brands and Aditya Birla Fashion and Retail Ltd. (ABFRL)
With Reliance Retail-backed JioMart gearing up to challenge Flipkart’s dominant position in India’s e-commerce market, both Amazon and Flipkart are ramping up offline partnerships. In an interview, Flipkart Group CEO Kalyan Krishnamurthy spoke about the company gearing up for an IPO, growth plans in fashion and grocery and leveraging the investment with Aditya Birla Fashion and Retail Ltd (ABFRL) deal to create new brands. Edited excerpts:
What kind of synergy will Flipkart explore with deals like Arvind and ABFRL?
We have made five investments recently, including Arvind Youth Brands and ABFRL. ABFRL has an admirable streak at building fashion brands and owns a deep footprint of offline stores. Flipkart, on the other end, has an online reach and is a technology-driven platform with consumer insight. Hence, one of the several synergies can be co-creating fashion brands basis market and consumer intelligence, as our complementary skillsets can bring the right styles and selection to Indian consumers. The lines between modern retail (includes large format stores) and e-commerce is blurring only further.
What are the next growth frontiers for Flipkart?
Over the last six months, we have not dictated the growth drivers but followed them. As a result, today, the biggest growth is registered in segments like consumer electronics, work-from-home essentials, online content consumption due to the pandemic.
However, 80-90% of India’s retail economy is made up of grocery and fashion. Both these categories are the most underpenetrated from an e-commerce standpoint. For Indian e-commerce penetration to grow and reach $100 billion by 2024, these two categories will play a big role. We see ourselves making more investments in these categories but will take a strong ‘capability’ view and partner or invest in areas where we lack the ability to build
With the Flipkart-Amazon e-commerce duopoly, is there space for a third large entrant like Reliance Jio?
We believe that the monthly active user base of India’s internet ecosystem is roughly around 450 million. Not more than 10% of this user base actively shops on e-commerce, on a monthly basis - leaving a massive opportunity. When a new player enters the market, with a strong value proposition, the market only expands.
Do you fear a ‘price war’ in e-commerce with Jio’s entry?
For any player to compete, and its survival comes from the ‘value proposition’ it offers. As long as we have a value proposition in terms of superior selection from our seller base and digital and physical reach backed by technology, we will be a strong player in this segment.
How is Flipkart gearing up for an IPO?
We need to have a sustainable, compliant and predictable business. The focus of Flipkart’s management team is to get the company stronger in those parameters. Where and when the IPO will take place is a decision of the board. All the things leading to preparation for an IPO makes the company stronger. Are we focused on those aspects? Yes. And we want Flipkart to be a sustainable and cash-efficient business.
How critical is hyperlocal and same-day delivery for Flipkart?
In e-commerce, there is selection, value, and convenience which are important. The share of ‘convenience-led’ commerce can go up to 35% for categories like grocery, home products, and electronics. When we look at India’s overall e-commerce pie, 'convenience-led’ commerce can contribute to 20%-25% range over time. Flipkart will play in this market while adding ‘hyperlocal’ and fast delivery’ for the ‘convenience-led’ buyer in the next 2-3 years.
What is the road ahead for Flipkart Wholesale?
At a strategic level, the aim of this partnership was to cater to the kirana ecosystem in India, which controls more than 80% of retail trade and will continue to grow.
We will look at kiranas as a strong partner through our ‘Wholesale’ and ‘Best Price’ play to offer products to them and will add alternate income to them through logistics.
Which business units do you think will hit profitability earlier?
Profit pools in e-commerce come from the core marketplace, gaining scale through technology enablement, and platform advertising. These are big levers of profitability. Fintech can be a lever of profitability but it will be a long-term play of at least 5-10 years before we hit that.
Will new online customers stay on even beyond the pandemic?
Customer on-boarding from Tier 2 and 3 geographies has been strong for Flipkart. By May-end, there was pent-up demand which e-commerce saw and there was an explosion of this demand on our platforms. But now that pent-up demand is behind us.
The level of shift from offline to online retail might not completely sustain but there will be some customer stickiness to online from these pockets. In India, online commerce will stick between pre-pandemic and post-pandemic peaks.
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