Author(s): Raghu Gopal
Last week, Flipkart-owned Myntra acquired online fashion retailer Jabong, owned by Global Fashion Group — which has Rocket Internet as a 20 percent investor. Jabong had become Myntra's main rival in Indian fashion e-commerce. However, Global Fashion Group had seen its valuation fall by 68 percent over the last year as investor sentiment cooled, and it has been looking to sell Jabong, which only reported a profit for the first time in March 2016. Jabong was sold to Flipkart for $70 million, having been valued at $1.2 billion in 2014, when there were talks with Amazon about acquiring it.
Flipkart's acquisition of Jabong comes at a time when local e-commerce players are shifting their strategies. With the change in the investment climate, companies are having to move away from a heavily subsidised land-grab, toward providing a better customer experience and moving into profitability. Flipkart recently announced plans to invest $100 million to build out its digital payments initiative to better compete with Amazon India and Snapdeal, both of which offer e-payment solutions.
This latest acquisition by Flipkart creates India's largest online fashion destination. Flipkart CEO, Binny Bansal, pointed to robust growth in fashion and luxury goods in India as the main drivers for the move.
Flipkart isn't the only e-commerce company making strategic investments. Amazon has seized on the shortage of new funds for local players to step up its efforts to capture market share in India with its recent infusion of an additional $3 billion into its operations (see Amazon Places a $3 Billion Bet on India). Last week, it also launched its Amazon Prime service in 100 cities in India and has promised to introduce Prime Video soon. We expect the big three e-commerce rivals in India — Flipkart, Amazon, and Snapdeal — to continue to build out their solutions as more and more Indian consumers turn to online shopping.
Jabong's story reflects the ongoing consolidation in the domestic Indian e-commerce market, where companies' focus has shifted from a loss-making drive for higher gross merchandise value to a push for profitability. With lower competition in the fashion segment, we expect the Myntra-Jabong combine to reduce discounting and work toward being profitable.