Aditya Birla to exit online fashion retail, says business unsustainable

The Aditya Birla Group will exit the fast-growing online fashion retail space in India after being unable to compete with the heavy discounting led models of rivals Flipkart and Amazon.

ABOF, the flagship portal of the $50 billion conglomerate will pull down its shutters by December 31, a little over two years after it began operations. Fueled by large doses of venture capital, its rivals have made the business of selling fashion online unsustainable.

“We don’t foresee any return on investments in the near future,” said Santrupt Mishra, Global HR Head at Aditya Birla Group in a phone interview. “It is still not mature enough.”

Fashion has emerged as the largest category in terms of the number of stock keeping units (SKUs) sold in India’s e-commerce sector. The category also accounts for the largest number of purchases made by first-time online shoppers in the country.

With their eye on bringing more people to shop on their platforms, Amazon and Flipkart are burning significant amounts of money on the fashion category. ABOF, which when launched said it would not offer any discounts, quickly realised the reality of the online fashion market.

Since the funding crunch of 2015, several players such as Fashionara and  Askmebazaar have shut their business unable to compete with these large players, who are burning cash to buy customers on their platforms.

The crunch also saw Flipkart reduce its staff and rationalise costs before it fought back during the last festive season to retain dominant market share against Amazon. This also helped it raise fresh capital from strategic investors such as Softbank helping it build a war chest of $ 4 billion.

Aditya Birla’s announcement to shutter ABOF was made at a town hall meeting on Thursday morning and the company’s 240 employees were promised four and a half months of severance pay. The company’s private label brand Skult will be absorbed by the group’s apparel division Madura Fashion & Lifestyle.

The Economic Times and Times of India reported this development first on Friday.

Myntra, the fashion arm of India’s leading e-commerce player Flipkart, says it is on track to turning profitable by the end of the current fiscal. Earlier this month Myntra announced that its $300 million private label business that accounts for 25 per cent of all its sales had turned profitable at an EBITDA level.

While the large e-commerce players are betting on fashion, a high margins business, to help reduce their losses from other categories, a recent spate of funding in two of the largest players Flipkart and Paytm has somewhat skewed their requirement to turn profitable soon. Instead these players are now more open to burning cash to acquire customers while Amazon is pumping in more money to outdo them.

The festive season that kicked off this month will see more shoppers buying goods online. But online firms are expected to burn around $ 400 million for sales of $ 1.7 billion, according to RedSeer Consulting, a researcher tracking online sales in India. India’s e-commerce sales is expected to grow 60 per cent this year from sales of $ 1.05 billion last year.