Flipkart's Myntra buys Jabong to speed up profit chase

Move to strengthen portfolio in high-margin online fashion retail space, comes at time of fierce competition with Amazon

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Consolidation in the online retail space continued with Myntra, owned by Flipkart, buying rival Jabong for $70 million (Rs 470 crore) on Tuesday.

Myntra is the largest online fashion retailer and is looking to strengthen its portfolio in the high-margins space.

The acquisition would also mean that the Myntra-Jabong combine would jointly offer customers the portfolio of fashion and lifestyle products during the busy festival season beginning September — the period in which nearly half of total retail shopping is done in the country.

It also would help Myntra achieve profitability by end of this year.

Flipkart’s move comes at a time when rival Amazon is pumping in billions of dollars to have a run at becoming the leader in the fledgling e-commerce space in the country.

“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, chief executive officer, Flipkart, in a statement.

He added: “This acquisition is a continuation of the group’s journey to transform e-commerce in India.”

Flipkart beat rival Snapdeal, large-format retail giant Future Group, Aditya Birla Group-owned Abof and others who were also in the running to acquire Jabong.

The fashion retailer, which was valued at around $1.2 billion has been on the block since as far back as November 2014 when it was in talks with global e-commerce giant Amazon.  Jabong, founded in 2012, had a strong presence in women and international brands such as Dorothy Perkins and UCB, and was neck-to-neck in the race with market leader Myntra, before it was snapped by Flipkart for $300 million (about Rs 2,000 crore) in 2014.  

It could not get a higher valuation and began losing market share to a more aggressive Myntra, backed by the deep pockets of Flipkart.

Jabong being put for sale in the market by its main investor Rocket Internet did not help the company either as it saw exits of senior executives such as co-founders Praveen Chandra Sinha and Arun Chandra Mohan, while losses mounted.

The company also tried rationalisation by shutting its London design centre, which created western clothes that the platform was increasingly associated with.  Sanjeev Mohanty, its current CEO, was said to be moving to Levis in the midst of the fire sale by its investors.

Jabong had losses of euro 56 million (Rs 415 crore) on revenue of euro 126 million (Rs 933  crore) for the year ending March 31, bringing down its valuation from a peak of around $1.2 billion to a paltry $70 million, when it was sold on Tuesday.

The sale of Jabong will provide Rocket Internet with its first big exit in India.

“Through the sale of Jabong, we are achieving a milestone in our strategy to refocus and invest in our core markets that show both, significant growth and revenue potential but also a clear and predictable path to profitability,” said Romain Voog, CEO of GFG in a statement.

The German Internet conglomerate also holds a large stake in food-delivery service FoodPanda in the country and sold its stake in online furniture retailer FabFurnish to Future Group in April this year. The firm is looking at more exits in India as its portfolio displays less-than-stellar performance.

“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, the CEO of Myntra, who will now also head Jabong. Earlier this month, Myntra acquired HRX, the private brand owned by Hrithik Roshan, for an undisclosed sum, which it expects to make it among its largest-selling private brands on the platform.

“We are always open, we keep scanning. We look at consumer data to find where gaps are, and when we find a gap, we see if there are any brands we can invest in or tie-up with. It doesn’t always have to be an investment. Sometimes, we just tie up but we keep looking,” said Narayanan in a recent interview.