At a recent press conference hosted by online fashion retailer Myntra in Bengaluru, the word 'profit' came up far more often than at any other e-commerce-related event in the city in the past. While it was a landmark event for the Flipkart-owned company, as it was announcing its plans to go "mobile only", the conference turned out to be of significance for the Indian e-commerce sector at large, after Myntra's Founder and CEO Mukesh Bansal said that the company was focused on turning profitable and hoped to do so by the end of 2016, nine years after it started operations.
This is perhaps the first time a new-age online commerce company in the country has gone beyond the much-talked-about gross merchandise value, or GMV, and spoken about profits and margins.
For most e-commerce companies, net revenue is often a small fraction of the GMV, or the value of merchandise sold over a year. For instance, despite its current GMV of over $4 billion, India's largest online retailer Flipkart loses Rs 2.23 for every Rs 1 of revenue, according to Trak.in, a mobile and start-up blog. The blog says Amazon loses Rs 1.90 and Snapdeal Rs 1.72 for every rupee earned.
Globally, too, the trend is no different. The world's largest e-commerce company, Alibaba, had a GMV of around $97 billion in March 2015, while its revenue for the quarter stood at just $2.77 billion.
According to experts, Myntra's focus on profitability is reflective of two major trends in the Indian e-commerce ecosystem - consumers' willingness to shop despite smaller discounts and a strong base of buyers that is leading to higher sales volumes. A key factor that could help Myntra reach profitability ahead of several other players is its sole focus on fashion. For e-tailers, the segment carries a much higher profit margin than most other products.
"The hiring that these companies have been doing has changed in the recent past. They are hiring a lot from consulting firms, etc, which could be aimed at giving more structure to their businesses. They perhaps are looking to run their companies more as serious businesses and less as just start-ups," says Yugal Joshi, practice director at Everest Group. However, he says profitability is unlikely to come just from volumes. "The company is also likely to do other things such as controlling costs and increasing operational efficiency," he says.
So besides its targeted profitability, Myntra, which was acquired by Flipkart last year, is also aiming for a GMV of $1 billion (around Rs 6,500 crore) by 2016 and $5 billion (Rs 32,000 crore) over three to four years. The company's current GMV is around $400 million (around Rs 2,600 crore).
The company also wants to keeps its focus intact on fashion and look at ways to differentiate itself from other similar players. "There are about 30-35 million people who shop online in India, and over five years we will see the number going up to 150-200 million," Bansal told Business Standard in an interview. "Myntra will continue to hold its leadership as a fashion retailer and continue to differentiate. Fashion will be more than a $100-billion market and 25-30 per cent will be online, serviced by both marketplace and vertical players. Vertical fashion will be about $8-12 billion and our aspiration is to have at least 50 per cent of that."
There may be some headwinds for the online retailer in near future. It has seen a 10 per cent drop in sales ever since it shut down its website to turn into an app-only e-tailer last week. The company, however, says it had expected this initial dip and it hopes to return to the level prior to the move soon enough.
Ahead of the pack
While Myntra may be on course to turning profitable, other players such as Flipkart and Snapdeal are likely to take much longer to reach break-even. This is mainly because fashion and lifestyle, the categories that Myntra operates in, attract highest margins, while those like electronics, which, though among the top grossers for most players, have very tight margins.
"It (turning profitable) is not an unrealistic target as one of the key areas of major spends, brand promotion, is coming down," says Harish V of Grant Thorton about Myntra.
Myntra's charting a course that is vastly different from the one followed at Flipkart. While it is busy consolidating its position and moving towards a profitable future, parent Flipkart has a different perspective. Flipkart's Chief Financial Officer Sanjay Baweja in an interview to Business Standard recently said that the company was not "settled yet" and was still "nascent".
However, it is not to say that Flipkart is not thinking about profit. The company is only "not willing to talk about it" or mention a timeline for its goals. "Our entire thought process about making the best bang for the buck is about ensuring we have the right efficiencies to give a great experience to customers. The stickiness of our customers will enable us to move towards profitability," Baweja had said.
Even as most analysts see Myntra's profit goals as a sign of the sector's growing maturity, some believe it may be too soon for an Indian e-tailer to forego growth and look at profit. They say that with even old e-commerce players such as Amazon are less focused on profits and more on growth, Myntra's move may be due to pressure from investors, or even its parent, Flipkart.
"This is a strange move, because it would mean that even at this small stage, the company is finding it hard to find avenues to reinvest in its business," says an industry expert who does not want to be named. "At this scale and growth rate, when a start-up thinks more about profit and less about growth, it indicates that the company is finding it hard to get funds from other avenues. A lot of funding is now going to new formats, such as food technology companies," the industry expert adds.