Flipkart India, India?s biggest e-commerce player, said on Thursday it will buy out rival Myntra.com in a move that will help the retailer consolidate its position in the online multi-brand retail sector and take on competitors like Amazon.com that are beefing up their presence in the $3-billion Indian market.
Sachin Bansal, CEO, Flipkart, said his firm would buy 100% in fashion retailer Myntra.com, though the two will operate independently. Bansal said Flipkart would bring in an additional $100 million into the business.
While Myntra.com has been valued by independent experts at anywhere between $300 million and $330 million, no value for the deal was announced on Thursday. Neither were the specifics of the transaction divulged. However, Myntra co-founder and CEO Mukesh Bansal, who will head the fashion piece and join the Flipkart board, when asked whether he was getting a stake in Flipkart, said he, the Myntra management team and employees will get ?that option in Flipkart with significant future upside?.
The deal has been in the making for a long time know and is understood to have been initiated by private equity players Tiger Global management and Accel Partners, who have stakes in both retailers. Mukesh Bansal told FE the idea of working separately was meant to preserve value. ?The Myntra brand offers consumers a fashion experience and occupies a certain space in the consumers? mind. Flipkart?s consumer base is different and looks for range, price and service. By trying to combine both, we would have lost our value,? he told FE.
With Myntra in its fold, the seven-year-old Flipkart can now sell to a whole new set of customers given Myntra is focused on fashion.
Currently, the largest chunk of Flipkart?s revenues comes from selling electronic products. In the financial year ended March 2013, Flipkart’s revenue jumped fivefold to R1,180 crore and its loss widened to R281.7 crore from R109.9 crore a year earlier. The retailer has received close to $600 million in funding from private equity players.
According to Crisil, the country?s internet retail market is tipped to grow to R50,000 crore industry by 2016, growing at 50-55% annually; among the top players are Flipkart.com, Snapdeal, Myntra.com, Jabong.com and Amazon.com. Bloomberg reported that Flipkart had a 4.9% share of the $2.9-billion worth of internet retailing transactions in 2013, citing Euromonitor International estimates in a March report. Myntra controlled 4.1% while Amazon and eBay had 1.6% and 1.2%, respectively. Fashion e-commerce fetches very high margins.
Market watchers said consolidation in the sector was inevitable. Vishal Tripathi, principal research analyst at Gartner, believes Flipkart might have been finding it difficult to grow in the fashion space. ?Moreover, Amazon’s experience, its deep pockets and product range might also have prompted the acquisition,? Tripathi said. He added the deal could be a win-win for both. ?Maybe Myntra was looking for a business partner and Flipkart was looking to expand into the apparel space,? he said.
Paresh Parekh, tax partner (retail and consumer products), EY says, ?Consolidation, as predicted was and is inevitable, especially as global players start entering. E commerce as an industry has reached a scale to take off and is now beyond books, ticketing, electronics and is now embracing apparels, furniture, consumer durables, food and so on. E-commerce is generating far more excitement and real impact than what some of critics thought earlier. Like it or not, e commerce is the future. I foresee many more young entrepreneurs tossing and experimenting with new and innovative ideas around e-commerce.”
While sources told FE the acquisition had seen the exit of some early-stage investors in Myntra ? Kalaari Capital’s name was doing the rounds ? Mukesh Bansal declined to confirm the development. ?What I can say is all the investors are thrilled with the valuation. A lot of them have been a part of Myntra’s long journey and they appreciate the outcome from a portfolio perspective and see a lot of value in this,? he said. Flipkart’s Sachin Bansal, however, clarified that there will be no investor exits from Flipkart.
