Flipkart: Challenging Journey from Phenomenal Valuations to Customer Excellence
“It’s not an end of the bout for sure but definitely Round one in this billion dollar battle goes to Amazon and Snapdeal. It feels a bit like boxing bout in which one boxer accidently knocked himself down.”
– Kartik Hosanagar, Professor of Internet Commerce, The Wharton School commenting after Flipkart achieved $1 billion sales in ten hours and still large number of customers were disappointed due to technical glitches and failed transactions during Flipkart’s mega sale on October 6th 2014.
E-Commerce in India: On Super Highway
When Chinese mobile maker Xiaomi, launched its Mi3 phone on e-commerce platform, 95,000 mobile handsets got sold in no time through Flipkart.com site. This one instance reflects the strength, reach and power of e-commerce in India. Such phenomenal sale events also ring a warning bell for brick and mortar retailers in the country. Without presence on e-commerce platform, any big retailer or manufacturer may see their strategies fail miserably in near future. India operation head of Xiaomi quoted that they would not prefer going through traditional retailing mode in India as the costs of operations are much higher compared to e-commerce mode. With more than 250 million internet users and 900 million mobile connections in the country, even the traditional retailers in India like Madura Garments (from Aditya Birla group) and Big Bazaar of Future Group (Kishore Biyani Group) are also lining up for selling their merchandise online. E-commerce trade in India which is approximately 1% of $500 billion retail sector currently is expected to double by 2016 as per leading rating agency Crisil...............
Flipkart: The Beginning
In 2006, two young bright graduates from Indian Institute of Technology-Delhi (IITD) requested for fifteen minutes time from Kalyanraman Srinivasan who was heading Amazon’s Global Technology for retail business. Kalyanraman was regularly coming to Chennai to oversee the setting up of developmental center of Amazon and would also pay visit at Amazon office in Bengaluru. Therefore meeting took place at Bengaluru. The youngster duo had worked for about two years at Amazon but in technology domain, not on ecommerce platform, wanted him to guide them on e-commerce business plan. E-commerce or online business was considered as innovative and path breaking for Indian consumers at that time...........
The Timeline of Flipkart’s Journey
Flipkart’s journey which started with initial capital of $8000 (approximately INR400,000) 7 years ago to attracting $1 billion (approximately INR60,000 million) investment is both interesting and intriguing.
October 14th 2008: Two close friends and classmates at IITD, Sachin Bansal and Binny Bansal started a company Flipkart with initial investment of $8000.
July 15th 2010: Tiger Global invests $10 million and joins Flipkart.
June 16th 2011: Flipkart creates and announces new logo and soon after Tiger Global announces investment of $20 million.
August 24th 2012: Fresh investment by Tiger Global to the tune of $150 million. Sales crossed INR1000 million for the first time
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E-commerce: Empowering Small Businesses
The power of online marketing can be easily understood if successful entrepreneurs and startups that have immensely benefitted by becoming registered seller on Flipkart are observed. Softek Company, marketing computer components, electronic gadgets and accessories had annual sales revenue of INR140 million in 2010-11 which skyrocketed to INR600 million in 2013-14 riding e-commerce tide. The company faced situations like reluctant customers to climb two flights of stairs in dilapidated building in one corner of Nehru Place market in New Delhi..........
Soaring Valuations
Kalyan has observed that despite losses, the e-commerce entities hold promises for future. To illustrate he explains that more than 20% of the world’s GDP comes from emerging economies but so far only 3% of the global capital has been invested there. So to say, there are not much tradable liquid securities in those markets. He claims that, trillions of dollars may have gone into valuations but ultimate winner in the customer. Therefore Flipkart’s valuation between $5 billion to $7 billion in 2014 makes perfect sense.........
Different Models of Operations
There are different business models working in e-commerce in India. One in which customer interacts with marketing platform is like Flipkart only. When the order is paced, it is Flipkart’s or Amazon’s responsibility to having stock in their warehouses and to ship the product. To achieve excellence in customer satisfaction, it is key responsibility of these companies to keep stock, avoid dry-outs and at the same time to ensure that inventory does not remain unsold. Second model is where the customer deals directly with the seller and Flipkart or Amazon are merely a platform providing place for sellers and buyers to meet............
Flipkart Attracting Investments
Flipkart India reflected a loss of INR2820 million 2013-14 namely, a figure of INR1099 million losses a year before. So far it had pursued the aggressive policy of achieving revenue growth and grabbing market share at any cost. While revenues surged five times to INR11.8 billion in 2013-14 compared to INR2.05 billion in 2012-13, the company successfully raised $550 million in five years’ due to surging valuations...........
Acquiring Myntra
In May 2014, Flipkart announced that it had bought Myntra.com, India’s largest fashion retailer but it had agreed to keep it alive as a separate entity with independent website. This announcement was done after two months of protracted negotiations. The idea to keep it independent is guided by the reasons that apparels is quite different from other product categories like books, consumer durables, electronics and it requires deeper understanding of fashion..........
Retention of Talent
Flipkart is having young bunch of employees many of whom have turned crorepati (millionaires) riding the wave of soaring valuations of the companies and due the fact that they were having employees’ stock options (Esops) Around 400 employees of Flipkart who were having employees’ stock options (Esops) have become millionaire (crorepati) due to soaring valuation of the e-tailer. This story was similar to what had happened more than a decade ago at Bangalore based Infosys when employees including office assistants, drivers and receptionists became crorepati..............
Road Blocks Ahead
The number of sellers registered on both Amazon and Flipkart is growing while eBay which came a decade prior to them in India has much larger. For all of them regulatory framework is bottleneck. Different states in the country have different types of taxes and even tax rates differ. The requirements and documentation in different states also change significantly as one crosses the state border. For example in the state of West Bengal and Uttar Pradesh, if a customer buys goods and they are shipped from outside the state, a road permit is required from the department of sales tax in order to receive the goods. This is huge discouragement for the buyers........
Mega Sales and the Aftermath
On Monday 6th October 2014, Flipkart created a sort of storm in e-tailing history by claiming to have achieved $100 million (approx. INR6000 million) sales in 10 hours in its efforts of discount sale. There is estimated to be more than 1 billion hits of Flipkart.com site. But angry customers who failed to make merry on that mega sale offer, filled the social media with their disillusionment and disappointment with the e-tailer...........
Exhibits
Exhibit I: Online Retail
Exhibit II: Online Sellers Rejecting Offline
Exhibit III: Four Stages of Flipkart
Exhibit IV: Flipkart Cross border Structure
Exhibit V: E-Commerce Comes of Age