The news of Flipkart and Myntra being in talks to merge together – either fully or at least financially – have been doing the rounds for many weeks now. The thought process in the media is that the common investors namely Accel and Tiger Global have been insisting that the two merge in order to optimize operations and increase efficiencies. After all, what is the point in pumping money into two similar e-commerce ventures? As the image below shows, Flipkart and Snapdeal are pretty much stocking the same categories, but Myntra’s leadership position in the highly profitable fashion category can add more income in Flipkart’s cash flow statement.
(Story update: Amazon has launched the clothing category too around the time this story was published)
But there is more to the story than just the common investors pushing for optimization. The big daddies of global retailing – Amazon, eBay and Walmart – have been making quiet but aggressive plans for the Indian market.
Cash Reserves: $12.5 billion, Annual Revenue: $74 billion
Case Study: In Germany, the six-decade old Otto group was the leading retailer for many years. Otto was a pioneer in mail order catalogue business, and also adopted online commerce as early as 1995, the same year that Amazon did. But once Amazon entered Germany, there was no stopping the juggernaut. For the first time, in 2013, Amazon ($10.5 billion) surpassed Otto Group’s ($9 billion) revenues, just a few years after entering Germany
Cash Reserves: $9 billion, Annual Revenue: $16 billion
Case Study: Ebay Russia generated $400 million revenue in 2012 and is one of the fastest growing markets in Europe currently. The official line is that among the BRIC countries, Russia is the number one priority currently, while the groundwork is prepared in other countries
Walmart, after many false starts since 2009, seems to be getting comfortable with two clear models for cash-and-carry business, in the absence of any clear policies on FDI in retail. One, to launch 40-50 wholesale stores in the next 3-5 years, and launch an e-commerce platform, again for the wholesale side. This might not directly affect the growth of the retail e-commerce players, but this could be a start to their retail operations depending on the Indian Government policies post elections.
In the short-term, there is going to be a price war and margin war as all the big players Flipkart, Myntra, Snapdeal, Jabong etc. scramble to keep pace with Amazon. Once steady state is reached in 6-9 months, there is going to be the next round consolidation, with some of the existing e-commerce players merging or getting acquired, since efficiency is the name of the game in e-commerce for long-term survival.