Flipkart continues to consolidate with latest e-bay acquisition

After successful acquisition of Myntra and Jabong leading e-commerce company Flipkart has acquired the Indian arm of eBay after getting whopping Rs.9000 cr in latest round of funding from Tencent, eBay and Microsoft.. Binny Bansal chose his Twitter handle to make the announcement regarding this development.

As the official statement said, “In exchange for an equity stake in Flipkart, eBay is making a cash investment in and selling its eBay.in business to Flipkart. eBay.in will continue to operate as an independent entity as a part of Flipkart. Flipkart and eBay have also signed an exclusive cross-border trade agreement.”The cash investment that eBay is making is said to be of $500 million. As informed by Sachin and Binny, the founders of Flipkart during the press statement,

The latest financing round for Flipkart has been come amid talks of the e-tailer's likely to acquired  its domestic rival the Softbank-backed Snapdeal to further consolidating its positioning in e-commerce market. It is expected that Flipkart will acquire Snapdeal too in the time to come. 

By all counts FY17 has been a challenging year for the e-tailing sector, with multiple regulatory challenges and slow demand growth. This is clearly borne out by RedSeer research that shows that industry size in Q4 FY17 (Jan-March quarter) just reached USD 14.7 Bn- barely 5% higher than USD 14 Bn seen in Q4-FY16. (Exchange rate of 1 USD=60 INR)

Because of the limited growth seen in the industry, the murmurs around consolidation have been growing. Snapdeal, which is one of the companies most impacted by the industry slowdown in the last year, is reportedly likely to be acquired by Flipkart. In this note, we dissect the implications of such a move, if and when this happens.

Benefits of the Snapdeal acquisition for Flipkart

·         Access to Snapdeal’s well-oiled supply chain network - This deal gives Flipkart a way to expand its supply chain reach quickly and inorganically by getting access to Snapdeal’s numerous small and big warehouses, especially in Northern India. Fast deliveries and regional fulfilment of ordershave become crucial for e-tailers to achieve both higher customer satisfaction and lower supply chain costs. And this move by Flipkart would be a significant boost in its quest for supply chain leadership over Amazon, which is aggressively expanding its supply chain network

·         Access to a large, marquee investor- With Softbank expected to buy into Flipkart with this deal, this should give Flipkart additional funding firepower to sustain its bruising battle with Amazon for a longer period

·         Small but significant expansion of Flipkart’s customer base- While admittedly there is a significant overlap between Flipkart and Snapdeal customer bases, there is a small set of Snapdeal customers from Northern India who can be added to Flipkart’s kitty with this deal

·         Increase in exclusives portfolio- This deal would mean that Flipkart can take advantage of Snapdeal’s many exclusive tie-ups with brands globally, which should especially help it in home and fashion categories portfolio diversification

Challenges and way ahead for Flipkart from the deal

Commenting on the finding of the research, Anil Kumar, CEO, RedSeer Consulting said,“Extracting synergies and value from this acquisition would be a challenging task for Flipkart, considering the physical distances, differing strategies and the different team cultures at both companies. However, if the post-merger integration is executed successfully, the deal could play out similar to Ola/TFS acquisition in online cabs space, which gave Ola significant funding and capability firepower to hold off Uber in India. Something which would help Flipkart fend off Amazon for much longer”