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Flipkart gets ready to take Snapdeal under its wings

Flipkart gets ready to take Snapdeal under its wings

By Nitya Pandit

The Indian e-commerce site Snapdeal has been experiencing heavy financial losses, drop in its valuation, lack of funding and a mass reduction in its employees. Now it is up for sale.

Rising costs in the industry

The entire e-commerce sphere seems to be going through a bad phase, given that the three top players, Amazon, Flipkart and Snapdeal posted a combined loss of Rs 9,000 crores in 2015-16. While Snapdeal’s expense was constantly growing due to employee costs, advertising and promotion costs, even Amazon and Paytm saw an increase in their advertisement costs.

In 2015, the Indian e-commerce industry saw a significant growth of 180% which, however, did not last long before it fell to 12% in 2016. Despite these bad signs, the Indian market is expected to reach US$64 billion by 2021. The growth pace of e-commerce varies country to country; it has been relatively faster in India because features like cash on delivery and no-questions-asked return policies have been introduced for Indian customers.

Reason for the fall

There are several factors that went into stirring this crisis for Snapdeal. Some employees blamed the lack of a healthy work culture and the autocratic structure. Most of them weren’t allowed to be involved in any decision making which only lay in the hands of the founders and board members. Furthermore, the firm spent extensively on its public relations and branding initiatives, disregarding the increase in expenses.

Its founders believe that another reason that led to this situation was that the company was functioning too quickly before it could even figure the right market fit and economic model. Snapdeal took on too many projects and diversified too early in its career, as it overestimated the capabilities of its team and the business.

Missed opportunities

To stand out from competition, Snapdeal had come up with an omnichannel strategy in 2015 called ‘Janus’, which was eventually never executed. This strategy could have helped break down the boundaries between the online and offline experience for the average consumer. The platform would have provided value-added perks like product demonstration, installation or activation at brick-and-mortar stores. It would have been especially helpful given that none of its rivals was utilising this strategy.

After elaborate campaigns like ‘Unbox Zindagi’ and a revamp of their logo, the company’s attempt at rebranding itself had failed. Even though it had the fastest delivery service in the market, given its current situation, it no longer can use it as a differentiator. More missed opportunities came from the rejection of two rounds of funding.  This happened due to the differences in opinions within the board and forging the chance of electing an external CEO, which may have changed the way things look for Snapdeal today.

What next?

For several months, a merger between Snapdeal and Flipkart was being discussed. SoftBank, which backed Snapdeal, believed that the best move would be to sell the company either to Flipkart or Paytm for a cut-price all-stock deal. Currently, the merger is speculated to happen through a share swap and SoftBank has chances of getting two board seats.

In this on-going process of the merger, both the players have already signed the non-binding term sheet. This will be followed by Flipkart’s scheduled commercial and financial diligence over the details of the merger. According to speculations, Snapdeal will be valued close to US$1 billion, however, the final price will be determined in about 6-8 weeks.

Snapdeal is trying to limit its hindrances as it promises a retention amount that is 4 to 6 times of senior executives monthly salaries. The Snapdeal brand will be retained under Flipkart for the interim until after the deal is completed. However, Snapdeal encounters another obstacle—an allegation made by former entrepreneur Gaurav Dua on the co-founders, of cheating and stealing the idea of an online marketplace model. In addition to the allegation, Snapdeal will also have to work its way through the many seller complaints it has received.

Featured Image Source: Pixabay

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