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Flipkart’s $2.4 bn fund-raise a shot in the arm, but it was the easy part

14 August, 2017

For those who root for underdogs, India’s e-commerce market presented the perfect opportunity last week. Homegrown Flipkart, which claims to be the country’s top e-tailer but has been ceding ground to rival Amazon, raised as much as $2.4 billion from Japanese Internet conglomerate SoftBank, taking its cash surplus to a mammoth $4 billion.

That has sparked a wave of optimism around the e-tailer’s future. Earlier, the near-unanimous opinion was that it was a matter of time before Amazon took Flipkart to the cleaners. Now, even those sceptical of the homegrown company are giving it a chance, albeit outside, against the world’s biggest e-commerce player. Expectations are that the funding will address Flipkart’s cash worries, facilitate its much-needed expansion into verticals like grocery and food, and help it enhance its tech and logistics infra. It also gives the company the financial wherewithal to look for acquisition opportunities.

But is money the be-all and end-all in this battle?

Experts VCCircle spoke to feel though raising funds was a prerequisite, the real challenges remain on the execution front. And Flipkart will have to play out of its skin in all crucial departments to have a shy at the numero uno spot.

Here’s the lowdown on how Flipkart’s swollen coffers give it an edge, and the obstacles it must overcome.

Likely buyouts
“The humongous amount of money would allow Flipkart to do many things which otherwise they couldn’t have,” Arvind Singhal, chairman of consulting firm Technopak, puts it succinctly. “It will surely get into food and grocery, which is a large business, especially in the backdrop of Amazon committing half a billion dollars for the segment in India. A certain amount of money will go into advertisements and marketing and some into general upgrading of technology,” he explains.

While the jury is still out on who the e-commerce market leader is, the latest funding will clearly help Flipkart improve its market share. “This financial round will surely help Flipkart remain as one of the two market leaders for a long time…its future position in terms of market share will depend on the fund allocation,” he adds.

Anup Jain, managing partner at consumer and retail consulting firm Redback Advisory Services, concurs with Singhal’s views on Flipkart upping its grocery play. “The cash infusion will help accelerate its grocery business, a crucial segment where Amazon has already taken a considerable lead. Given the recent government approval to Amazon’s food retail plans, Flipkart may even consider an acquisition to reboot its grocery play,” Jain adds.

Satish Meena, senior forecast analyst at Forrester Research, feels Flipkart can now match Amazon dollar for dollar.

“In SoftBank, Flipkart has found an investor that will continue to meet their funding needs,” he says.

Back to the basics
But outspending the competitor can be an ill-conceived strategy when you are up against the likes of Amazon. Money can only do so much.

Eventually, it will be about technological innovation, operational efficiencies, effective logistical solutions and loyalty programmes to win, and retain, customers. These are areas where Amazon has shown a strong resolve, whether it’s the runaway success of Amazon Prime or the breakneck pace at which it is opening warehouses throughout the country.

That Amazon has dug in its heels to claim the last big and unsaturated e-commerce market in the world is also evident from chief Jeff Bezos’ words. “It’s still day 1 in India,” a bullish Bezos said just three months ago. He says Amazon is the fastest-growing e-tailer in India, and has cited third-party data to claim it is the most visited site and downloaded app in the country.

In the last four months alone, Amazon has pumped least $400 million into its logistics, payments, B2B commerce and wholesale arms. It claims to have doubled its seller base in the country to 200,000 in less than a year.

Clearly, Amazon has doubled down on its execution engine. The real challenge for Flipkart would be matching this and maintaining its first-mover advantage. “They had funding offers even before and execution was always the problem,” says Meena.

Execution has indeed been Flipkart’s Achilles heel over the last couple of years.

“It will have to increase its limited product portfolio, invest more in private labels. It should keep piloting on online-offline experience stores to onboard more consumers. It needs more than just cash infusion to fight Amazon,” Meena adds.

That also means the pioneer of India’s e-commerce needs to look beyond the discounting game, and foster the spirit of innovation that propelled it to the top.

Ashish Jhalani, founder, eTailing India, feels the company should invest in schemes like stronger customer loyalty programmes. “Now the only worry is growing and fixing broken pieces for the future,” he adds.

Impact on ecosystem
SoftBank’s frenetic investment activity in India has stirred the startup ecosystem. The latest $2.4-billion round at Flipkart, the biggest-ever private investment into an Indian company, follows a $1.4-billion investment in digital wallet firm Paytm early this year.

The partial exits of early investors Tiger Global and Accel Partners establish that their biggest bet in the country has started to pay off. For the US hedge fund, six years after it wrote its first cheque and subsequent dispatches of large sums of money, the investment is finally turning the corner. This also shines a ray of hope for the exit-starved Indian venture capital industry.

For Flipkart, which has seen steep markdowns and a prolonged funding drought, the two-tranche, $4-billion investment is without a doubt a shot in the arm. It also vindicates, to a large extent, the installation of former Tiger Global executive Kalyan Krishnamurthy at the helm.

“Flipkart needed the cash and early investors wanted an exit. This serves both the purposes. Another markdown would have been imminent had this round not happened,” says Redback’s Jain.

At the same time, the future is pregnant with many a possibility. For example, if China’s Alibaba, one of SoftBank’s earliest bets, joins the grand alliance against Amazon, the very contours of India’s e-commerce market will change. Besides, whether Flipkart would prove to be another blockbuster IPO exit for SoftBank, just like Alibaba, is anybody’s guess.

The various permutations and combinations notwithstanding, one thing is certain—raising funds was the easy part for Flipkart. Phase 2, the turnaround, is going to take some serious doing.

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1 Comment
Shoeb Khan . 2 months ago

Amazon still hasn’t acquired any ecommerce players that means they surely have a big move upcoming in recent future. Surely if the tie up with any brand like Ali express for products then this will turn the table upside down for flipkart as the prices will then play a major switch between customers.

Flipkart’s $2.4 bn fund-raise a shot in the arm, but it was the easy part

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