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Five things Flipkart must do to make most of SoftBank’s dollars

11 August, 2017

Six months, it appears, is a long time in the life of a consumer internet startup, enough for it to turn the corner.

In the beginning of the year, the commentary around India’s biggest e-tailer Flipkart was either downright pessimistic or, at the very best, had negative undertones. Issues ranged from a deepening funding crunch to valuation markdowns to exodus of corner-room talent, and it would seem the pioneer of Indian e-commerce couldn’t put a foot right.

Cut to August, and things have changed drastically. Courtesy a $2.4-billion round from Japan’s SoftBank, the biggest-ever private investment into an Indian technology company, Flipkart’s coffers have swelled to over $4 billion. That’s exactly the sort of ammunition the homegrown firm needed to take on rival Amazon, which has committed a colossal $5 billion out of its war chest to India.

But having the ammo is one thing, firing it right is quite another.

Here are the five things Flipkart needs to do to ensure it makes the most of the capital raised.

Improve customer loyalty
Ashish Jhalani, founder of e-commerce research firm eTailing India, feels Flipkart’s chances of maintaining market leadership will lie in its ability to launch effective customer loyalty programmes. This is an area where rival Amazon has tasted a lot of success thanks to its all-encompassing model. With offerings such as Prime Video, original content and faster delivery, the US e-tailing giant has converted thousands of Indian online shoppers into loyal customers.

Another way to approach the problem is by driving greater consumer stickiness. “Flipkart now has to ramp up its wallet pay and the focus should move towards high-volume, high-frequency and low-ticket offerings like food delivery, travel tickets and movie tickets, etc,” says Anup Jain, managing partner at consumer and retail consulting firm Redback Advisory Services.

Flipkart seems to have taken the first steps towards the exercise. It is mulling expanding to other segments. It was recently reported that the company was looking to launch financial products and services online.

Invest in logistics
Amazon Prime became an integral part of online shopping in the US mainly because of its promise of faster delivery. Likewise, Flipkart needs to fasten its logistics wheel, feel experts.

“Flipkart certainly needs to strengthen its delivery logistics network and improve the response time. They need to build many more distribution centres and have them Flipkart-fulfilled, just like Amazon, rather than rely on third-party vendors,” says Arvind Singhal, chairman and managing director at consulting firm Technopak.

Rival Amazon India is doubling storage capacity this year by adding 14 new fulfilment centres. Earlier this month, it set up its 38th fulfilment centre in Madhya Pradesh and announced that it will set up an additional three in Hyderabad and the suburbs of Gurgaon and Ahmedabad. That would take the total number of Amazon’s fulfilment centres to 41 by Diwali.

Get on the food & grocery bus
Amazon has outlined an ambitious growth plan for its retail food and grocery business in India. It recently secured the government’s nod to invest $500 million in the sector. Homegrown players such as Grofers and BigBasket, the market leaders in the segment, have also received the government’s approval. Meanwhile, reports have emerged that both Amazon and Alibaba-backed Paytm are looking to invest in BigBasket.

Flipkart, which shut down its grocery delivery app Nearby last year, will be missing out on a huge opportunity if it delays getting into the segment.

Jain feels Flipkart should leverage its customer base to establish a strong presence in the grocery segment, which is a recurring, daily-order business.

Invest in tech, try new biz strategies
Flipkart needs to make significant, holistic investments on its tech infrastructure to improve customer experience, thinks Singhal. “They should invest much more in technology. Not only in the backend, but also on the consumer interface front. There are many tech revolutions happening, such as the concept of virtual trial rooms.”

Besides, the very essence of an Internet startup is continuous innovation, a spirit that should also spread to its business strategy. “It needs to look into various strategies to gain more customers. Many companies are now offering subscription-based models for beauty and fashion. They need to experiment on those lines,” he adds.

Jhalani feels Amazon’s superlative customer experience, one of the reasons for its stellar run in India, is something Flipkart just doesn’t match up to. And that will be key if it wants to take Amazon head-on.

Target Tier II, III cities
According to a recent report by research firm RedSeer Consulting, Tier II and below cities will account for as much as half of all the e-tailing business in the country by 2020.

This is an area where Flipkart hasn’t paid much attention so far. “Flipkart should focus on Tier II and III centres where growth will be around providing relevant merchandise, like rivals ShopClues and Snapdeal. It should make the proposition of online shopping more relevant for such customers. Its strong presence in apparel can be crucial in this strategy,” Jain says.

Gurgaon-based ShopClues, for which small cities are the business’ mainstay, had said it witnessed 50% higher demand from Tier II and III cities than Tier I cities during its Diwali Sale last year.

Flipkart has reportedly been planning to launch physical stores in smaller cities to attract more customers, but the plan doesn’t seem to have taken off.

Mint report said in October last year that Flipkart wanted to cement its position as the preferred online retailer even in remote cities of the country through brick-and-mortar stores.

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Five things Flipkart must do to make most of SoftBank’s dollars

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