Flipkart, the parent of lifestyle e-tailer Myntra, is emerging as the front-runner to acquire rival fashion portal Jabong, according to two people briefed on conversations related to the sale.
“Flipkart wants to buy Jabong brand and Jabong management too prefers to align with Flipkart and Myntra,” one of the persons cited above told VCCircle.
“Jabong was as strong as Myntra till a year ago and still commands around 25% market share in online fashion retailing,” the person said and cited this as the reason for Flipkart’s interest in Jabong. Myntra holds around 35% market share while the parent Flipkart has around 10% share. If Jabong rolls into its fold, Flipkart and its subsidiaries together will hold around 70% of the online apparel sales.
“This will help arrest the erosion in valuation that Flipkart now faces. A clear dominance in one key segment will be good for Flipkart in its fight against Amazon,” the person said.
Myntra and Jabong spokespersons did not respond to email queries seeking more details.
From the peak of $15 billion, Flipkart’s valuation fell to $ 9.4 billion in a year, post Morgan Stanley’s markdown in May. “Flipkart has an eye on the valuation aspect while pursuing this deal. If valuation goes further down to say $8 billion, it will cause lot of difficulties for the firm,” the person added.
While Jabong is looking for a $250 million valuation, it is likely to settle for $180-200 million. For parent Rocket Internet, the sale of Jabong would mean a near exit from India. It sold its online furniture store FabFurnish.com to Future Group earlier this year. It is reportedly struggling to find a buyer for Foodpanda.
Jabong, Rocket Internet’s biggest bet in India, has been doing well in the niche segment of online fashion sales. In terms of revenue, it fared better than Myntra in 2014-15. It posted Rs 1,085 crore revenues while Myntra’s revenue during the same period was Rs 773 crore.
It also reported a marked improvement in performance in the three months ended March 31, 2016, while simultaneously cutting down operating loss. The firm posted its best transaction volumes, net revenue and gross merchandise value (GMV) since October-December 2014. Operating loss, too, was the lowest in almost two years.
However, Jabong eventually fell behind Myntra, a fallout of the latter’s policy of huge discounting, according to an industry official. “Rocket Internet did not match with the Flipkart’s spending on discounts. As a result, it lost out to Myntra,” he said.
Rocket Internet’s decision to stop pumping money into Jabong, which is its biggest loss-maker is another reason that stagnated its growth. This decision has led to the exits of its top officials including its founders, leading to a shake-up.
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