Softbank pushes Flipkart to focus on growth, market share
BENGALURU: After raising cash from Softbank Vision Fund, online retailer Flipkart has tweaked its strategy to focus on boosting market share rather than narrowing its losses, two people familiar with the matter said.
Cash-rich Softbank Group Corp. is pushing Flipkart to make sales growth and market expansion its top priority, indicating that an already-delayed public offering is no longer on the agenda for the next three years at least, the people cited above said on the condition of anonymity.
Softbank wants Flipkart to increase its market share to 60-70% over the next few years, the people said. The Japanese investor has assured Flipkart that it is willing to pump in “several billions of dollars” to help Flipkart expand the e-commerce market and widen its narrow lead over rival Amazon India, they said. Analysts estimate that Flipkart, which owns online fashion retailers Myntra and Jabong and payments app Phonepe, controls 40-45% of the e-commerce market.
Flipkart has signed up consultant Bain and Co. to craft a strategy to expand its user base and improve customer loyalty rates over the next two to three years, the people said.
The company is also increasing its pace of investments and acquisitions to boost growth, Mint reported on October 23.
In 2016, India’s e-commerce market grew less than 15% to $14.5-15 billion, according to Redseer Management. That was a sharp slowdown compared with the expansion of the preceding years, and forced companies, investors and analysts to change their rosy projections about the potential of e-commerce.
Now, e-commerce insiders say that while the industry will become huge over the next 10-15 years, it will only grow at a rate of 25-30% over the next few years, until macro-economic factors such as broader economic growth, smartphone penetration and comfort levels with internet all improve significantly.
Flipkart and Softbank didn’t respond to emails seeking comment.
In August, Softbank through its $100 billion Vision Fund struck a deal to invest $1.4 billion directly into Flipkart and buy shares worth $1.2-1.4 billion from Flipkart shareholders.
The deal will make Softbank one of the two largest shareholders in Flipkart along with Tiger Global Management, whose former employee Kalyan Krishnamurthy is the chief executive of the online retailer.
Before the Softbank deal, Flipkart had already raised $1.4 billion from Tencent, ebay and Microsoft in April. But at that time, it was striving to strike a balance between cutting losses and boosting sales. With the entry of Softbank, which has an unrivalled appetite and cash to fund technology firms, Flipkart has landed a long-term backer willing to invest large sums of money to control a large part of the last big unconquered e-commerce market in the world.
Given Softbank’s ambition and firepower, Flipkart is now prioritising market expansion and market share gains over profitability. In an interview published on September 19, Flipkart CEO Krishnamurthy confirmed as much.
“Profitability is not the highest priority today. We will again go into a very clear consumer market building mode and expanding the market. We want to bring as many people as possible into the e-commerce fold, as many categories on a regular basis and we will invest towards that. We are very comfortable on the burn that we have today,” Krishnamurthy had said.