Jilting Jabong on ‘issues,’ Snapdeal to spend $100 m on fashion
For someone who had lost a big deal to a rival the previous day, Snapdeal founder and chief executive Kunal Bahl was remarkably upbeat and relieved on Wednesday.
Bahl was relieved he did not acquire Jabong, which fell into Flipkart’s lap, because he did not find the target clean. And he was upbeat because Snapdeal will spend the cash saved — $100 million — to build its own fashion business. “We have a high bar when it comes to governance, regulations, and compliance. Unless a company can clear that bar, we have issues,” Bahl said in an interview to HT.
Did Jabong fail to clear that bar?
“You can assume so,” said Bahl.
There have been reports and allegations that Jabong, as it rose to the frontline of online fashion retailers by burning large amounts on advertising and discounts, may not have followed the best practices. A former executive is said to have made personal gains in the company’s dealings. If true, these issues may weigh down the new owners.
Bahl wrote a note on Tuesday to the Snapdeal team, some of whom may have felt deflated by Flipkart’s acquiring Jabong, a deal Snapdeal had been gunning for. The note spoke of the reality of the beast that is mergers and acquisitions (M&As).
“M&A is very exciting when you are doing it. The real work begins after that, and surprises come after that. I am happy for the people (the sellers) who got all this cash for a company that has all these issues,” Bahl said.
The learning for Bahl from this is that one must not buy things where one sees issues around governance and compliance. “We acquired FreeCharge earlier, a company that was squeaky clean. We have a very high bar, maybe the others don’t. To me, this is black and white, there is nothing in the middle,” Bahl said.
Bahl now wants to spend the $100 million saved by not buying Jabong on building Snapdeal’s fashion business. It’s a business that has immense room for growth. Even after all the companies have spent a combined $1 billion, a mere 1.5% to 3% of all fashion retail is online. That, in part, is because over 90% of fashion sold in India is non-branded. Still, that’s a terrible return on capital.
“The capital that you invest here will be used to build the most phenomenal business in fashion. We will invest $100 million in fashion, which would have gone into someone else’s pocket,” said Bahl. He wants to create a unique experience by building a fashionspecific supply chain and technology.