Flipkart, India’s largest ecommerce company, announced the acquisition of Myntra, a specialised fashion e-retailer

May 22, 2014 11:29 pm

Flipkart buys Myntra in fashion drive

By Amy Kazmin in New Delhi and James Crabtree in Mumbai

Flipkart, India’s largest ecommerce company, announced the acquisition of Myntra, a specialised fashion e-retailer, on Thursday, as it gears up to face intensifying competition in the country’s rapidly growing internet retail market.

The acquisition comes against the backdrop of a growing rivalry with US-based Amazon, which launched in India last June and has been promoting itself aggressively with a barrage of television commercials during popular cricket matches.

Binny Bansal, Flipkart’s co-founder and chief operating officer, said Flipkart and Myntra would continue operating separately, playing to their respective strengths – Flipkart’s technology platform and logistics network, and Myntra’s knowledge of the fashion business – to accelerate growth.

“It’s really about scaling the two businesses independently in a much faster way by coming together,” he said. “Cost synergies will be a secondary focus for us.”

Flipkart, a general retailer selling items from books to electronics, and Myntra, which sells clothes and accessories from international labels FCUK and Benetton as well as its own in-house brands, are both backed by Accel Partners, the Silicon Valley venture capital fund that was the first financial investor in Facebook, and New York-based Tiger Global.

Neither company would comment on the valuation of Myntra, or the new shareholding structure of the combined entity. However, analysts say the acquisition will enhance Flipkart’s competitiveness, as the two firms explore deeper long-run synergies over the next year.

“This deal was driven by Amazon, no doubt about it, which is here now and competing strongly, so there needed to be some consolidation,” says Sanjay Swamy, managing partner at AngelPrime, a Bangalore-based technology incubator.

“Just as important is that both companies have built their own infrastructure in areas like logistics and payments, so there are savings to be made . . . It doesn’t make sense for both to have their own armies of delivery boys.”

The acquisition will also give Flipkart, whose largest category is electronics, but which also offers clothing, a greater edge in fashion retailing.

“This acquisition is all about scale – how can we take a really large share of the fashion business of this country in the next five to ten years,” Mr Bansal said.

The deal reflects the rising stakes in India’s still-small e-commerce market, which is expected to grow explosively in the coming years, as increasingly wired consumers seek alternatives to a brick-and-mortar retail industry dominated by independent mom-and-pop shops with limited stock.

This year, Indians bought about $2.3bn worth of merchandise over the internet, while India’s total ecommerce market, including services such as airline tickets and hotels, is estimated at $13bn.

Though tiny compared with China’s estimated $180bn of sales of goods and services over the internet, the market is expected to grow rapidly over the next five years, as internet penetration rises from just under 20 per cent of the population to more than 30 per cent, or 420m people, aided by the growth in use of smart phones.

Technopak, the Delhi-based consultancy, estimates that internet sales of merchandise could jump to $38bn of India’s retail sales within five years.

“Growth in India is explosive, and there is huge potential for more,” Mr Swamy says. “Everyone believes that e-commerce companies will soon leapfrog the largest offline retailers in terms of revenue, in much the same way mobile phones left behind fixed line.”

The market’s potential is already attracting significant attention at home and abroad. Snapdeal, an online marketplace based in New Delhi and backed by eBay, has raised $100m in new financing from investors including BlackRock and Singapore’s Temasek, in a deal that implied a total valuation of about $1bn.

Yet the policy environment remains murky, as New Delhi technically bans foreign direct investment in internet retailers. E-commerce companies, which make little secret of their foreign backing, argue that their ‘marketplace model,’ which merely facilitates sellers and buyers coming together rather than directly selling to consumers, is in compliance with Indian law.