“Essentially, this is all extra incremental growth. While the fixed costs like supply chain have not grown dramatically, sales have grown,” said Narayanan.
In October, Jabong saw 50% growth in revenue and managed to become unit economics-positive. The loss-making company, on a downward spiral when Flipkart, pushed by investor Tiger Global, made a fell swoop and took ownership in three days, had once been in talks to sell out to Amazon at a value of $1.2 billion. By any stretch, Jabong was a steal for Flipkart
and the recent success is icing on the cake.
“If they are saying the overlap between the customer base of the two companies
is only 30%, then acquiring that set of customers is a one-time capital investment and they can milk that over the lifetime of the customer. More, fashion is a category which is margin-friendly; so, it’s going to pay off faster than other categories,” said Devangshu Dutta, chief executive at consulting firm Third Eyesight.
The clean-up of Jabong has been fairly straightforward. The biggest cost-cutting measure has been utilising Ekart (owned by Flipkart) and Myntra’s in-house logistics networks. The company also slashed the discounts being offered by two-three percentage points and introduced its private brands, such as Roadster, on Jabong, yielding higher margins.
Prior to its acquisition, Jabong was one of the first third-party brands to utilise Ekart’s service, something that might have given Flipkart
an insight into the brand, leading to its acquisition.
“Having two brands instead of one will help. I think Jabong customers are a bit more fashion-forward than the Myntra ones,” said Narayanan. The difference between the two brands in terms of the customers they serve is what makes Jabong complementary to Myntra, he added.
With fashion being a category where spec-by-spec comparison is missing, it’s often easier to charge higher margins than in consumer electronics or even large appliances. Going forward, fashion is expected to power profits for e-commerce marketplaces, with Flipkart shoring up on brands to take on Amazon – the latter also recently made a splash in the space with its own private label.
Flipkart currently leads India’s e-commerce fashion segment. It, Myntra and Jabong claim to have two-third of the market.
“It is not a classic market share game, not about who wins the current market. I always think about the next five years; who captures more of the growth. That’s what we want to do with both the brands,” added Narayanan.
Today, both Myntra and Jabong serve a very similar mass-premium market. The company is working on changing that. While there will be more integration in terms of supply chain and sourcing, Narayanan has put together a team that will work on defining each brand’s space over two years.
Ultimately, in the next one year, Myntra’s goal is to turn around Jabong and help use the brand to propel itself toward profitability.
Myntra claims its profit has increased by 20 basis points this year alone, putting the company on track to become profitable towards the end of next year.