Abstract
Flipkart was launched in 2007 as an online platform for selling books by Sachin Bansal and Binny Bansal. Ten years later, the e-commerce company had 54 million active users and 100,000 plus sellers and had sold 261 million units. The founders had taken several steps to garner this growth, by making investments in technology, undertaking high-decibel advertising campaigns and promoting attractive offers on products sold on the platform.
Despite the growth, the company was not making profits, and investors like Tiger Global were unhappy. Tiger Global Management brought in Kalyan Krishnamurthy to Flipkart in 2016, and a year later, Kalyan became the chief executive officer (CEO), replacing co-founder Binny who got promoted as group CEO. In May 2018, American retailer Walmart paid USD 16 billion to buy out Flipkart and in the same month, Sachin exited the venture by selling his shares for USD 1 billion. Seven months later, Binny was forced to resign on charges of personal misconduct.
As these events unfolded, Flipkart was no longer the company founded by the Bansals.
The case highlights critical issues in the Flipkart growth story and helps readers understand the nuances in managing stakeholders, including customers and investors.
Discussion Questions
Highlight the key strategic triggers that led to the phenomenal growth of Flipkart, including the non-obvious issues.
Critique the product and technological innovations attempted by the founders of Flipkart.
Elucidate the role of smart investors in the Flipkart sale to Walmart which led to the co-founders exiting the company that they built from scratch.
Introduction
10 May 2018 was an emotional day for Binny Bansal, the co-founder of Flipkart, India’s online e-commerce company, which was based in Singapore and had an office in Bengaluru. His friend and IIT-Delhi batchmate Sachin Bansal, with whom he had started the company, decided to exit the venture by selling his 5.5 per cent share for close to ₹65 billion (USD 1 billion) and it pained him.
A few hours earlier, Sachin had posted on Facebook that his work at Flipkart was over and the time was right to hand over the baton (The Tribune, 2018) and move on. Only a day ago, Walmart, the American retailer giant, had announced that it acquired a majority stake of 77 per cent in Flipkart for ₹1,040 billion (USD 16 billion). At a media briefing (The Times of India, 2018), Binny explained how he tried his best to convince Sachin to stay on but had failed in his attempt.
Flipkart was launched as an online platform for selling books by the two Bansals with an investment of ₹400,000 (USD 6,000). It got its first customer in October 2007 when a tech blog writer clicked on the flipkart.com link below Sachin’s comment on a post that he had written and ordered the book Leaving Microsoft to Change the World (Bansal, 2018). The initial marketing efforts by the duo included waiting outside Gangaram Book Bureau on Church Street in Bangalore (Soni, 2014) and handing over Flipkart bookmarks. The bookmarks were given only to the people coming out of the shop with books in their hands, just to make sure that their targeting was right. Logistics management meant the two founders riding on Binny’s motorbike for 40–50 km (25–31 mi) daily to pick up books from distributors and packing them to send to the customers.
Sales started picking up, and a couple of years later, Accel Partners, the American venture capital firm, invested ₹65 million (USD 1 million) in Flipkart (Accel, 2018). Flipkart started adding more products like movies, games and music along with books, but its revenue of ₹250 million (USD 3.8 million) in 2009–10 was still due to focusing on selling around 5 lakh (half a million) books in the previous two years. To add e-books to its portfolio and encourage recommendations to consumers based on their purchases, Flipkart acquired weRead.com (Afaqs!, 2010), a social network–based book discovery, recommendation and review site with more than 3 million users, 60 million books and 2.5 million reviews.
In 2010, New York–based investment firm Tiger Global Management invested around ₹520–650 million (USD 8–10 million) in Flipkart and a total of ₹65 billion (USD 1 billion) in the company over several tranches till 2015, owning an estimated 30–33 per cent stake in the firm and eventually making it the largest shareholder (Chanchani, 2010; Sengupta, 2017).
In 2012, Sachin Bansal had announced Flipkart’s acquisition of Letsbuy.com (Sharma, 2018), a competitor e-commerce website that sold consumer electronics. With heavily discounted prices and a huge product catalogue, Letsbuy had received investments from major global investors but was not profitable. Interestingly, the acquisition for an estimated ₹1,620 million (USD 25 million) was initiated by Tiger Global and Accel (Dharmakumar, 2018), who were the investors in both Flipkart and Letsbuy. While Letsbuy staff were laid off, the two investors got additional shares in Flipkart.
The Innovation Journey
With a flush of funds, Flipkart started its journey of growth and innovations, primarily driven by building features that helped customers in the shopping journey and through clever agreements with sellers.
In 2010, Flipkart virtually disrupted the e-commerce market in India when it introduced cash-on-delivery (CoD), an option where customers could make the payment by cash at the time of receiving the product (Dubey, 2018). Since only about 0.5 per cent of the population used credit cards at the time, this was a game-changer.
In 2011, it introduced a prepaid Wallet feature which allowed shoppers to store money up to ₹10,000 (USD 150) on the website and use it to purchase items, without having to reach for their regular payment modes like cash, card or net banking for each transaction (Singh, 2011).
In early 2014, Sandeep Karwa, who was the head of Flipkart’s smartphone business, learned that Motorola was trying to re-enter the Indian market. He initiated discussions and Flipkart struck a deal with Motorola to launch the Moto G phones exclusively on the website (Dalal, 2017). The condition was that Flipkart would sell around 125,000 units of Moto G phones in 6 months.
At midnight on 6 February, Flipkart launched the Moto G sale, and within five minutes, the company had sold 10,000 units. In the next twenty minutes, it sold another 15,000 units, leading to Flipkart’s site getting crashed, and within one single day, Flipkart had sold 100,000 phones, 80 per cent of the 6-month sales target. The flash sale strategy was replicated for Xiaomi in July (Aulakh, 2015), helping the unknown Chinese brand become popular in India and get around 3–4 per cent share of the Indian smartphone market within six months of its first flash sale on Flipkart (see Table 1).
The same year, Flipkart bought a stake in Jeeves Consumer Services Pvt Ltd (Dalal, 2014), a firm that provided after-sales services on large home appliances and electronics through a service network spanning 250 cities in India. This would help Flipkart offer maintenance, repairs, product guarantees and other services along with their sale of appliances and electronics.
In 2016, Flipkart acquired payments start-up PhonePe Internet Pvt Ltd (Chathurvedula, 2016), which was launched by former Flipkart executives Sameer Nigam, Rahul Chari and Burzin Engineer. PhonePe was working on a payment solution with the Unified Payments Interface (UPI). UPI was an initiative of the National Payments Corporation of India that allowed fund transfer between banks by using a single identifier like a person’s Aadhaar (unique identification) number or a virtual address. Two years ago, it had bought payments start-up NGPay to replace PayZippy, and a year ago, FX Mart Pvt Ltd got access to the prepaid license issued by Reserve Bank of India (RBI). This move allowed Flipkart to offer its own digital wallet on its app (Pani, 2014; Dalal, 2015).
Flash Sale Strategy of Xiaomi
An innovation of the company came out of tragic circumstances and yet got popular. In 2017, after the murder of delivery boy Nanjunda Swamy by a customer who had ordered a smartphone (Shah, 2017), the Flipkart team worked hard to introduce an SOS button (called the Nanjunda button) in the delivery team’s app to help field executives alert the authorities immediately in case of a medical or safety emergency.
These disruptive approaches were received well by customers, which allowed the company to reach the ₹65 billion (USD 1 billion) Gross Merchandise Value target in record time (Vardhan, 2014), but not all the innovations survived the test of time.
The company had bought the rights to the entire digital catalogue of a Bollywood (the name for the Indian film industry) website called Chakpak.com that had 40,000 filmographies, 10,000 movies and around 50,000 ratings (Saxena, 2011). It had also acquired a Mumbai-based business digital content platform company, Mime360, to enter the digital distribution space. With the basic platform in place, in 2012, Flipkart announced the launch of Flyte, its digital music store where a customer could download Indian music from the website as well as the app. It agreed to pay music labels an aggregate minimum guarantee (MG) of around ₹65 million (USD 1 million) for the year.
But with the presence of music streaming services and pirated songs available for free, the revenues from song downloads were not even half of the minimum guarantee amount (Anweri, 2013). The average revenue per user (ARPU) was only around ₹9–12 (USD 0.14–0.18), which made it difficult for Flipkart to justify the minimum guarantee. Since the music had already been paid for and the minimum guarantee mark was never reached (Pahwa, 2013), in February 2013, Flyte’s first anniversary, Flipkart gave away 100 albums from ten genres free every day for about a week and informed customers via email that it would shut down the service completely by June (see Table 2).
One of the key learnings for Flipkart was that the biggest barrier to adoption was the payment process, which Flipkart felt needed to be simplified (Sathe, 2013).
In 2013, the company registered a new company, Flipkart Payment Gateway Services (FPGS) Pvt Ltd, and launched its online payment solution, PayZippy. Customers could check out faster on the website as they did not have to enter their account details every time and they could also transact on multiple merchant websites (Sareen, 2013). One year later, Flipkart shut that down too as the product was not picked up by a large chunk of its customers (Dalal, 2014a).
The Mail from Flipkart Informing Customers on Shutdown of Flyte
In 2015, Flipkart announced the acquisition of Bengaluru-based mobile advertising company Adiquity (Business Standard, 2015), a mobile ad network that allowed app developers and mobile publishers to earn revenue from their mobile inventory. It also bought Appiterate (The Economic Times, 2015), a mobile engagement and marketing automation company based out of Delhi that helped e-commerce companies target consumers better and increase sales through push notifications and in-app messages. The reason for acquiring these firms was to focus on revenue generation using the Flipkart app and to facilitate moving the customers from the mobile website to the app.
In April 2015, Flipkart decided to make its product portfolio accessible only through the app, calling it a ‘mobile-first’ approach. The logic was that around 75 per cent of its total traffic was already from the mobile app (Crabtree, 2015). But it had to reverse the decision 7 months later and reintroduce the mobile web option. Peeyush Ranjan, the engineering head at Flipkart at the time, admitted in an interview that going app-only was not a wise decision as apps also have their weaknesses—customers have to download them and keep updating (Ghosh, 2015). The other trigger for a customer backlash against the app was the October 2015 Big Billion Days when customers were forced to download the Flipkart app on their phones to actually avail any discounts. The app crashed due to traffic (Hindustan Times, 2015) and that made the customers angry as they were not able to buy the discounted products due to a technical glitch.
Although the app-only decision was wrong, Flipkart quickly made an improvement—a new mobile web application called Flipkart Lite that was an extremely light version that provided an app-like experience (Mishra & Pillai, 2015) which helped customers who did not want any installations on their phones to get the benefits and superior experience of the app.
In October 2015, Flipkart launched Nearby, its grocery delivery app that claimed to deliver fruits, vegetables, groceries, health and wellness products, etc. within sixty minutes of placing the order. This was shut down after 4 months (Vikas, 2016) due to poor customer adoption. The same year, Flipkart introduced Ping (Shrivastava, 2016), a social chat feature, and an image search button, two innovations led by former chief product officer Punit Soni. Less than a year later, both features were shut down due to low customer interest.
Building the Brand
In 2010, after a fresh dose of funding from Tiger Global, Flipkart decided to take the business national. Tapas Rudraparna, an early employee of Flipkart, started looking out for agencies and reached out to Happy Creative Services, an advertising agency led by Kartik Iyer. Flipkart’s advertising brief to the agency was quite straightforward: ‘We sell books. We need to go out there and tell everyone to buy books online’ (Venugopal, 2017).
The agency created Flipkart’s first television (TV) commercial and launched a ₹30 million (USD 0.45 million) media campaign titled ‘FairyTale’ featuring an old grandmother who was able to magically order books with her pet mouse (Rao, 2011). Unfortunately, the campaign failed to meet expectations and pressure started mounting on Flipkart and Happy Creative Services to up its game and deliver the right message to its customers.
Around the same time, Ravi Vora, a former Unilever marketing manager, joined Flipkart and led the marketing team back to the drawing board. The team researched and understood that the biggest problem in India was the lack of trust, as people had a lot of negative experiences with online shopping. To solve this through an ad campaign, they explored four message options: endorsement using celebrities, testimonials of satisfied customers, evidence-based demonstration of the brand’s trustworthiness and conversation between a sceptic and a believer.
The fourth option was finally selected and that led to the ‘Flipkart Kids’ campaign launched in September 2011 with a ‘No Kidding, No Worries’ tagline (Gharat, 2012). It used children acting as adults to educate consumers about the benefits of shopping on an e-commerce website in a funny manner, a clutter-breaking theme that was never used by the retail industry (see Figure 1).
Even though the team liked the advertisements, since they had had a bitter experience with the previous campaign, they tested the advertisement by releasing it first to its Facebook and Twitter audiences. The response was overwhelming, with plenty of users sharing the videos. That gave the team the confidence to launch the ₹60 million (USD 0.9 million) campaign nationwide using traditional media like TV and print. The same idea of using kids was repeated in multiple campaigns from 2012 to 2015 (Bhattacharyya, 2012).
In 2014, Flipkart decided to launch its biggest marketing stunt, ‘Big Billion Days’. It was planned for 6 October, as 610 was the apartment number from where the Bansals started Flipkart (Pani & Kurup, 2014). They started an aggressive media campaign highlighting the huge discounts on phones and tablets. When the sale started, within ten hours (Dalal & Verma, 2014), it met its target of USD 100 million in GMV or the value of goods sold on the site. However, Flipkart’s website crashed several times during the sale due to the heavy traffic, some customers’ orders were cancelled immediately after the sale began and there were allegations of fake discounts. Sensing the customer anguish, Sachin and Binny Bansal quickly emailed an apology (The Hindu, 2014) to Flipkart customers. The sale flopped despite their ₹1,700 million spending on advertising (Anand & Dasgupta, 2015) for the year.
By August 2015, Flipkart had 45 million registered users, of which 10 million were daily users and had around 8 million daily shipments. The same year, the company launched a re-branding exercise complete with a logo makeover (Chandran, 2015) and a digital campaign using the theme Ab har wish hogi puri (Now every wish will get fulfilled). The idea was that every order that a customer made was backed by a wish (Neogy, 2015) and that Flipkart’s new focus was on fuelling and fulfilling wishes of customers using the company’s platform of buyers, sellers and the delivery team of ‘Wishmasters’.
A ‘Flipkart Wish Chain’ video conceptualized by Lowe Lintas was released, and it was focused on four new brand promises made to stakeholders—youthfulness, innovativeness, speed and reliability (Asija, 2015). While the advertisement was creatively and well executed with a strong feel-good factor, the criticism (Irani, 2015) was that Flipkart was avoiding the core customer perception issues like fake discounts where the product’s retail prices were inflated and then a huge discount was shown, leading the customer to believe that the deal was a good one.
While the above-the-line communications were in place, Flipkart introduced a series of innovations to push sales. It started with No Cost EMI (The Economic Times, 2016) where customers could make instalment-based payments with zero processing fee, zero down payment and zero interest for electronics and large appliances. Then, there was the Assured Buyback (Banerjea, 2017) that promised to buy back a smartphone at an assured price within a time period. The innovations also included a subscription-based service called Complete Mobile Protection (Verma, 2018), which covered all the aspects of warranty without any limited period, and Pay Later (Venkat, 2017), which offered a credit period for selected customers to club purchases and deferred payments for a specific time.
Flipkart continued its efforts to acquire new customers, and by 2016, the company crossed 100 million registered customers (Chanchani, 2016). In March 2018, Flipkart launched a more inclusive Naye India ke saath (With new India) campaign (Tewari, 2018). It wanted to be seen as a new-age company that reflected the way India was changing, both socially and culturally. Hence, the focus was to attract the next set of 100 million customers from Tier-I and Tier-II cities of India (Bansal, 2018a). It featured commercials that broke traditional gender roles in families, like a father taking care of a daughter exactly how a mother would.
While the marketing efforts to acquire customers went on in full swing, Flipkart also had a facility for its sellers to create advertising campaigns and reach out directly to customers—Flipkart Ads (Ganguly, 2017)—the advertising business platform of Flipkart built on the AdIQuity platform that it had acquired earlier. Around 100 sellers were able to use Flipkart’s tie-up with Google and YouTube to target customers across digital channels. In 2017, the company opened up Flipkart Ads to third party companies and targeted financial services which could use the platform for garnering customer insights, offering extended warranties or insurance. It also scouted for deals with fast-moving consumer goods (FMCG) firms for brand building and product sampling.
Revising the Product Portfolio
While the focus was on building brand awareness, the founders also took steps to improve the profit margins of the company. Flipkart had started off with selling books and later included electronics to cater to popular demand. It then added categories like apparel, home decor and household items.
In 2014, Flipkart acquired online fashion retailer Myntra (The Hindu, 2014a) for an estimated ₹20 billion (USD 300 million). Flipkart’s annual sales had crossed ₹65 billion (USD 1 billion), and the company had big plans for the apparel segment. Myntra was already established in the fashion and lifestyle segment that included apparel and footwear. Flipkart took steps to increase the margins (Raghavan, 2015) it took from seller brands from 28–32 per cent to 36–40 per cent, a rate that was higher than the 30–35 per cent margins that vendors were giving to brick-and-mortar franchises at that time.
Around the same year, Flipkart started selling products which were developed in-house. With margins of about 20 per cent higher than similar branded products (Shrivastava, 2016a), these products would also fill the gaps in the existing products. With profitability in mind, it launched Digiflip in consumer electronics, Citron in home appliances and Flippd in apparel. While this seemed like the right strategy, the brands had limited success, and Digiflip was soon taken off the market.
Again, in 2014, the company attempted to garner customer loyalty by launching Flipkart First (The Economic Times, 2014), its paid subscription programme which offered free shipping, ‘In-a-Day Guarantee Delivery’, 60-day replacement policy and priority customer support service for ₹500 (USD 7) per year (The Indian Express, 2016). This too was met with poor customer response (Sen, 2017).
In 2015, Flipkart acquired Jabong through its Myntra unit in an all-cash, discounted deal (Verma, 2016) that valued the online fashion store at ₹4,500 million (USD 70 million). Jabong had matched Myntra in sales and, until early 2014, was valued at ₹33 billion (USD 508 million), only a year ago. However, the online fashion retailer had lost market after Myntra’s parent Flipkart spent lavishly on advertising and discounts to lure customers. For Flipkart, the deal provided rights to Jabong’s twenty-five exclusive international brands, and the combined market share of the two acquired companies was 70 per cent of online fashion (The Economic Times, 2016a).
In 2016, Flipkart decided to offer deals on large appliances which drew in 2–3 per cent higher margins compared to mobile phones (Mishra, 2016). Mobile phones had been a major source of revenue for Flipkart and the company wanted to change that. Sandeep Karwa, who earlier headed the smartphones category, was roped in, and he inked deals with major manufacturers to offer exclusive rates. This helped Flipkart offer customers its products at a price that was cheaper than any other online retailer. The effort paid off, and TV quickly became the second-biggest contributor to Flipkart’s overall revenues (Bansal, 2018b).
Flipkart also replaced Flipkart Advantage with F-Assured that promised improved delivery service, six different quality checks of products, better return policy and same or next-day free delivery (Shrivastava & Chanchani, 2016). Binny’s focus was clearly on input targets—the number of customers, customer experience, net promoters score and customer satisfaction. He believed that the big picture for e-commerce in India was to target young, middle-income Indians who had high aspirations with quality and convenience.
The same year, Flipkart hired Anurag Shukla, a former purchase manager at Samsung India with contacts in the Chinese market. Adarsh Menon from Hindustan Unilever and Rushabh Sanghavi, founding members at online furniture brand Urban Ladder (Vignesh, 2017), were also roped in. Flipkart started collaborating with Chinese manufacturers for developing products such as electronics accessories and appliances.
In 2017, Flipkart decided to move to the higher-margin items (Ranipeta, 2017) for private labelling and launched SmartBuy, its in-house brand for electronics and electronic accessories, Perfect Homes for furniture, MarQ for large appliances like TV and washing machine and Billion for things made in India. Another private label called Billion was also being planned by Sachin at a cheaper price point in smartphones and categories such as home appliances and fashion.
Strategic Business Model
While the Bansals were working briefly at Amazon.com, the world’s largest online retailer, they got inspired to start Flipkart. Both of them wanted to recreate the US firm’s success in India. In 2006, they had sought the advice of Kalyanaraman Srinivasan, Amazon’s global technology head for retail, who told them that if they wanted to be entrepreneurs, they should replicate Amazon in India and also be patient about it (Mitra, 2014). Hence, the initial focus was on increasing the product portfolio from books to mobile phones, apparel, etc. However, by the end of 2014, Flipkart understood that a strategic shift was necessary as Amazon was also building its business in India through aggressive promotions and a wide product portfolio.
In 2013, Flipkart decided to change the way it ran its business and created Flipkart Marketplace which allowed smaller players to display and sell products on its platform (Shinde, 2013). Till then, the entire inventory of Flipkart was managed by WS Retail (Utkarsh, 2013), a firm incorporated in 2009 by Flipkart to transact with customers.
Flipkart decided to reduce the commissions (Dalal, 2016) which it charged third party sellers to help them join the marketplace. It also wanted to earn money from its advertising, payments and other service platforms. Although the advertising business grew, Flipkart was not able to scale up the company as planned.
Meanwhile, fresh trouble was brewing, this time caused by the Government of India’s Enforcement Directorate (ED). The department figured out that Flipkart was operating in contravention to Section 13 of the Foreign Exchange Management Act (FEMA), 1999. According to them, WS Retail was acting as a front (Srivatsava, 2014) for retail operations of Flipkart Online Services, while as per the law, foreign direct investment was not allowed in e-commerce companies conducting business-to-consumer transactions. Flipkart’s global investors ranged from the US-based Tiger Global Management and South Africa–based Naspers to the Singapore sovereign fund and Belgium-based Sofina.
While the ED was aware of the change in the business model, the team wanted to charge Flipkart a fine for the violations made till 2013 (Ray, 2014). However, due to the grey area in the role of FEMA (Prasad, 2014), which only dealt with compliance in receiving foreign investment by entities and not what the company did with such funds, the charges were dropped. The company was saved by luck.
Just weeks before the investigation, the Bansals sold their stake in WS Retail to former OnMobile Global Ltd chief operating officer Rajeev Kuchhal and resigned from WS Retail’s board. However, two of Flipkart’s early employees, Sujeet Kumar and Tapas Rudrapatna, controlled almost half of WS Retail. In a dramatic twist, two years later, the logistics arm of WS Retail got acquired by Instakart ServiceS (Verma & Dalal, 2015), a company owned by Ankit Nagori and Rajnish Singh Baweja, the chief business officer and finance controller of Flipkart, respectively.
In January 2016, Sachin Bansal stepped down from the post of CEO as he missed performance targets (Pitchiah, 2016) and was replaced by Binny Bansal. In the same year, several key people left Flipkart and there were talks about trimming the workforce by 3 per cent (Firstpost, 2016). In February 2016, Morgan Stanley, the financial services firm, downgraded the value of its stock (Business Standard, 2016), cutting the company’s valuation from ₹988 billion (USD 15.2 billion) to ₹715 billion (USD 11 billion) in 2016 and again to ₹325 billion (USD 5 billion) in 2017 (Gupta & Bhattacharyya, 2017). The investor firm T Rowe Price also reduced the value of its stake in Flipkart by 15 per cent (Peermohamed, 2016).
In addition to all of these issues, Flipkart’s customer service levels and the brand image started declining, and Binny had to act fast. He introduced the Net Promoter Score (NPS), a measurement of customer satisfaction and loyalty which helped customers know the available product selection, the speed at which it was available and the price point (Dalal, 2017a).
In 2018, the Bengaluru Income Tax office asked Flipkart to reclassify marketing expenditure and discounts as capital expenditure and demanded ₹1,100 million (USD 16.9 million) as tax assessed for 2015–16 (Modgil, 2018). Flipkart has been classifying promotional discounts as marketing expenses and deducting them from its revenue and posting them as losses, therefore positioning itself as not liable to pay taxes.
Although Flipkart won the case after an Income Tax Appellate Tribunal in Bengaluru and rejected the revenue department’s contention of re-classification (Dave, 2018), the company still faced trouble as the tax department pursued the case. Deep discounting might not be the answer to the future of e-commerce in India.
Flipkart’s holding company Flipkart Pvt Ltd (FPL) reported that its losses more than doubled to ₹240 billion (USD 3.6 billion) in 2017 from ₹100 billion (USD 1.5 billion) in the year 2016 (Financial Express, 2018). The holding company was set up in October 2011 in Singapore, with Tiger Global holding 30 per cent of the entity (Verma, 2014). The e-commerce business in India was run under the name Flipkart Internet, and it projected a reduction in losses to ₹16.39 billion (USD 252 million) in 2016–17 from ₹23.07 billion (USD 355 million) in 2015–16. The company also started talks with Walmart for a round of funding, but the efforts were not successful (Nair, 2018).
Losses kept on increasing every year, and by the fiscal year 2017, it had losses of USD 660 million, much more than the projections. The company’s poor performance brought about fresh estimates projecting a loss of ₹91.11 million (USD 1.30 billion) by 2020 (see Table 3) (Philipose, 2018).
Flipkart’s Cash Burn Estimates
Becoming debt-free was crucial for the business. Conventional Indian information technology (IT) companies like Infosys started earning profits within a few years of starting up by setting up a business with very limited capital (Khanna, 2016), generating cash from operations to grow the business and then rewarding stakeholders. But Flipkart was 9 years old and still losing money. In January 2017, Kalyan Krishnamurthy was made the CEO and Binny Bansal stepped up as group CEO (The Hindu, 2017).
Lee Fixel was a key driving force behind Flipkart (Chanchani, 2018) since its early days, as his firm Tiger Global Management had invested over USD 1 billion in the company. It was his recommendation to bring in Kalyan, who was with Tiger Global Management, and he joined in June 2016 as head of ‘category design organization.’ A former hedge fund manager, Kalyan started an aggressive route to save Flipkart. He fired senior managers (Zee Business, 2018), set aggressive sales targets and increased spending on promotions (Zee Business, 2018). He also implemented the Pareto 80–20 rule, focusing on the 20 per cent of categories that generated 80 per cent of Flipkart’s revenues. Known to be a hands-on, workaholic-type leader, he pushed his team during the Flipkart Big Billion Days sale in October 2016 where Flipkart outsold Amazon (Dalal & Verma, 2018).
In April 2017, Flipkart acquired the Indian operations of ebay.com, a competing retailer, in an ₹91 billion (USD 1.4 billion) deal led by China’s internet conglomerate Tencent (Chanchani & Variyar, 2017). Tencent invested ₹45 billion (USD 700 million), eBay Inc. contributed ₹33 billion (USD 500 million) and Microsoft put in ₹13 billion (USD 200 million) after signing a cloud computing software Azure deal with Flipkart.
Flipkart’s aggression in buying rivals like Myntra, Jabong and eBay led to speculation that it was looking to buy Snapdeal, another competitor. Although the Snapdeal purchase never worked out (Choudhury, 2017), it was able to influence a deep-pocketed investor of Snapdeal–Japan’s Softbank. In August 2017, Flipkart raised around ₹162.5 billion (USD 2.5 billion) from SoftBank Vision Fund for an 18 per cent stake in the company (Peermohamed & Choudhury, 2017). Out of this, SoftBank spent ₹65 billion (USD 1 billion) to buy off Tiger Global’s shares and promised to invest ₹97.5 billion (USD 1.5 billion) in the company.
By 2017, Flipkart’s GMV had grown to ₹784.5 billion (USD 7.5 billion), had 54 million active users and more than 100,000 sellers and had sold 261 million units in the previous year (The Economic Times, 2018).
Nine months later, in May 2018, Walmart announced that it was buying a 77 per cent stake in Flipkart for about ₹1,040 billion (USD 16 billion)—₹910 billion (USD 14 billion) for buying shares from Tiger Global, Naspers and SoftBank and about ₹130 billion (USD 2 billion) for investments directly in the company (The Economic Times, 2018a). The remaining 18 per cent stake in Flipkart would remain with Binny Bansal, Tencent, Tiger Global and Microsoft Corp. Tiger Global reportedly made about ₹195 billion (USD 3 billion) as profit after investing ₹65 billion (USD 1 billion) and also retained 5 per cent after the deal was closed (Parmar & Metcalf, 2018).
In June 2018, Kalyan Krishnamurthy stated in an interview that Flipkart would focus on increasing the monthly active transacting customers as the key metric (Bansal & Chanchani, 2018), which meant moving into new areas like grocery and also hiring for new technology talent. Profitability again took a backseat (Dalal, 2017b) as the CEO, like his predecessors, tried to balance growth with profits.
In November 2018, Walmart announced the resignation of Binny Bansal, the only remaining co-founder of Flipkart, over allegations of ‘serious personal misconduct’. Binny wrote an emotional email to employees that the allegations had left him stunned and that he strongly denied them (Rao, 2018). Two months later, Flipkart announced the exit of Myntra CEO Ananth Narayanan and named Amar Nagaram the new head of Myntra reporting directly to Flipkart CEO Kalyan Krishnamurthy. This practically removed the CEO post at Myntra (Sen, 2019).
The Future Ahead
For Walmart, the reason for the acquisition was quite straightforward—the world’s biggest e-commerce purchase deal could mark its entry into the Indian market and also pit itself directly against Amazon India. Walmart already had cash-and-carry operations (B2B) in India and it felt that it could leverage Flipkart’s already existing ecosystem of businesses (The Economic Times, 2018b), including Myntra–Jabong in fashion and PhonePe in payments.
The growth rate of India’s e-commerce market has been slowing down from the peak of 2013–15, with a forecast report by Forrester Research suggesting that growth rate fell by 26.4 per cent in 2017 (The Economic Times, 2018c). However, there was no doubt that the market would grow substantially. According to financial services firm Morgan Stanley, India’s e-commerce market was expected to grow (Gupta, 2017) at a 30 per cent compound annual growth rate (CAGR) for GMV and would be worth ₹13,000 billion (USD 200 billion) by 2026.
Even though India is the second largest online market in the world, only around 30 per cent of its population accessed the internet in 2016, and online retail sales accounted for less than 3 per cent of total retail sales (Carter, 2018). In 2017, around 24 per cent of the population in India accessed the internet from their mobile phone, and this figure is expected to grow to 34.85 per cent in 2022 (Statista, 2017).
In August 2017, Amazon, with a ₹325 billion (USD 5 billion) budget for its India operations, made its first delivery to the cold desert mountain valley of Spiti (Sachitanand & Singh, 2017), a place in Himachal Pradesh of some 34,000 inhabitants, that no other company had attempted so far. It was part of its ambitious plan to focus on every geographic segment of India’s online retail market (Bailay, 2017).
While the e-commerce market in India had scope for immense growth, the two companies Flipkart and Amazon had 30 per cent each of the market (Bhattacharyya, 2018). Flipkart was again attempting to position itself as the country’s ‘fashion capital’ (Bansal, 2018c). The idea was to change the general belief from the company being a ‘horizontal platform’ selling several categories of products to one that is dominant in one ‘vertical’—the fashion category (Srivastav, 2018). The heat was on for a duopoly war, and for Flipkart, the fight was only getting started!
One year after the acquisition, Walmart saw a drop in gross profit rate and operating income for its international business for the February–April 2019 quarter, mainly due to including Flipkart in its financial performance. Reports also suggested that an initial public offer (IPO) was being planned for the year 2022 in the United States, signalling a possible exit of Walmart from Flipkart (Sharma, 2019).
The Flipkart tale from 2009 to 2018 was indeed a curious one. At one end, the founder duo became the poster boys for igniting the entrepreneurship spirit among young Indians (Nair, 2018a) by building a company from scratch, devising clever innovations in services plus marketing and managing a complex legal structure in the country. The parallel story, however, was about an e-commerce enterprise in India struggling hard to make profits despite its best efforts at transforming business. In the end, only profits mattered to investors who chose the right time and people who made profits from their investments.
Footnotes
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The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
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