By acquiring Jabong, the online fashion retailer has consolidated its position as the market leader. Now, it has set its sights firmly on profitability, says CEO Ananth Narayanan
It was a typical quarterly board meeting for the Myntra team on a cloudy Thursday morning on July 21. The top management of the country's largest online fashion retailer was taking stock of the company's growth and financials at their sprawling headquarters off Hosur Road in Bengaluru. The financials were in line with expectations and the conversation soon drifted to competitors. That brought the conference room to a potentially game-changing deal brewing in the market: Jabong, the second largest online fashion retailer in India, was up for sale; also, importantly, Snapdeal’s exclusivity for the all-cash deal had expired.
The timing was perfect and the excitement in the room was palpable. Jabong was of immense interest to Myntra. In fact, in the last year, the Bengaluru-based firm had engaged thrice with the Rocket Internet-backed Jabong for an acquisition, the last conversation being as recent as in April. The upside is self-evident: The acquisition creates a formidable joint entity, nullifying competition and accelerating growth. Happily, the sell price had come down since early last year and worked well for Myntra, which had itself been acquired by Flipkart two years ago for $375 million.
This time around, Myntra wasn’t taking any chances. It sought the help of its US-based investor Tiger Global Management, one of the world’s largest hedge funds and venture capital investors. As a result, on the evening of July 21, Lee Fixel, partner at Tiger Global, called Lorenzo Grabau, chairman of Global Fashion Group (GFG), the entity into which Jabong was absorbed in 2014. Fixel learnt that if Myntra could muster up $70 million, the deal could be closed. (Tiger Global refused to comment on the deal when contacted by Forbes India.)
“Jabong as a company has gone through a gruelling six months of uncertainty. The first reaction among its employees was relief. The next reaction was nervousness on what will be our plans with Jabong. In my interactions with the employees, the message is very simple: Synergy and growth. And conveying that is very important,” Narayanan tells Forbes India, three days after announcing the deal.
We met Narayanan on July 29 at the Myntra office in Bengaluru, on a day when the city was washed out by incessant rains. Dressed in a button down polka dotted white shirt, teamed with a sober pair of blue trousers, his demeanour is calm. For good reason, too. Because, though the acquisition was only a fortnight old at this point, Narayanan had already put in place some immediate fixes at Jabong. To begin with, he had beefed up the call centre team to improve customer service and speed up processing of refunds. Also, while the business plan is still a work-in-progress, he has prepared an initial road map for Jabong, which he currently intends to keep as a separate entity.
“A consultant can work well as a CEO depending on what a company needs. As famous investor Ben Horowitz says, there is a war-time CEO and there is a peace-time CEO. What Myntra needs is a peace-time CEO who can put systems and processes in place and take the company to the next level,” says Sasha Mirchandani, founder and managing partner, Kae Capital, an investment firm. Mirchandani was one of the early investors in Myntra and exited the company in 2011.
Systems and processes clearly seem to be on Narayanan’s mind. Over the next few weeks, the plan is to have clearly defined categories between the two brands. “There are selections in Jabong and Myntra that appeal to a unique set of customers. Yes, there might be some 20 percent overlap in some areas, but in the larger scheme of growing in the market, I don’t think it matters. I feel the USPs of both the brands are slightly different,” says Narayanan.
Harminder Sahni, founder and managing director of retail consulting firm Wazir Advisors, differs, saying that Myntra and Jabong compete head-on when it comes to customers: “They have the same brands, similar customer outreach strategies, similar customer base (more than 80 percent customers shop on both platforms). So there is hardly any immediate direct benefit in acquiring Jabong, other than owning the competition.”
Also, as Mario D’Souza, lead, strategy and management, at Bengaluru-based Fryed Advertising, points out, the customer in this space has always been fickle. “It would be interesting to note how much of a unique customer base Myntra has acquired from Jabong, given the hundreds of crores both brands have spent on marketing,” he says. “There is low customer loyalty in this space, where users chase discounts and offers, and it is very likely that the customer bases overlap, perhaps significantly.”
But Narayanan reiterates his belief in the sanctity of both brands. “I want to run both the entities separately because while the DNA of both the companies is similar, the customers they serve are different,” he insists. Myntra is a mass premium destination brand with a strong focus on men’s categories (60 percent of its customers are men), he says. Private labels (a total of 11 brands) are an important part of Myntra’s offerings and have a stack share of 20 percent of its revenue. Meanwhile, the USP of Jabong is that it is more women-centric (60 percent of its consumers are women) and it has a strong portfolio of international brands. Jabong is also stronger in certain geographies such as Delhi-NCR. Currently, the penetration of online fashion retail in India is about 3 percent, he points out. “I think that number is going to get to 10-12 percent by 2020-2021. What Myntra and Jabong will be able to do is to accelerate the path to get to the higher percentage of penetration,” he adds.
Narayanan has laid the groundwork to leverage both the entities. “We can look at cross-selling brands across the Myntra and Jabong platforms to leverage certain brands and offer more choices to consumers,” he says, adding that “we will get Jabong’s supply chain to be more efficient as currently it is completely outsourced [even though] we have Myntra logistics, Ekart (Flipkart’s logistics arm) and our own warehouses in operation.”
He can draw from the success of several companies that have operated their brands separately: For example, German auto major Volkswagen Group has brands like Audi, Bentley, Skoda and Volkswagen catering to different price points. Similarly, French luxury goods conglomerate LVMH has several watch brands like Fred, Hublot and Tag Heuer. The key for the parent company is to define a category clearly, says Mirchandani.
Further, D’Souza believes the Myntra-Jabong combine allows both brands significant efficiencies in one of the biggest cost centres for an ecommerce company—marketing. “They could negotiate better rates across vendors, lessen customer-facing discounts by offering other forms of value such as access to the private brands of each platform, better delivery services and turnaround time, and improved customer service. Importantly, they can now negotiate strong media and advertising costs which otherwise run into many crores,” he says.
On the technology front, Myntra is investing in areas such as mobile and supply chain fulfilment experiences (like alterations and try-and-buy services).
While the integration of the two brands is an ongoing process, a lingering issue is the due diligence of Jabong. Typically in most M&A deals, financial and legal checks are conducted before the transaction is closed. In the case of Jabong, time was of essence and closing the deal took precedence.
(This story appears in the 02 September, 2016 issue of Forbes India. To visit our Archives, click here.)