Flipkart recently announced the formal closure of the Jabong fashion portal, thereby making Myntra its sole focus – but the trouble lies in the company’s business model for the Indian apparel industry.
The Walmart-Flipkart-Myntra-Jabong gameplan consolidated itself in order to have leaner operations. Focussing on the much larger Myntra brand, the parent decided to shut the Jabong shop. But for Flipkart, the consolidated business with Myntra may still come up short in terms of profitability because of the model’s heavy reliance on in-house private labels.
Heads Up! Is relying heavily on Private Labels hurting Profitability for Flipkart-owned Myntra?
- Stock purchases make up the major chunk of expenses, enhancing losses
- Relying on the private label model increases marketing and advertising expenses
- Flipkart’s future omnichannel approach with Myntra
The Indian e-commerce giant had acquired Jabong in 2016 for a ₹ 470 Crore cash deal. However, it was unable to carve out a long-term strategy to ensure profitability for the online fashion portal. With the closing of Jabong, the customers will be redirected to Myntra, and so will Flipkart’s problems and the struggle for profitability.
Flipkart-owned Myntra acquired Jabong in 2016 for a ₹ 470 Crore cash deal but was unable to carve out a long-term strategy to ensure profitability for the online fashion portal.
Stock Purchases make up the chunk of Expenses
Flipkart-owned Myntra Jabong India is primarily involved in B2B apparel trading business. In FY2019, Myntra Jabong India posted a loss of ₹ 1165.4 Crore, up from 346.1 Crore in FY2018. Stock purchases made up the major share of expenses for the company at ₹ 4873.4 Crore of the total expenses ₹ 5680.9 Crore, an 85.7% share.
In FY18, it stood at 92%. So, while the percentage came down, the model ate up the large chunk of ₹ 4515.5 Cr revenue that the company posted. Furthermore, banking on private labels to create magic puts further stress on their operations, impacting the marketing and advertisement expenses, as the sole onus of promoting the brands falls on Myntra itself.
Relying on Private Labels intensifies onus of Marketing
In July 2019, Flipkart revealed that it was cutting Jabong’s marketing budget big time. The solution was redirecting and persuading customers to shop at Myntra with added attractions and incentives. Myntra also amplified its omnichannel presence with a plan in pipeline to open at least 15 brick and mortar store for its brands. It opened a second store for its Roadster label in Bengaluru in June 2019.
However, the approach restricts Flipkart’s options. Myntra Designs, the subsidiary the operates online retail through the website and app saw a rise in revenue. It still reported a loss as much as half of the total income. As per its filings, Myntra Designs’ income stood at ₹ 1088.8 Crore but incurred a loss of ₹ 539.4 Crore. Out of its total expenses of ₹ 1628 Crore, Myntra Designs spent as much as a quarter (₹ 395.3 Crore) on advertising and promotions.
Way Ahead and Flipkart’s vision for Myntra
Walmart’s Jabong acquisition dealt the retail giant a blow to the tune of $ 290 million in Q3. After acquiring a controlling stake in Flipkart, Walmart merged the back-end of both Jabong and Myntra by 2019-end. With Myntra and Jabong acquisitions, Walmart’s Flipkart commands 70% of the Indian clothing market, which is expected to reach $ 59.3 billion by 2022.
To explore new ways of increasing customer purchases, Flipkart is now mulling the introduction of video content at Myntra. The move will further add to its marketing expenses and reduce profitability as Flipkart continues its heavy reliance on Myntra’s 17 private labels including HRX, Moda Rapido, Mast & Harbour, All about you, Anouk, Dressberry, and Roadster.