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SoftBank pushes Flipkart to focus on gaining market share; IPO definitely shelved

By Angela Gonzalez-Rodriguez


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Business |ANALYSIS

SoftBank Vision Fund, a Japanese reference investor in Flipkart, is pushing the Indian leading e-commerce group to make sales growth and market expansion its top priority.

Sources close to the matter quoted by ‘Livemint’ indicated over the weekend that the already-delayed public offering is no longer on the agenda for the next three years at least, adding pressure to Flipkart to improve its financials, narrow losses, and grow market share.

Profitability is no longer Flipkart’s priority

Flipkart CEO Krishnamurthy confirmed that “Profitability is not the highest priority today. We will again go into a very clear consumer market building mode and expanding the market. We want to bring as many people as possible into the e-commerce fold, as many categories on a regular basis and we will invest towards that. We are very comfortable on the burn that we have today,” Krishnamurthy had said.

As a result, and after raising cash from SoftBank Vision Fund, online retailer Flipkart has tweaked its strategy to focus on boosting market share rather than narrowing its losses. The Japanese institutional investor wants Flipkart to increase its market share to 60-70 percent over the next few years, same sources said. To achieve such an ambitious goal, SoftBank would have assured Flipkart that it is willing to pump in “several billions of dollars” to help Flipkart expand the e-commerce market and widen its narrow lead over rival Amazon India. For reference, analysts estimate that Flipkart, which owns online fashion retailers Myntra and Jabong and payments app PhonePe, controls 40-45 percent of the e-commerce market.

One of Flipkart’s first steps towards the new strategy’s implementation has been signing up Bain and Co. to craft a strategy to expand its user base and improve customer loyalty rates over the next two to three years, the people said. The company is also increasing its pace of investments and acquisitions to boost growth, ‘Livemint’ earlier in October.

No IPO for Flipkart in the next three years

In August, SoftBank through its 100 billion dollars Vision Fund struck a deal to invest $1.4 billion directly into Flipkart and buy shares worth 1.2-1.4 billion dollars from Flipkart shareholders. The deal will make SoftBank one of the two largest shareholders in Flipkart along with Tiger Global Management, whose former employee Kalyan Krishnamurthy is the chief executive of the online retailer.

Earlier this year, in April, Flipkart raised 1.4 billion dollars from Tencent, eBay and Microsoft in April.

With SoftBank’s entry, other Flipkart investors have accepted that an IPO isn’t going to happen any time soon. In this vein, early Flipkart investors including Tiger Global Management, Accel Partners and IDG Ventures will secure partial exits by selling some of their shares to SoftBank. This allows them to go along with the plan to delay the IPO, people familiar with the matter said to local media.

Increasing competition against Amazon India

Meanwhile, Flipkart needs to keep up to the challenge that the likes of Amazon pose to its, until recently unclaimed crown over the Indian market. Both Flipkart and Amazon India have recently said their e-commerce businesses grew sharply in the three months ended September, registering a significant recovery from the months before the government introduced the goods and services tax.

While there is some discrepancy regarding Flipkat growth pace - Flipkart said its ecommerce business grew at about 85 percent year-on-year in terms of gross merchandise volume the April-September quarter, one of its investors’ reported Flipkart grew at 43 percent year-on-year in the six months from April to September -, Amazon India said it registered 72 percent year-on-year growth in terms of gross merchandise sold (GMS) for the September quarter, compared with 59 percent growth in April-June. If the latter were to be the real growth rates, India would be growing 1.5 times faster than its main competitor in India.

Image:Flipkart Website, Women Fashion