![\"\"](\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2022\/09\/flipkart-gold-jabong.jpg\")
Rocket\nInternet’s $70-million fire sale (the term for doing so at an extremely\ndiscounted price, usually under some compulsion) of Jabong has turned\nout to be a great deal for Flipkart.The online giant has managed to turn around the fashion portal in four months, scoring a mark over rival Amazon.
It\nhas even surprised Myntra’s chief executive, Ananth Narayanan, who also\nheads Jabong. He’d earlier found the customer overlap between the two\nbrands, Myntra and Jabong, was no more than 30%. At the time of\nacquisition, Flipkart’s management had estimated this number to be\n50-60%.
“Essentially, this is all extra incremental growth.\nWhile the fixed costs like supply chain have not grown dramatically,\nsales have grown,” said Narayanan.
In October, Jabong saw 50%\ngrowth in revenue and managed to become unit economics-positive. The\nloss-making company, on a downward spiral when Flipkart, pushed by\ninvestor Tiger Global, made a fell swoop and took ownership in three\ndays, had once been in talks to sell out to Amazon at a value of $1.2\nbillion. By any stretch, Jabong was a steal for Flipkart and the recent\nsuccess is icing on the cake.
“If\nthey are saying the overlap between the customer base of the two\ncompanies is only 30%, then acquiring that set of customers is a\none-time capital investment and they can milk that over the lifetime of\nthe customer. Moreover, fashion is a category which is margin-friendly;\nso, it’s going to pay off faster than other categories,” said Devangshu\nDutta, chief executive at consulting firm Third Eyesight.<\/span>
The\nclean-up of Jabong has been fairly straightforward. The biggest\ncost-cutting measure has been utilising Ekart (owned by Flipkart) and\nMyntra’s in-house logistics networks. The company also slashed the\ndiscounts being offered by two-three percentage points and introduced\nits private brands, such as Roadster, on Jabong, yielding higher\nmargins.
Prior to its acquisition, Jabong was one of the first\nthird-party brands to utilise Ekart’s service, something that might\nhave given Flipkart an insight into the brand, leading to its\nacquisition.
“Having two brands instead of one will help. I\nthink Jabong customers are a bit more fashion-forward than the\nMyntra ones,” said Narayanan. The difference between the two brands in\nterms of the customers they serve is what makes Jabong complementary to\nMyntra, he added.
With fashion being a category where\nspec-by-spec comparison is missing, it’s often easier to charge higher\nmargins than in consumer electronics or even large appliances. Going\nforward, fashion is expected to power profits for e-commerce\nmarketplaces, with Flipkart shoring up on brands to take on Amazon –\nthe latter also recently made a splash in the space with its own\nprivate label.
Flipkart currently leads India’s e-commerce fashion segment. It, Myntra and Jabong claim to have two-third of the market.
“It\nis not a classic market share game, not about who wins the current\nmarket. I always think about the next five years; who captures more of\nthe growth. That’s what we want to do with both the brands,” added\nNarayanan.
Today, both Myntra and Jabong serve a very similar\nmass-premium market. The company is working on changing that. While\nthere will be more integration in terms of supply chain and sourcing,\nNarayanan has put together a team that will work on defining each\nbrand’s space over two years.
Ultimately, in the next one\nyear, Myntra’s goal is to turn around Jabong and help use the brand to\npropel itself toward profitability.
Myntra claims its profit\nhas increased by 20 basis points this year alone, putting the company\non track to become profitable towards the end of next year.<\/p>