The Indian e-commerce sector seems headed for a spell of consolidation, with players like Alibaba waiting for the right pickings.
The consolidation story of the Indian e-commerce industry is old. And new. While the trend has been seen in the past, the industry is up for a phase of consolidation this year again, triggered by unsustainable business models and unwillingness of investors to continue pumping funds into businesses which are not on the path to profitability.
“Since the industry growth this year is not as high as the stratospheric levels of the last few years and focus has been on cost-cutting, it is natural to expect many consolidations, smaller/poorly performing players to get attached to the larger ones,” says Anil Kumar, founder, RedSeer Consulting. “We expect this trend to continue until the industry growth comes back on track.”
Over the past few years, the Indian e-commerce industry has seen a series of acquisitions, mergers, and shutdowns. Flipkart’s acquisition of electronics retailer Letsbuy.com in 2012 for an estimated $25 million was perhaps, one of the early signs of consolidation. Backed by common investors like Tiger Global Management and Accel Partners, this was also an example of investors pushing for an acquisition, as Letsbuy.com was not able to raise capital from the existing investors.
Then, in 2014, putting an end to months of market speculation, Flipkart announced that it had acquired leading fashion e-tailer, Myntra, at an estimated value of over $300 million. The move was seen as a measure to tackle competition from global e-commerce leader, Amazon, which was then just beginning to ramp up its business in India. The Flipkart-Myntra acquisition story also signified a positive wave in the sector, as it was not driven by distress. Flipkart’s then CEO (now executive chairman), Sachin Bansal, insisted that it was a “completely different acquisition story” unlike many others that had to be acquired because of lack of funds, or a clear strategy to pass on the baton.
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