Flipkart just acquired Jabong. Here’s what it gets with the big buy

Binny Bansal (left) and Sachin Bansal are the two co-founders of India’s top homegrown ecommerce startup. Photo credit: Flipkart.

Indian ecommerce marketplace Flipkart today announced its buyout of Jabong, the third largest online fashion retailer in the country. This could give Flipkart a crucial edge over Amazon in the clothing ecommerce space.

The acquisition, for about US$70 million in cash from Global Fashion Group, holds an important lesson to all investors and entrepreneurs – exit when you don’t want to sell.

The story so far

Jabong was in talks with Amazon to sell the business for prices between US$700 million to US$1 billion till early 2015.

Jabong’s valuation has fallen drastically within the past 18 months.

Since 2014, Rocket Internet was planning to exit Jabong. It was in talks with Amazon which wanted to quickly build its fashion category in India to compete with Flipkart which had acquired Myntra.

The valuation talks hovered over a billion dollars, then fell to about US$700 million between October 2014 and January 2015. However, Amazon did not agree on the pricing. It started building and investing in its own category, as is typical of the Seattle giant. Meanwhile, Jabong was out of reach for Snapdeal or Flipkart at that price.

However, Jabong’s valuation fell drastically within the last 18 months and other smaller competitors such as Snapdeal and Future Group entered the talks. Also, reports of an internal audit as well as CEO and top management departures surfaced in Jabong in the last 18 months. This made the valuation drop even further.

A new CEO took charge – mainly to clean up and make the company presentable for a sale. Amazon had already built its own fashion category, racing up to be one of the top two fashion retailers in India. Jabong was also far from achieving profitability. Thus burning more cash did not seem a good idea to investors.

Rival entrepreneurs say the buyout also offers them a lesson. “Profits in India are now more strategically important than in the west. Build businesses that have a positive bottom line and this will not happen to you,” says Tushar Ahluwalia, CEO of StalkBuyLove.

What does Flipkart gain from Jabong?

“The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform. We see significant synergies between the two companies especially on brand relationships and consumer experience,” Ananth Narayanan, CEO of Myntra, said here.

Praveen Sinha, co-founder and ex-MD at Jabong India. Photo Credit: Jabong.

Jabong has one of the best sourcing systems, catalogs, and loyal customer bases, especially amongst women buyers. With Myntra’s app-only experiment going kaput last year, the company lost a lot of traction in India.