Snapdeal 2.0 faces a new world order in Indian e-commerce

Cleaning up.
Cleaning up.
Image: Reuters/Adnan Abidi
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It sat out the Indian e-commerce game for nearly a year. Now, Snapdeal wants to make a comeback.

And Snapdeal 2.0 is the Gurugram-based company’s strategy to crawl back into the limelight.

“The completion of nearly a year of rebuilding our business generated cash in June ’18, for the first time in our history,” CEO and co-founder Kunal Bahl wrote in a LinkedIn post on Oct. 08. “As we exited July ’18, we had finished 10 consecutive months of achieving all our goals, and despite all the odds, had more than doubled our monthly orders and revenues in the same period, while cutting down our cash burn by 100%.”

These are all the right notes, yes. But a lot has also changed since the time the company ruled the market last. So can Snapdeal 2.0 really make it?

The implosion

Snapdeal was among India’s top three e-commerce websites till early 2017, when the then seven-year-old firm began to unravel.

In January last year, it reported losses of Rs3,316 crore ($432 million) for the year ended March 2016, double than the previous year. The next month saw reports that it had laid off 80% of its workforce.

And then, in a strongly-worded email to Snapdeal employees in February 2017, co-founders Bahl and Rohit Bansal admitted committing some key mistakes. ”We started growing our business much before the right economic model and market-fit was figured out. We also started diversifying and started new projects while we still hadn’t perfected the first or made it profitable. We started building our team and capabilities for a much larger size of business than what was required with the present scale,” the duo said.

Meanwhile, Snapdeal’s investors put it on the block and the company was in talks with its biggest rival, Flipkart, for a potential buyout. But despite dragging on for half-a-year, the talks fell through, leaving Snapdeal with mounting losses and depleting cash reserves.

“Any further delay in taking a categorical decision, one way or the other, was guaranteed to be fatal for the company,” Bahl’s LinkedIn post said.

Snapdeal 2.0

Launched in 2010 as a coupons and deals portal, Snapdeal pivoted to an online marketplace model in 2011. So it’s not new for Bahl and Bansal to steer their business in a new direction when needed.

Snapdeal 2.0, first announced in August last year, was a game plan to focus on the core business and divest all peripheral assets. So the company sold its payments arm FreeCharge to Axis Bank in July 2017 for $60 million, a 90% discount from the price it had bought the company in April 2015.

It sold its logistics arm Vulcan Express to the Future Group in January and its cloud-based inventory management subsidiary, Unicommerce, to Infibeam in May this year.

“We looked at our business, figured out the most valuable part of our business, and how to take just that part and stop doing everything else,” Bahl’s LinkedIn post read. “We decided to focus on value merchandise for value-conscious buyers. We realised that meant we were going to say no to some customers, and that was ok. There are other marketplaces to serve them.”

Proceeds from these sales gave Snapdeal the much-needed cash to run daily operations.

Other features of Snapdeal 2.0, according to Bahl, included:

  • Fixing the business’s economics and then resume growing it
  • Returning to roots, catering to value-conscious buyers
  • Constantly improving buyer- and seller-experience, keeping the guardrails on economics in place
  • Stabilising the culture and ensuring everyone in the team is aligned with the firm’s plans.
  • Time-bound planning to achieve positive cash flow; liberating the firm from fundraising cycles.

But the race that Snapdeal is returning to now is way harder than the one it lost last time.

A new world order

Over the past year, the Indian e-commerce industry’s scale has multiplied many times over.

Among other things, there is now a new behemoth in the fray. In May, the world’s largest retailer, Walmart, acquired a 77% stake in Flipkart for $16 billion. In the coming months, the US giant will invest around $2 billion more in India’s biggest homegrown e-tailer.

Flipkart has made a series of investments since then, infusing a fresh capital of Rs3,463 crore in its online marketplace in September, investing over Rs900 crore in its logistics arm eKart, and ploughing in over Rs450 crore in its payments vertical PhonePe in August.

And to fight this new Walmart-Flipkart combo, Amazon stepped up its India investments. In August, it invested Rs2,700 crore in the marketplace unit, Amazon Seller Services, just three months after it first infused Rs2,600 crore in it.

The two players have also strengthened businesses in more lucrative verticals such as groceries.

Flipkart, for instance, is now selling groceries in select cities and Walmart is expected to make a strong case for itself in the sector, investing heavily in cold chain and collection centres, along with food parks.

On the other hand, Amazon has already pumped in Rs10.5 crore in its food retail business, Amazon Retail India. In September, along with private equity firm Samara Capital, it bought over Aditya Birla group’s food and grocery retail chain, More.

In April this year, a new unicorn (startup valued at over $1 billion) emerged in India: Paytm Mall. The e-commerce arm of India’s largest digital payments firm counts Chinese conglomerate Alibaba as its primary investor and has raised around $645 million till date, according to the online startup database, Crunchbase.

What’s left for Snapdeal?

Yet, despite all the money flowing in, Indian e-commerce is still nascent. Only 43% of the country’s 481 million internet users currently shop online, according to the Internet and Mobile Association of India.

That leaves space for several players to co-exist, analysts say. Especially, if they don’t directly compete with the giants Amazon and Flipkart.

“Snapdeal is going for value-conscious buyers,” said Harish HV, an independent consultant who tracks India’s startup sector. ”The company (Snapdeal) is going back to its mid-segment audience. But then, it will have to find a niche for itself. Buyers should have a unique proposition to buy from them.”

So there is scepticism over Snapdeal’s revival plans.

Most online retailers in India, such as eBay and Flipkart, started out as pure-play marketplaces. eBay folded up in July, but Flipkart managed to stay on thanks to its in-house capabilities around payments and delivery.

And that is where Snapdeal lags.

“The company (Snapdeal) hasn’t come out with a specific plan. They have cut costs and are stable now, as per Bahl, but a pure marketplace is difficult to sustain,” said Satish Meena, senior forecast analyst with Forrester Research. “How will they scale up? There is no control over quality or timely delivery. These are aspects crucial for good customer experience that Amazon, and now Flipkart, are focusing on.”

Besides, Snapdeal currently has no brand positioning, he said.

Snapdeal declined to comment on the e-mail query sent by Quartz.

Most industry experts Quartz spoke to pointed out that Amazon and Flipkart, with their deep pockets, too, are wooing budget-conscious buyers, making Snapdeal’s task tougher.

“It’s great that Kunal (Bahl) has communicated all this now but what he has yet not been communicated is how and where the company will get its next wave of growth from,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research. “Like with an UrbanLadder or (a) Pepperfry, you know they’re in the furniture segment and they get the job done. With Snapdeal, we still don’t know where they stand in the e-commerce world and what value they bring to the customer.”