Frequently referred to as India’s Amazon.com, Flipkart is one of the leading e-commerce sites in India with many acquisitions in recent years such as WeRead, Chakpak, Letsbuy and Mime360 to its name.From being the biggest online bookseller to an online retail site that sells almost everything under the sun, Flipkart has expanded into one of the biggest companies in Indian online retail.Can it cement its place in Indian online retail space, build on its advantage and sustain strong growth?.After a slew of recent articles that question the profitability behind Flipkart’s services, explicitly hinting at a troubled management of their Logistics and Returns division, the time has come to understand certain nuances that make or break online retail.
In a country like India where bureaucracy breeds better than mosquitoes can, one has to measure priorities and in Flipkart’s case, they chose to start their own logistics company in 2010 for handling everything from packaging to delivery.
While the entire country scoffs at Flipkart’s audacity to survive, I, on the other hand, believe there are variables beyond Flipkart’s control that create challenges including hiring the right talent, curtailing losses by efficient returns management, and ensuring a controlled logistics process.
However, these challenges are minuscule compared to their battle against unfair bureaucratic trade practices and undue advantages taken by some Indian consumers on genuine return policies. Will Flipkart survive this storm?
FY 2011 – 2012 – A Recap
Flipkart recently acquired Mime360 and Letsbuy- the former an online music distribution platform and the latter an ex-competitor selling similar products. Though many question the highly exaggerated valuation of the company between $750million and $1billion in its recent discussions with General Atlantic, the company remains unaffected in terms of daily number of visitors, orders placed and processed, marking it as a profitable year clocking a sales of Rs.500 crores towards revenues.
It has also expanded to 7 more cities totaling up to 37 cities overall in 2012. The company has also added services such as the electronic wallet to allow customers to add credit to their accounts for convenience, EMI, card on delivery, and product recommendations.
Returns
Flipkart’s 30-day return policy is the best and possibly the worst thing that could have happened. While great customer service is laudable, for Flipkart it may have come at a heavy price. Many studies show that Flipkart has returned nearly 30% – 40% books back to its distributors as against the regular business norm of 10-15% in a financial year.
Numbers aside, many returns are a result of undue advantage taken by a few customers who return products after a single use just because they can.
On a recent visit to an electronics store in the US, I found a “Refurbished” camera that looked brand new for half the original price. The store help told me that products are bought for a temporary use and returned before the guarantee expires. This way, the customer develops some high definition pictures while not paying a single penny.
It just goes to say that every article ever written about the non-profitable services of companies has ignored to address the faulty and unjust attitude of customers in misusing genuine return policies hosted by retailers.
The issue of returning products before the guarantee period expires is as severe as piracy. A bigger evil than the 30-day guarantee would be the Cash on Delivery service that makes it easier for customers to simply refuse to pay cash and return products on the spot. Except for cases with defective products, the onus is on customers to respect and enjoy customer-oriented policies.
Logistics
For far too long, Indian consumers have faced innumerable hitches with postal and courier services across the country. In light of such pathetic services, it does make sense to have one’s own Logistics Company while charging a nominal fee for orders below Rs.300. Will it make money in the long run?.
How long will investors cough up money to support this bold experiment? With the same investors backing online competitor Myntra, how do they plan to gain a better online presence and customer following? Despite robust software and rapid expansion in logistics, Flipkart has not been successful in organizing its logistics efforts optimally. Adding to this, attempting to convert its logistics services to profits looks like a far-fetched deal.
Valuation
A close look at Flipkart’s recent news pages will tell you that its valuation is highly overrated in a vein that mirrors facebook. Despite the current situation of negative cash flows,Flipkart might still have a chance to pull through this phase and become the Amazon.com of India. Some of the factors that could still make Flipkart an eye-catching investment are:
a) The percentage of loyal customers and a growing customer base – Facts on Flipkart will show that it has a loyal following of nearly 60-70% off its entire customer base and the remaining being one-timers.
b) Present investors’ considerations and background – Tiger Global has experience investing in popular, growing startups such as Zynga and One Kings Lane and helping them navigate a storm or two.
Work Culture
This is undeniably one of the hottest topics on Indian employment forums today. Let’s look at the review ratings Flipkart has on job forums (ratings given by employees or ex-employees of Flipkart). The company has an overall rating of 3.4 stars on 5 on Glassdoor.com, a popular company review site.
While this is so-so, negative reviews on other forums including Glass Door’s hint at a closed top management that does not include employees in strategic decision-making. While I understand how this may be partially true, I would also like to remind everyone that Flipkart is an organization that is rapidly growing with nearly 1,200 hires this financial year. For a company that was recently founded in 2007 and gained recent popularity, its work culture is still evolving.
The Flip Side
Despite its pioneering status of possessing a good logistics team and customer servicethat sets the bar everywhere, Flipkart does have a few gaps to answer.
- Pick up centers from common stores or post offices to help customers facing delivery problems or simply an option to choose a location of convenience.
- Student specific accounts that sell discounted products and speedy delivery services for students especially those living on a tight budget or a close deadline.
- Same-day Shipping offered by many of its close competitors.
- International Shippingservice that could be a deal breaker when international players such as Amazon who ship to more than 100 countries enter the Indian market in the future.
