Forbes has a very disturbing revelation to make about Flipkart, the company that “delights” customers. Forbes points out that Flipkart has a flawed business model and that it is losing money hand over fist. At this rate, it may not be long before Flipkart goes the same path as Kingfisher. Some excerpts from the article:
Today, with over 60 percent of Flipkart’s 4,800 employees spread across 40 cities, Flipkart Logistics is the tail that wags the dog. The food that sustains this growing entity is inventory. Book distributors talk of Flipkart buying books from every single title in their catalogue. They were surprised, because many of those titles hadn’t sold in years.
A category-wide 30-day returns policy and aggressive inventory acquisition put more pressure on the system to handle returns. At least three industry sources claim the company has attempted to return 30-40 percent of books they had bought a year ago to a few distributors when the norm in the business is 10-15 percent.
In mobile phones too, where most of its peers prefer close back-to-back arrangements with distributors, Flipkart prefers to hold its own stock. Some distributors are now complaining of delays in payments. Flipkart maintains these delays are because the software it uses to maintain financial records are being updated.
On February 9, 2012, everybody, insiders included, was taken aback when Sachin Bansal announced Flipkart’s acquisition of Letsbuy.com. A rival e-commerce website, it sold consumer electronics. He said it would allow Flipkart build a dominant share in the space.
Since the time it started operations in 2009, Letsbuy deployed heavily discounted prices and extensive product catalogues as strategies to acquire market share. By January 2011, it had enough heft to convince Helion Venture Partners, Accel Partners and Tiger Global to invest $6 million.
But it burnt nearly all of it in less than a year. By the end of the year, it started knocking on investor doors for a fresh round of funds. Nobody uttered a peep. Instead, co-founders Hitesh Dhingra and Amanpreet Bajaj were told by Tiger Global and Accel to sell their business to Flipkart. From an investor’s perspective, it made no sense to fund two companies competing in similar spaces. The Bansals were told much the same thing and had no option but to acquiesce.
In a few months, practically all of Letsbuy’s 350 employees were quietly let go and its infrastructure, including the warehouses, dismantled. Accel and Tiger Global, however, salvaged all of the cash investments in Letsbuy and got additional stock in Flipkart.
Action must be taken by competition Commission of India or by some govt outfit against the online retailers who are using flaw in the law and playing a big GAMBLE to capture the entire market by selling below cost price for their initial years. When VC funding is not allowed in E-commerce these companies are registering offices in Singapore etc and routing the money for the same business. Is it not a mockery of our system ? when VC funding in retail is not allowed their is a daily news of $XX million funding to so and so e-commerce company. DUH! they are obviously not using funding just for their platform but to run business in losses to kill competitors and physical retailers.
It’s like one sided competition by misusing the VC funding to sell below cost price and with huge operating losses by these handful of online retailers…
Hari Rastogi
A common retailer
A faculty Member of prestigious B schools,
A patriot