The imminent entry of IKEA into the Indian market next year has sent the country’s e-commerce majors into a huddle over the drawing board, deciding what to do next to ensure they retain a chunk of the furniture retail pie.
Flipkart has decided to use the one year before IKEA officially launches its store in India to consolidate its position on top of the furniture retail food chain in India. The company has set for itself, an ambitious target to register a 15-fold growth in the high-value category over the next one year. This target also takes into account healthy profits for Flipkart.
The nine-year-old company has so far relied primarily on categories such as electronics, mobiles and apparel to fuel its rapid growth. Flipkart added both furniture and automobiles to its inventory this year, hoping to fuel both growth as well as profits.
Currently, the e-commerce giant is competing with niche furniture portals such as Urban Ladder, Pepperfry as well as Kishore Biyani’s Hometown which recently acquired FabFurnish.
Accordingt o a report inn ET, Norwest Venture-backed Pepperfry expects to post growth of at least 150 per cent in 2017, while Urban Ladder expects to hit net revenues of Rs 1,300 crore this year. Hometown and Fabfurnish are expected to generate business of Rs 800-1,000 crore by the end of fiscal 2017.
Reducing Burn Rate
Valued at about $15.2 billion in its last round of fund-raising in July 2015, Flipkart has been quickly reducing its burn rate this year, helped along by the lean season for retail sales.
Its two main entities – Flipkart India and Flipkart Internet – reported a combined a loss of Rs 2,000 crore in FY15.
All category heads have been given directions to focus on getting on board “best quality products at lowest cost” with Binny Bansal spending majority of his time with the commerce unit since becoming the CEO.
Bansal has undertaken a management overhaul at the Bengaluru-based company and hastened the process of turning the logistics business Ekart into an independent unit, in search of greater cash flows.
While most large online retail companies have reduced their dependence on discounts as a growth strategy over the last few months, fixed costs at these companies remain high, especially employee costs.
Flipkart has a total headcount of 35,000, out of which around 15,000 are employed by the logistics unit EKart as delivery personnel.
T Rowe Price cuts Flipkart value by 15 per cent
Meanwhile, in an unwelcome development, Mutual fund management firm T Rowe Price has reduced the value of its stake in Flipkart by 15 per cent, becoming the second investor to mark down the online retailer’s estimated worth.
T Rowe Price had participated in Flipkart’s $700-million funding round in December 2014.
In February, Morgan Stanley, another minority investor in Flipkart, downgraded the value of its stock, cutting the company’s valuation from $15.2 billion to $11 billion.
Experts had then attributed the drop to growing competition from global e-commerce giant Amazon and Flipkart’s inability to reach goals set by investors.
T Rowe Price has fixed the per-share value of Flipkart at $120.69 in its March 2016 quarterly filing – down from $142.26 in the previous quarter. As a result, Flipkart’s value would fall to $13 billion from a peak of $15.2 billion.
The markdown this time is not as drastic as the one by Morgan Stanley, which had cut share prices of Flipkart by 27 per cent.