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Wednesday, Dec 11, 2019

Flipkart to reduce office space by half to 900,000 sq-ft to cut cost

Flipkart is in talks to reduce its office space lease -- down to less than half from what it was a couple of years ago -- signalling a need to cut mushrooming cost in the house of India’s largest e-commerce firm

business Updated: Feb 21, 2017 21:49 IST
Sunny Sen
Sunny Sen
Hindustan Times, New Delhi
Microsoft Chief Executive Officer Satya Nadella and Flipkart Group Chief Executive Officer and co-founder Binny Bansal attend a news conference in Bengaluru
Microsoft Chief Executive Officer Satya Nadella and Flipkart Group Chief Executive Officer and co-founder Binny Bansal attend a news conference in Bengaluru(REUTERS)

As Flipkart struggles to cut down cost after a series of management reshuffle, the e-commerce firm is looking at reducing its real estate spending, signalling tough times ahead for the posterboy of Indian startups.

The company, which in 2015 had agreed to take up two million sq-ft of office space in 2015, is negotiating to reduce it to just 900,000 sq-ft. That’s less than half, in just two years.

“We are in discussions with Flipkart on the overall space reduction which if agreed can be a win win scenario given the current market scenario and the very low space availability in the market,” said Mike Holland, CEO of Embassy Office Parks.

In October of 2014, news was rife about Flipkart stitching the single largest deal in office space leasing with the Embassy Group for three million sq-ft. A few months later, in 2015, according to media reports, the demand was down to two million.

Flipkart was suppose to build its office two phases, to sit around 20,000 employees, in anticipation of growth. But, little did its founders, Sachin and Binny Bansal (both are not related) know that the market would soon change.

In less than two years, Flipkart’s market values is down to a third from its peak of $15 billion, marked down by its own investors.

The rise of Amazon, to become a close second has only made things worse for the Indian grown startup. To make things more difficult, there are talks of Alibaba entering the Indian e-commerce market along with Paytm.

Flipkart’s head of communications said he wasn’t aware of the real estate matter. Another spokeswoman, he directed to get details from, didn’t take HT’s call.

The company recently announced Kalyan Krishnamurthy, a former Tiger Global Management executive as its CEO. Binny Bansal, its co-founder was kicked upstairs to Group CEO role, in less than a year after being designated as company chief executive. The Group has three companies Flipkart, Myntra and Jabong.

Though executives wouldn’t comment on specifics, but grapevine has it that Flipkart is run by Tiger Global Management, its largest investor, which holds 30% to 33% stake in the company, according to reports.

An article by a leading financial daily called Flipkart an “unlikely” burden for Tiger Global, and said that Krishnamurthy’s being nominated as its CEO was the investor’s “best shot to salvage” its investments.

While the real estate deal does not tell much about the health of Flipkart is particular but it does say that Flipkart won’t hire as many as it had planned to, earlier. Add to that, the cost it save -- around Rs 50 per sq-ft -- maybe that it will need to fund it discount was against global heavyweight Amazon.