Just flippin' fabulous!
In 2007, Bansal buddies Sachin (29) and Binny (28) dug into their personal savings and put together Rs 4 lakh to start an online bookstore, which they called flipkart.com. They knew it was not a new idea and if they were not going to have a big differentiator, the venture carried a high risk of joining the ranks with failed dot.com start-ups that promised so much but delivered so little.
Today the buzz is that the four year old company, a deep discount online market place for books and digital accessories, is close to selling a portion of its equity to a leading US-based private equity player that has valued the company at $1 billion (Rs 4,500 crore) or one-eighth of micro-blogging site twitter.com that has been valued at $8 billion (Rs 36,000 crore). Billion dollar valuations of Internet start-ups in India are no more empty theories but a reality.
The Bansals, both graduates from IIT Delhi, but not related, realised early on that the quality of service was a key differentiator - a lesson they had learnt during their stint as engineers with global e-commerce giant, Amazon.com.
Customer complaints that ranged from delays in delivery to hassles in payments were often the critical factors that determined the success of any online business, Sachin Bansal, co-founder and CEO of flipkart.com, told HT. “We decided to first iron out these problems and give our customers a delightful online e-commerce experience.”Daniel Ao, a 26-year old software professional from the Northeast, loves books on music. He scanned through the stores in the malls and independent stores in Delhi, for the precise title he wanted. He failed and chose the next best option: logged on to flipkart.com and purchased it online. "The book reached me within four days," Ao said. "I paid on delivery and got a 20% discount on the cover price as well."
Net commerce in India has witnessed a considerable growth in the past decade. Internet and Mobile Association of India (IAMAI), the industry body of online and mobile value added services, has pegged the size of net commerce in India at about Rs 31,598 crore in 2010. It is estimated to touch Rs 46,520 crore by the end of 2011.
At present the e-commerce activity in India is driven largely by the travel industry, which contributes around 76% to the total e-commerce market of India. However, as online purchases gain momentum and with purchases shifting to other items, this will mean robust growth opportunities for online e-commerce firms such as flipkart.com.
Indian retailers are warming up to shipping their ware directly to consumers through the Internet. For the consumers, there are great deals on offer. Footfalls and walk-ins are a passé. Virtual walk through is the new buzz word.
Products are usually 10-15% cheaper on e-tail sites compared to conventional walk-in stores. The entire range of products is available to pick and choose from and “out-of-stock” is ruled out unless the company has phased out a particular product completely. Bansal said that the company has already diversified from an online book store into selling cameras, computer accessories, games, music CDs/DVDs, personal healthcare products through its websites.
It knew early on that company cannot succeed only through quality services, given the price-sensitivity of the Indian consumer. “We offer upto 40% discount,” Bansal said. The company manages heavy discounts through its bulk purchases and maintains close contacts and has direct tie-ups with publishers, distributors and manufacturers. It helps them get a better deal. At present, their shipments are at 15 million everyday across the country and employs around 1,800 people. The bulk of it comprise books, but it expects other categories to catch up soon.
“We want to be known as the general e-commerce website and not just the online bookstore, which is part of our long-term plan. And as soon as we get the leadership position in other categories as well,” Bansal said.
The “youth is driving onlilne shopping” and “the elderly do not trust the Internet” is a myth, Bansal said. “All kinds of people buy books online though a large proportion of our customers are younger, may be in their 20s, but they are not the only customers.”
Less overhead costs
While consumers can cash in on great bargains, for firms the e-tailing model offers lesser overhead and variable costs. Companies save heavily on real estate rentals, staff salaries, store maintenance expenses and also on time to set up stores.
“In retailing, as much as 50% of the initial investment could go towards acquiring real estate. But, online retail only asks for brand trust, nothing more,” said Cory York, who provides technology solutions to companies. For high street locations in a metropolitan city rentals could be as high as R300 per square feet per month. “We also have extremely low operating costs as we are online. So we do not need to invest in setting up stores, lease space at high street locations and pay very high rents,” Bansal said.
Flipkart.com has a mixed model in terms of supply chain such that a lot of items are kept in stock at its warehouses while other items are procured on demand.
“Once an order is placed we tie up with the publisher and send it on demand.” It also plans to add up to its storage capacity. It currently has its warehouse space of 120,000 square feet in Delhi, Bangalore, Mumbai and Kolkata. “We would soon have our warehouses at Chennai, Pune, Hyderabad and at a couple of other cities,” Bansal said.
Success has many suitors
In four years, Flipkart.com has managed to rope in private equity player Tiger Global to invest $31 million (Rs 140 crore) in the company that many believe is the hottest investment property in the Internet business space in India at present. “We are very bullish about the company and are working to make flipkart.com the number one e-commerce company in India,” Bansal said but refused to disclose financial details of the company.
Investment bankers tracking the sector said flipkart.com is a potential takeover target by the Bansals’ former employers Amazaon.com given the promise and success it has demonstrated. This, if it happens, will be reminiscent of the 1997 when Silicon Valley entrepreneur Sabeer Bhatia sold free email service, hotmail.com to Microsoft for a reported value of $400 million (Rs 1800 crore)-creating a flutter that sent valuations of fledgling dot.com companies through the roof.
Bansal dismissed suggestions that the promoters would be willing to sell out and are waiting for the “right” price. “There are no plans to sell any stake to Amazon…rather we have plans to scale up our business in India,” he said. For now, flipkart.com remains with the two former IIT Delhi classmates.