Flipkart, the online shopping giant which has been acquired by Walmart, announced the shutdown of its subsidiary Jabong this month. Flipkart through its another subsidiary Myntra had acquired Jabong in July 2016. Amidst such an economic slowdown, debt trap and a plethora of reasons contributing to the closure of a dozen companies in the past 2 years in our nation, the reason for the shutdown of jabong is very different.
REASONS FOR SHUTDOWN
There are many reasons for the closure of jabong and is interpreted as a strategic move from the business giant. Jabong was not very different from myntra and running two similar websites only increased their costing and showcased their inefficient strategies. Thus Flipkart had cut short its bulk of marketing spending on jabong. Also, Jabong’s web traffic declined by 5 million between June and January coming down to only 2.5 million in the previous month while traffic to Myntra at the same time was stagnant at about 30 million. The app downloads of jabong for the past couple of years have also experienced a plunge.
HISTORY OF JABONG
Jabong was founded in the year 2012 by Arun Chandra Mohan and Praveen Sinha. In 2013, Jabong was already a huge success and dispatched around 6000 orders a day generating high revenues. The first investor of jabong was Rocket Internet, a German group that merged Jabong with four other ventures creating the GFG (Global Fashion Group). Global Fashion Group (GFG) is the leading fashion and lifestyle online destination in the Asia Pacific, Latin America, and CIS, now connecting over 10,000 global, local and own brands to a market of more than one billion consumers. In 2016, myntra which had already been acquired by Flipkart by that time was a well established and leading e-commerce giant for apparel. Myntra and Flipkart together had more than 50% stake in the Indian market and Jabong had a share of 20% with a very strong base of female clientele. Thus the acquisition of Jabong meant a win for Flipkart and myntra with these 3 giants dominating 2/3rds of the Indian e-shopping sector. Thus Jabong was sold by GFG for a $70million (about Rs. 2000 crores). The deal was also responsible for 150 employees being laid off.
Another very interesting coincidence associated with Jabong is its link with Xiaomi. One of the entrepreneurs behind Jabong was Manu Kumar Jain, who is currently leading Xiaomi India, along with Mi and Poco brands.
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REASONS FOR LOSS OF CUSTOMERS OF JABONG
There are many reasons which may aggregate for bringing down the traffic of the website Jabong and ultimately leading to its closure.
In June, Flipkart reduced the advertisement expenditures on Jabong and had already started redirecting its users from Jabong’s website to that of Myntra’s. Thus the company was already not very sure of continuing the website for very long and hence was prepared for the loss in clientele. This was done not only because of the company’s focus motive as discussed previously but also keeping in mind the non-cash impairment of about $290 million (more than usual charge) which the parent company incurred after the merger of Myntra and Jabong.
Non-cash impairments are written down charges which do not involve physical exchange of cash. These are not investments or procurement of stock or something which may add to the assets of the company and help in expansion. Examples of such charges are depreciation, depletion, etc. Hence such charges only reduced the profits of the company and were a burden on the company’s reserves. Leading to shutdown of Jabong
Walmart International has also noted a 46.2 % decline in its operating income and a 40.8 % fall in the constant-currency term. This could have been reduced to around 21.4% decline in operating income and a 16.2 % fall on a constant currency basis if non-cash impairments were avoided. Thus, reduction in non-cash impairments was seen as a vital strategic move and for Walmart, Flipkart was the former with has 80% stake was the biggest contributor to such a charge. To avoid such an explicit cost then e-commerce giant came up with the idea of the closure of Jabong thereby saving on unnecessary costs in such a time of competition. Walmart became one of the biggest reason for the shutdown of Jabong
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Other Reasons for Shutdown of Jabong
Also, the popularity and sales of Jabong suffered a major setback from the potential that it initially started with. Such a change may have been dawned upon due to better marketing strategies of its competitors like Amazon and what further adds to the concern is the increase of small businesses comprising of boutiques and small websites selling women apparels. As previously talked about, Jabong shutdown had a strong consumer base comprising of women. Thus these boutiques, small online businesses, etc may have been an obstacle for Jabong.
Among all the other competitors, the biggest threat to Flipkart and Walmart would be Jiomart which is led by India’s richest man Mukesh Ambani. We are familiar with how Ambani is dominating the telecom sector and now another venture in e-commerce, which plans on working closely with neighbourhood stores especially in the state of Maharashtra. In 2006, Reliance Retail was India’s one of the largest retailing chains catering to the needs of about 3.5 million customers each week. Thus, JioMart is expected to have very high potential with the country’s top businessman backing the venture.