The Three Main Challenges India’s Snapdeal Faces In Its Comeback In E-Commerce

Author

Karan Kashyap

April 1, 2017

In February this year Kunal Bahl and Rohit Bansal, co-founders of online marketplace Snapdeal announced that they will forego their salaries with immediate effect, thereby becoming the first Indian startup entrepreneurs to do so. The decision to not take salaries, while not an uncommon one in Silicon Valley (both Larry Page and Sergey Brin, the chief executive and president of Alphabet respectively, have taken $1 as compensation for years), is somewhat unprecedented in India’s startup ecosystem. This decision of conserving cash and cutting costs is aimed to turn around the fortunes of their seven-year-old firm.

“This will mean tough choices and a conscious departure from a me-too race to the edge of the cliff. Let’s remember — GMV [gross merchandise value, an industry term for the total value of merchandise sold on an e-commerce site] is vanity, profit is sanity,” read the email circulated within the company. For the financial year ending 31 March 2015, the founders received compensation of more than $7 million (Rs 52.94 crore) each, which include salaries of more than $226,727 (Rs 1.5 crore) and payment against founder stock options of more than $7 million (Rs 51.43 crore), according to filings with the Registrar of Companies and data collated by Tofler, a leading corporate research and monitoring platform. Founder salary records for fiscal 2016 are yet to be disclosed.

The move comes at a time when the company faces a possible make or break moment and looks to execute a turnaround in its fortunes. Snapdeal is currently number three in Indian e-commerce market, behind Flipkart and Amazon, where the latter dislodged it from the second spot last year. Along with its inability to rack up fresh funds due to losses incurred by the high cash burn rate of over $20 million a month, Snapdeal faces a slew of challenges that include cautious sellers, brand taking a hit and high attrition rates among top executives.

Sellers practicing caution

A seller body, the eCommerce Sellers Association of India, cautioned its 1,500 members to either stop selling on Snapdeal, or to ensure that their dues from the company don’t run high. Last month, The All India Online Vendors Association (AIOVA), a body of over 2,000 online merchants, also requested its members to stop selling on Snapdeal citing credit risk to the tune of $45 million – $60 million (Rs 300-400 crore) that the e-commerce company owes all its sellers. AIOVA stated in an email to the Indian commerce minister Nirmala Sitharaman: “Our organization estimates that on any given month, this company [Snapdeal] holds Rs 300-400 crore in the form of outstanding dues, and goods in transit or refunds. Our constituents are now having a sense of credit risk while dealing with this company due to the past experience in losing money and no immediate relief in case of Askmebazaar and other marketplaces. We are looking forward to your forward to your intervention or assurance from you in this matter. Until then, we have requested our constituents to immediately stop sales on this platform”.

Re-Branding taking a hit

In September last year the company had showcased a new logo and a tagline – ‘Unbox Zindagi’. This re-branding exercise was aimed to lure new buyers entering the ecommerce fray in India. During the launch of this initiative its co-founder Kunal Bahl had commented – “Delivery speed, assortment, discounts and return policy are now basics, commented on only if there’s a slip up. Brands need to pick the emotion they stand for and how they participate in people’s lives.” As part of this initiative Snapdeal spent a humongous $30 million (Rs. 200 crores) including festive spends over the period of October till December 2016. Commenting on the performance, the spokesperson of All India Online Vendors Association said – “There was a little boost during the Diwali sale due to the advertisement blitzkrieg by Snapdeal, but after that shipments dropped once again. Sellers are now concentrating mainly on Flipkart and Amazon.”

The online marketplace’s daily shipments have halved in recent weeks to 60,000-80,000 units a day, and gross sales have dropped to a fraction of the company’s peak of $3.5 – 4 billion in 2015. Employee expenses constitute the largest cost for the company, after marketing and advertising. Snapdeal’s employee-related expenses rose to more than $136 million (Rs 911 crore) in FY16, up 148% from the previous fiscal. To cut this biggest fixed cost, Snapdeal initiated a fresh round of job cuts this year, a move that could affect about 50-60% of the company’s total workforce across the country. The founders of Snapdeal, sent an email to their employees, talking about “tough decisions” required to turn the company profitable. The mail was followed by another round of firings, which affected 250-300 people. The final number of layoffs could go up, affecting close to 1,500 employees.

High attrition rate of top executives

Like its Bengaluru-based rival, Flipkart, Snapdeal, too, has continued to see a steady churn of its top leadership. Last month Govind Rajan, the chief executive of Jasper Infotech owned digital payments platform FreeCharge, resigned from the company. Rajan’s departure is the latest top-level exit from the Jasper Infotech, which is the parent company of Snapdeal. It is also possibly the most high profile resignation, since the departure of Anand Chandrasekaran, who was snapped up by global technology giant Facebook as its head of platform and product partnerships in September last year.

The last few months have also witnessed the departure of Abhishek Kumar, Snapdeal’s head of corporate development, Sandeep Komaravelly, senior vice president who headed Snapdeal’s zero-commission marketplace Shopo, and Tony Navin, who led Snapdeal’s partnerships and strategic initiatives, among others.  Komaravelly had joined Snapdeal when it acquired his group-buying website Grabbon in 2010. As head of marketing from 2010 to 2015, he was responsible for bringing onboard actor Aamir Khan as the brand ambassador for company and for “Unbox Zindagi” promotional campaign.

In order to overcome these challenges Snapdeal will need to make a considerable leap to become “India’s first profitable e-commerce company in two years” — a goal that has been stated by co-founder Kunal Bahl in his email. According to Kartik Hosanagar, professor of digital business at The Wharton School: “Snapdeal would have to establish a strong presence in some high-margin niche, like Flipkart has Myntra.” The profitability chase also runs the risk of Snapdeal losing its position as the third-largest online marketplace in the country to growing players like ShopClues and Alibaba backed Paytm e-commerce. This month, Alibaba announced its decision to further invest $177 million (Rs 1,180 crore) to increase its holding in Paytm e-commerce. Other than the fight for leadership between Amazon and Flipkart, in 2017 Snapdeal’s efforts to overcome its challenges to consolidate its third position, while keeping competitors at bay is going to be another interesting duel to watch out for in the in forecasted fastest growing e-commerce market of the world.

 

This article was written by Karan Kashyap from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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