FlipKart, India’s homegrown eCommerce success story (/work in progress?) was valued at $15B last year.
Recently though it was in the news for the wrong reasons, after a trio of small funds cut their private valuations for it by up to 23% – blaming, primarily, the fact that it was spending a lot more than it was making, in its quest for marketshare, with no end in sight to its profitless days.
Amazon of course famously did that for a long time, but not having profits is not the same as not having enough operating/free cash flow, so that’s a different story.
Coming back to FlipKart, I recently read a longish post on what ails FlipKart by Haresh Chawla, a partner at an Indian PE firm, that contains many illuminating observations and advice, about FlipKart, unit economics and about startups in India.
One of the stranger things from the post is about FlipKart driving saves revenue (or GMV = Gross Merchandising Volume) by becoming the number one destination for smartphones – to the exclusion of everything else:
Given the number of marquee global VCs backing FlipKart, it’s weird that no one thought to question tactics like this one that guarantee a loss on each sale without the upside of loyalty, repeat purchases or even a loss-leader strategy. Especially in a market where (a) price trumps everything and (b) fierce competitors like Amazon can afford to bleed them out for as long as it takes.
You can read the full thing here.