Will Snapdeal, a veteran of multiple pivots, finally get it right by focussing on value commerce?

After a number of pivots and teetering on the point of dying, Snapdeal is in a make-or-break scenario once more, looking for to cement its place in worth commerce. It has one shot and it can not let this chance go 

After a chronic hiatus from the limelight following the dramatic collapse of a merger with rival Flipkart and the next unveiling of the ‘2.0 journey’ in 2017, Snapdeal was again within the highlight in 2021 with a shocking announcement. It mentioned it will go public. However issues didn’t pan out that manner, and it shelved that plan only a yr later.

After all, market circumstances had been primarily responsible for the IPO’s withdrawal. However this lack of coronary heart mirrored the corporate’s 16-year journey in some methods—a story of grand plans gone awry and a gnawing sense of untapped potential. On the planet of Snapdeal, the one fixed is shock.

When Snapdeal walked away from the negotiation desk with Flipkart, it wanted to plot industry-beating operational efficiencies, minimize down on money burn, and construct a gentle funding pipeline to even try a turnaround.

Kunal Bahl
Co-founder
Snapdeal

“It was an audacious transfer. To say that e-commerce in India is a high-intensity and high-cash-burn endeavour could be an understatement. I recall throughout that interval, I awoke one morning to a nicely wisher’s message {that a} VC informed him, ‘Snapdeal won’t see a day of 2018 and will certainly shut down earlier than the top of 2017’,” Co-founder Kunal Bahl wrote in a LinkedIn publish in 2018.

However Bahl and his college pal Rohit Bansal did chart a turnaround. It could fully change course. It could have a look at worth commerce. It could deal with the non-English-speaking, non-digital native, non-affluent majority of India’s inhabitants in Tier II cities and past. 

Trying again, it’s obvious that this worth commerce focus may certainly characterize the corporate’s final pivot within the unforgiving e-commerce world, the place there’s little room for a lot of marketplaces. It has to cope with the 2 giants—Flipkart and Amazon—and a brand new rival in Meesho.  

Rohit Bansal
Co-founder
Snapdeal

“It’s an organization that has come again from being useless—not as soon as, however thrice, at the very least. You’ve obtained at hand it to the founders. But when they don’t make it this time, would they get one other shot at horizontal e-commerce in at this time’s market? I doubt it. This may simply be their shot, possibly even the final one,” says a veteran enterprise capital investor.

The Defining Shift

Again in 2017, Snapdeal’s 2.0 journey kicked off with a strategic makeover, beginning with exiting money-draining, hard-to-sell, closely commoditised classes that not resonated with its new, value-hunting buyer base. The platform bid farewell to classes resembling smartphones and enormous home equipment that contributed to about 50–60 per cent of the enterprise. As a substitute, it doubled down on residence, vogue, and normal merchandise classes. Worth vogue is the biggest class on the platform at this time, accounting for practically 50 per cent of the enterprise. Over 90 per cent of the merchandise on the platform are priced below Rs 1,000, and 75 per cent of its enterprise is available in from Tier II cities and past.

However this transformation was a sluggish burn, and left a dent within the firm’s prime line. Income from operations plummeted from Rs 1,158.9 crore in FY16 to Rs 436.1 crore in FY18. And simply when the brand new enterprise was exhibiting promise, the pandemic hit.

In late 2021, retail {industry} veteran Himanshu Chakrawarti was introduced in because the President of the Snapdeal market enterprise, with Bahl and Bansal stepping apart from day by day operations to tackle extra strategic roles. Chakrawarti beforehand led Arvind Life-style Manufacturers’ worth vogue retail chain.

What we’ve is a self-sufficient mannequin. We’re right here to create an excellent worth life-style on-line vacation spot for patrons

Himanshu Chakrawarti
CEO
Snapdeal

Former and present executives of the agency that BT spoke to say the founders sought to usher in somebody with expertise in constructing budget-friendly, ultra-low-value manufacturers. Their expertise at Unicommerce, an e-commerce administration software program supplier acquired in 2015 and run by an expert CEO, gave them the arrogance to undertake the same mannequin at Snapdeal. It took a few yr for Chakrawarti and the founders to get in sync, earlier than he was elevated to the publish of CEO in November 2022.

 “At this time, the day-to-day working of the corporate is with Himanshu. He understands the style area rather well, in addition to worth commerce. Rohit and Kunal are nonetheless concerned, however extra on the strategic facet. They work together with the administration workforce fairly commonly,” says a senior govt on the firm.

As a brand new breed of sellers started to reach on the platform, the corporate established stringent high quality checks to instil a way of predictability in product high quality.

“For a T-shirt at Rs 399, there is no such thing as a model catering to this section. The patron expertise is kind of erratic as a result of the standard on this section is erratic basically. One of many principal issues we did was construct predictability on high quality,” Chakrawarti says.

In the meantime, a number of initiatives had been taken to boost the shopping for expertise for the first-time e-commerce viewers it targets, together with the introduction of vernacular languages, extra visible design, and AI and ML capabilities to customize feeds for every person.

To simplify pricing and scale back product prices, the agency eliminated delivery charges for patrons in mid-2021. However this got here at a worth, with market losses greater than doubling to Rs 350 crore in FY22.

“A big half (of the FY22 loss) was attributable to this. Our revenues come from fee plus cargo, so when you take away the cargo cost, it clearly impacts income and profitability. However in hindsight, it was an excellent measure. It set us up for one thing way more buyer focussed, way more related for our goal group,” says Chakrawarti.

Snapdeal has restricted its advertising spends to largely influencer-led digital campaigns. In keeping with Chakrawarti, the corporate enjoys 77 per cent repeat clients.

“It’s not simple to promote low-quality merchandise. They appear to have obtained the standard half proper and understood the worth of getting repeat clients. In most industries, it is vitally well-known that each new buyer will price you a few thousand, however a retained buyer is the one who’s going to convey worth to your small business,” says Anil Joshi, Managing Companion of enterprise capital agency Unicorn India Ventures.

The corporate has diminished its workforce through the years, slashed an excessive amount of tech prices, and divested all non-core property, together with the fintech platform Freecharge and logistics arm Vulcan Specific.

Snapdeal’s month-to-month burn price has come all the way down to about Rs 1 crore from Rs 40-45 crore in 2021, says an individual within the know. Chakrawarti says the agency is hovering close to break-even at this time. “We now have been very close to the black line for the previous couple of months. We now have two formulation: unit economics effectivity and an acquisition engine that isn’t value-depletive. The burn is elective at this time; so if we resolve, we are able to begin placing a refund within the financial institution or we are able to proceed to spend money on progress.” At this time, the corporate operates lean with no stock available and depends on third-party logistics companions to handle shipments.  

It is vitally troublesome to win in [the Tier II and beyond] section. It’s not simple to only overtake the market in a single day

Amit Nawka
Companion
Offers, PwC

In the meantime, the corporate launched a few dozen non-public labels, resembling City Mark, Rangita, Hometales, Miyuki, Aragma, and NORD, throughout vogue and residential décor classes. For a pure-play market, these non-public labels not solely function a considerable income supply but in addition present a level of management over product high quality. Snapdeal additionally lists its non-public label manufacturers on different platforms like Amazon, Ajio, and Myntra.

 “Initially, the purpose was to offer a greater assortment, get higher margins, and supply higher pricing to shoppers. As soon as these non-public labels began doing fairly nicely, the workforce mentioned let’s not restrict the demand solely to our platform, however promote them wherever there’s demand, on-line and offline,” says a former worker.

At this time, a serious chunk of income for a few of these manufacturers comes from outdoors Snapdeal. In actual fact, the Snapdeal platform contributes solely about 15 per cent of  the revenues of Stellaro Manufacturers, the entity that homes these non-public labels.

Subsequently, in July 2022, the corporate launched a formalised group construction below the identify AceVector Group, consolidating all three ventures—Snapdeal, Unicommerce, and Stellaro Manufacturers.

Whereas Snapdeal is hovering round break-even, e-commerce enablement service supplier Unicommerce noticed its working income develop by 52.5 per cent to Rs 90 crore and earnings rise 8 per cent to Rs 6.45 crore in FY23. Per firm executives, who didn’t wish to be named, Stellaro Manufacturers has achieved substantial scale throughout a number of manufacturers, and it too is close to profitability. Each Snapdeal and Stellaro Manufacturers haven’t filed FY23 financials.

On the different finish, Titan Capital, floated by Bahl and Bansal in 2015 to formalise their increasing portfolio of private investments, has advanced into an energetic early-stage VC fund. It has a portfolio of 200 corporations, together with unicorns City Firm, Razorpay, and Ola. Notably, the fund achieved a exceptional 100x return on its current exit throughout Mamaearth’s public providing in November.

What Now?

Snapdeal seems in good condition, however it may possibly’t push for aggressive progress due to tight money flows and unsure funding prospects. And that places it liable to dropping its market place as soon as once more to reigning titans Flipkart and Amazon, and an aggressively rising Meesho.

In August, Meesho introduced that it achieved a post-tax revenue (PAT) within the “single-digit crore rupee” vary, marking the primary horizontal e-commerce firm in India to attain this feat. Meesho may additionally doubtlessly make a daring transfer available in the market if its proposed IPO turns into a actuality subsequent yr. SoftBank, which wrote down its funding in Snapdeal, is a number one stakeholder in Meesho. Regardless of being Snapdeal’s largest shareholder with a 35.40 per cent stake, SoftBank is anticipated to lean in the direction of Meesho, now valued at a whopping $5 billion, if there’s a funding showdown.

Then again, Flipkart’s worth e-commerce arm, Shopsy, reported a threefold improve within the variety of items offered, clients, and sellers on its platform. It delivered to 16 million clients through the quarter ended March 31, 2023. In actual fact, Shopsy already accounts for 40 per cent of Flipkart’s new clients.

“Competitors is getting intense. Earlier, they didn’t have direct competitors. Now they’ve a number of gamers with the identical focus and strategy. Meesho is the first challenger (to Snapdeal)… they’ve money, they’re rising, clients appear to belief them, they’re doing volumes, and so they appear to be having massive plans,” says Satish Meena, Principal Analyst at Datum Intel.

It’s not simple to navigate within the Tier II market and past. Snapdeal’s benefit lies within the ecosystem it has created through the years—a robust provide chain and vendor community, a stable logistics companion system, mastery of pricing nuances and product curation, and a tailored person interface. 

“It’s not simple to construct a enterprise in non-metros. It’s so heterogeneous. Person preferences change from location to location. Massive commerce companies nonetheless deal with metros as a result of the ROI is instant as it’s a concentrated set of individuals. In Tier II and past, it is vitally unfold out. From common inhabitants to person preferences to produce chain infrastructure and logistics and reverse logistics, the challenges are manifold,” says Amit Nawka, Companion-Offers at PwC.

Chakrawarti is just not frightened in regards to the competitors; he’s clear on the expansion path: it’s going to be considerate progress that can depend upon market alternatives.

“Will probably be a extra considerate price, however not the [modest] progress price of 3-5 per cent. You may develop steadily, after which you should utilize a step perform to develop sooner when alternatives come up,” he provides.

Measurement of the Pie

Chakrawarti says 75 per cent of the worth commerce market is dominated by conventional retail; fashionable retail chains such because the Landmark Group-owned Max Trend or Tata’s Zudio make up about 17 per cent; and the remaining 8 per cent belongs to e-commerce. A report  by consultancy Redseer says the worth life-style retail market was valued at $88 billion in FY21 and is projected to develop to $175 billion by 2026.

“Over the following 4 to 5 years, this 8 per cent will go to 24 per cent. If we’re to make a broad assumption that 150–200 million—who’re comparatively higher off and digitally native—out of the 700–800 million who’ve entry to information or have smartphones are buying on-line at this time, the following 200 million will basically come from the worth section,” Chakrawarti says.

He says the agency will make investments the money stream again into the enterprise and, when required, fund them by means of exterior means, which might be an IPO or a fundraise.

Nevertheless, discovering new investments received’t be simple. Snapdeal’s final substantial funding spherical was manner again in 2016. “Each funding has two key dangers: market threat and execution threat. The market is there; everybody is aware of it. However are these guys (the founders) the appropriate execution folks? The founders include loads of baggage. Many early buyers in India have a historical past with them. They’re anyway personally nicely off, working a reasonably profitable VC agency. Will buyers discover them to be pushed sufficient to drive the corporate to success?” asks a fund supervisor at a worldwide enterprise capital agency. 

One other enterprise capital investor says the absence of benchmarking for its valuation and intensifying competitors may impede its prospects of securing substantial exterior funding. 

Do the rising competitors and want for substantial investments pose a hazard to Snapdeal’s market standing? Is that this a convincing name to arms for Snapdeal to cement its place, figuring out there may not be one other shot at it? Chakrawarti is unwavering in his confidence.

“When you’ve gotten money burn-led progress, what number of possibilities you get relies upon available on the market atmosphere and on the promoters and buyers. What we’ve is a self-sufficient mannequin. We’re right here to create an excellent worth life-style on-line vacation spot for patrons and a fantastic enterprise. While you look by means of that lens, it’s not about one final likelihood that you should seize. In some ways, it’s extra to do with [building] long-term sustainable companies than with shopping for progress,” he provides.

There’s loads banking on that confidence.