How Jabong’s Acquisition will benefit Flipkart

Flipkart is one of those companies which is always trending and never ceases to stay out of news. The company announced acquisitions of their rival just when the reports of the trouble on valuation front stopped coming

Myntra of Flipkart has acquired Jabong from their parent company in an all cash deal of worth $70 million. Jabong has created a separate and unique name and market for itself in online fashion retail segment. It is currently one of the fastest growing and trending segment in the e-commerce. According to this logic alone, Flipkart’s acquisition of Jabong makes some sense but there are some other details as well which suggest the contrary

The money paid by Flipkart to acquire Jabong looks cheap but it should be also noticed that the company was valued at half the Flipkart has paid for acquiring Jabong by the Aditya Birla group. It was also reported in early 2015 that Jabong was asking a price of about USD 1 billion when they were in talks with Amazon but by September 2015, the valuation of Jabong company fells to USD 500 – 800 millions

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What benefits Flipkart will Get?

Several experts raised questioned—why did Flipkart showed interest in a company which was witnessing fall in their market share.

The answer to that question may be in the working practices of Jabong. They had one of the finest sourcing systems, loyal customer base (majority of them are female buyers) and catalogues. In India, the company (Myntra) lost a lot of traction where its app-only experiment last year was a disaster. They relaunched the desktop version this current year by realizing their mistakes even as Jobong India and Amazon Fashion gained ground

This buyout will also boost the Flipkart’s profitability. The category of the fashion is one of the most profitable among all the segments of eCommerce. The gross margins as high as 80 percent.

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