A deal brewing between Flipkart and Myntra was in the air for quite a while now. The valuation too was not a big secret, and given the size and stature of both, there were no major gasps about that either.
Over the past few years both brands have worked hard to create dominant positions for themselves in the marketplace. Given that both started around the time the online industry was beginning to accelerate also meant that both had to invest heavily in customer acquisition, including getting first-time users to try online shopping. And of course they had to invest in creating an eco-system – supply chain, logistics, etc.
While that has given them a leadership position in the industry, the fact remains that for iconic brands like Amazon, the cost of market entry has become much lower because of the investments done by these players. (And that indeed is one of the benefits of being an iconic or recognized brand). With the imminent entry of the likes of Wal-Mart, Flipkart & Myntra had to take proactive steps to strengthen their position, and build a formidable war chest. Amazon and Wal-Mart are formidable competitors, with globally proven processes, efficiencies and technologies. In just a year, Amazon has been able to get nearly half the number of customers that Flipkart has.
Now, that both brands had reached a reasonable scale (compared to market potential), they now had to start focusing on strengthening their business case. Naturally, seeking efficiencies of operations, customer acquisition and cost-efficiencies through synergies is what both brands would have been looking for in potential mergers or acquisitions.
The Flipkart and Myntra merger is a positive step for both companies as it further strengthens their position in the e-commerce space, and also gives them additional resources to fight mightier, global competitors like Amazon.
Myntra has positioned itself well in the fashion category and letting it operate as an independent brand would benefit Flipkart, even if the backend operations and common functions are merged. And of course, both can leverage each other’s existing user-base, even though there will be some overlap in their users.
While there will be synergies in operations, and there will be some cost savings by merging functions and leveraging common infrastructure, given that Myntra was largely in apparels, means that the cost savings on operations will be limited. The savings on customer acquisition costs however could be significant. (And not to forget the buzz and top-of-mind recall that PR news of this size and scale creates. E.g. A number of people who may not have tried Myntra till date may be reminded of its existence as a dominant brand in the fashion space, and may be intrigued enough to visit, and some of them may end up becoming customers.).
It is worth noting that both Flipkart and Myntra had done smaller acquisitions earlier, and that has helped both organizations get familiar with the process of M&A. I am sure all founders realize the value of aligning their vision towards a common goal. Given their entrepreneurial spirit, they may have agreed as their goal as not just retaining their leadership position, but to take the likes of Amazon in global markets too. Are we seeing the emergence of a global e-commerce leader from India?
Well, I certainly hope so.