Amazon marketplace business model
Biswarup Gooptu, ET Bureau
(Online fashion retailer Myntra will…)
NEW DELHI: Online fashion retailer Myntra will allow local stores and boutiques to sell their products on a new marketplace that it plans to launch by April, in a move aimed at earning profits and expanding its reach in India's smaller towns and cities.
Myntra is the latest of India's large online retailers to launch a marketplace — where the company does not stock inventory but links sellers and buyers. Last April, multiproduct retailer Flipkart also switched to a hybrid model, by launching its own marketplace that now hosts about 1, 000 retailers.
The Bangalore-based company is the largest among the single-product portals to take this route and expects to have about 500 vendors signed up within the first year of its operations. "We would like to make a serious effort towards this (marketplace) direction, " said Ashutosh Lawania, co-founder of Myntra, who expects about a fifth of the company's total business to come from the marketplace over the next one year.
According to Lawania, Myntra will continue to sell premium and private label brands through the inventory model, while local and boutique brands will be sold through its marketplace. "For us, both components are very important. In the future, while the (marketplace) could grow and grab a larger slice of the pie, both will co-exist, " he said.
The announcement comes within days of Myntra raising $50 million (Rs 310.5 crore) from a clutch of investors, led by Wipro chairman Azim Premji's family office, PremjiInvest. The funding will be used to build its marketplace platform, related technology stack and strengthen its mobile strategy.The decision by top online retailers to incorporate a marketplace model follows the entry of Amazon, the world's largest retailer, into India's Rs62, 290 crore online retail market last year. The Seattle-based company stocks no inventory in India. Instead it offers sellers a marketplace to reach consumers. Amongst large Indian online retailers only New Delhi-based Snapdeal has a pure marketplace model.
"Amazon has forced the Indian ecommerce companies to innovate quicker and to move towards profitability quicker. They (Amazon) by scaling much faster, and at one-sixth the cost, have changed the rules of the game, " said Ashish Jhalani, founder, eTailing India.
The marketplace model allows ecommerce companies to bypass inventory-related costs, which form a substantial portion of their overall cash burn, while continuing to receive critical foreign direct investment, which, otherwise, is banned in direct online retail.
"It's just a better business model. If a company is trying to achieve scale quickly, it will have to adopt the same, " said Jhalani. Separately, investors who have invested millions in the online commerce companies are also now demanding that the ventures show a clear route to profitability.
"Investors know that, unlike in the marketplace model, cash flow, which is integral for any e-commerce company, can get bogged down in inventory, instead of being utilised towards operations, thereby affecting the bottom-line, " Jhalani said.
Myntra, which is valued at about $250 million (Rs1, 557 crore) after its latest round of funding, expects to earn gross merchandise revenue of about Rs800 crore for the financial year ended March 2014. CEO Mukesh Bansal expects Myntra to post its first profit by fiscal 2015.