Discounters always have a huge sales turnover. Wal-Mart is yet the
largest organization in the World! It is reported that only one out of the top
ten retailing companies in the World as on 2015 is an online retailer (amazon.com) and
all others are yet brick and mortar retailers. Retailers struggle hard to
organize their merchandise assortments, make customer deliveries and refill
their shelves, but the brick and mortar ones excel in these functions. Most of
the online retailers are mere ‘moderators’ of the business, having an
establishment of humongous supplier linkages that facilitate customer
deliveries without any inventory holding responsibility at their end. If one
becomes successful in identifying deep pockets that could place trust on the
business model one projects, any new online retailer may commence his business easily
these days!
Today in the newspapers in Mumbai we read a huge full-page
advertisement of a new online retailer of ‘customized’ products! The advertisement
features a high-powered customized motorcycle on the front page but in the
second page it shows products as simple as clothing and footwear for
customization! The offered scope of customization is huge – items that range from
high involvement purchases to even impulse buys! One has to wait and see how
‘customization’ is executed on such a wide variety of products. While
customization partners may actually execute the business, the online retailer may
just provide the platform for the business and the company’s role is that of a
moderator who coordinates the business deal and collects the revenue! In short,
such ‘moderating models’ of business may crop up in plenty in the near future, imaginably
fashioning their own new valuation methodologies as well!
Mergers and acquisitions may become commonplace in the Indian online
retail sector, these days. As many organizations have grown in product
transaction value, they have discovered the new methodology of assessing the
value of the company by its Gross Merchandise Value which is the sum total of
the marked retail price of all the products put on the platform for sales.
These online retailers could never go by EBITDA figures as they all presumably
had negative gross margins. Investors are yet hopeful of making money some day
and see the light of day!
At a reported negative EBITDA of Rs. 415 Crores ($ 60 million) on a
total sales turnover of Rs. 940 Crores ($ 135 million) in the financial year
ended March 31, 2016, Jabong went on the block. Myntra, belonging to the
Flipkart Group clinched the deal according to recent reports, at $ 70 million.
The buyer’s offer got the better of two offers – one at $ 35 million from the
Future Group and the other at $ 50 million from Snapdeal. The erstwhile
valuation parameters have been defeated perhaps for the first time. Jabong made
a desperate attempt to make a sell-out as it was struggling hard to make both
ends meet! Newspapers reported that it was a ‘hush-hush’ deal between the
Flipkart Group’s Myntra and Jabong! The valuation of the company resulted in a
worth that was considerably less than a quarter of its sales turnover! And what
the other contenders offered was even much less; the offer from the Future
Group reportedly being only a half of the deal amount!
The valuations of such companies may go down to even smaller
fractions if profit further fractures and true value revelations may be made!
Reality seems to slowly dawn over the online retailing madness of valuations
and investments!
Judiciousness, I see thou unfurling, in the right time!
Dr. Gibson G. Vedamani
