Online Retail Will Keep Merging

The online retail industry in India has created a complex space in which consumers remain central to all mergers and acquisitions.

Consolidation is an inevitable outcome when there are several players in the same market space. And the online retail sector in India is at exactly that upturn. It is at a juncture where it is anybody’s game. Unexpected mergers and sporadic changes in market valuation spark immediate demand for acquisitions. Flipkart, Snapdeal, and Amazon have most of the market share, while there are many smaller online retailers sharing space.

At such a stage, it is also difficult to assume continuous consolidation; the size of the market is growing with each company trying to pitch itself against the other and claiming the throne. Upping market valuations with increased market share has been on the agenda for a host of players, and acquisitions have been the way to go about it. With market valuations beyond retail reasoning, all assumptions exceed retail expertise. The avalanche fall in market valuation of Jabong from the heights of $508 million in 2013 to just about $70 million in 2016, and Flipkart’s hurried acquisition of it, beating Snapdeal and Amazon is a case in point.

In 2016, an online furniture retailer, FabFurnish.com was acquired by Future group, paving the way to strengthen its market share and outreach before the world’s largest furniture retailer, Ikea, makes itself visible in India. The move also suffices that though Ikea may seem invincible, both in size and financial might, Indian retail space has always been a complex conundrum for foreign players. Flipkart has also been acquiring online payment platform companies, for its retail play and capitalising on internet penetration in India. The perpetual market share increase for Flipkart continues when it remains the largest electronic equipment seller, especially smartphones, and keeps adding more products with the rise in smaller vendors. Flipkart’s hefty smartphone sales, in a way, have helped in internet penetration and by default increased its own market share, when more smartphone sales indicates more download of its application. Interestingly, the acquisition of Jabong by Flipkart, which already owns Myntra, gives it a control of 75% market share in the online fashion and lifestyle division.

Prices are difficult to contain under discounted levels for long, but fashion products entail higher margins. Consumers will seek deep discounts, and online sellers will be forced to oblige. The dynamics of competition keep changing through mergers and acquisitions and this can give tremendous opportunities to dominant players as far as prices are concerned. Dominant market share in a category could be an instrument to offset losses in other categories, and keep beating and acquiring rivals, until a business becomes more protracted and stable.

Online sellers offer what Indian consumers seek, quality products at affordable prices, which in a way pushes creative aspirations of all vendors selling through these market places. A prolonged consolidation phase is foreseeable, but not before the current players reach out to all corners of the country and there remains no foreseeable growth opportunities other than merging or submitting. Such steps to acquire market share and exalt steep valuations may seem hoaxes to opportune the right exit. Smaller players must perhaps be prepared for such an inevitability. Until a large antitrust law violation originates, consumers shall remain central to all mergers and acquisitions.

 

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