Discounts have become so irrational: Jabong MD Praveen Sinha

Written by Sayan Chakraborty | Updated: Aug 5 2014, 14:45pm hrs
JabongJabong co-founder and managing director Praveen Sinha tells how big-ticket investments by the money-spinners benefit niche e-tailers.
The recent muscle-flexing by e-commerce majors Flipkart and Amazon the global giant committing to investments of $2 billion for India, a day after Flipkart's $1-billion blitzkrieg has triggered speculation on the fate of other e-tailers in the country. Jabong co-founder and managing director Praveen Sinha tells Sayan Chakraborty how big-ticket investments by the money-spinners benefit niche e-tailers and a price war, by way of deep discounting, will do more harm than good to the sunshine sector. Excerpts

Flipkart and Amazon have announced mega investments for India. What kind of pressure does it put on other e-tailers, such as Jabong, to raise funds quickly

The way I see this, both Amazon and Flipkart are general merchandisers, hence it (raising funds and rethinking strategy) will be very relevant for companies that are into general merchandising, such as Shopclues or Snapdeal. This space will become difficult for another me-too player. To stay competitive, general merchandisers and others will need a similar strategy and investment like Flipkart and Amazon. The requirement of cash and uniqueness will be there for category-focused companies as well, but they will get space to evolve as the market will be created for many more. This has now become an equation of who has enough funds to compete with each other in branding exercise, technology etc.

How are you positioned to fight the battle, since both Flipkart and Amazon are expanding rapidly in the Indian fashion space

We have raised over $100 million. There are enough investors to bet on the right business model. I don't see the need to raise $1-2 billion for fashion. On a practical note, things have not changed for us. Flipkart had started fashion one-and-a- half years ago. It is not that there was no competition before they acquired Myntra. At that time also, they had enough funding. It's not that if somebody raises $1 billion, they will spend it tomorrow. The investment is need-based and depends on what the competition does or whether we need to do that. We have a strategy and we will try to execute that.

When will you raise the next round

We are well-funded at this juncture. There is a lot of interest in the industry and we will wait and see how it pans out. We have a strong set of investors believing in our model and the team. On top of that, a couple of new investors have also evinced interest in Jabong. We don't require funds right now. Future fund-raising will be based on requirements.

In case there is a price war, how will you handle the situation

What can change is industry dynamics regarding pricing. I would not have assumed to have sold below cost. But, if a price war happens, I will have to be a party to that. Then my cash requirement will increase and I will go back to investors. Something which might actually not work in the favour of the industry will be a significant price war. At a reasonable level, it can exist, but if one sells below cost, it's not the right market practice. If you are making losses at the operating level, however big you become, you will always be loss-making, which is not sustainable. Today it (discounting) has not become so irrational that it is not sustainable. We have to have a strategy by keeping private labels and specific brands and become profitable.

How has your business grown in India since arriving on the scene in 2012

I will speak about a few parameters. We are considered aggressive and have grown rapidly, more than 100% year-on-year. I will not be able to reveal numbers, but customer acquisition cost for Jabong has reduced. Of the total businesses, 60% is from repeat buyers, a good signal. It has grown from 30% in the first year. Besides, online shoppers today are buying more. Items per order have also increased. In December 2013, we crossed $26 million in terms of gross merchandise value.

Will the expansion of marketplaces affect niche e-tailers or category-focused businesses like Jabong

With this kind of money and acceptance, people will invest in different types of incentives to get more customers to online. There will be space for other e-commerce and internet-related businesses. When the market is small, say, $3 billion, a general merchandiser will have a revenue of $1-2 billion. But, when it becomes $100 billion, general merchandisers will definitely be the largest, but each of the sub-categories like electronics, books and fashion will not be less than $10-20 billion each. If the market becomes big, they will also become billion-dollar companies.