Why Flipkart and Myntra Should Explore Synergies

[Editorial Notes : In this column we explore possible synergies between companies that would do well to join forces. Not that these companies are struggling to survive, but we believe that a possible synergy will massively accelerate the growth (of the combined entity).]

Myntra is (rumored to be) raising funding from Premji Investments. Of Course, Myntra is supposedly doing well and is scaling up. But here is a thought : How about and Myntra exploring synergies?

Not that they aren’t doing great individually, but given the current bloodbath in this space (and drying funds), the two companies can (maybe) explore a deeper channel that will make 2+2, 22.

Here is why:

The NextBigWhat for Flipkart, as pointed during a talk with Sachin Bansal at the last UnPluggd (6 months back) was Fashion apparel.

Even after six months, the company hasn’t really managed to crack this space in a big way.

For instance, take a look at tags extracted from Flipkart’s homepage (using TagCrowd).Flipkart Tagcrowd

You’d notice that there aren’t too many fashion/apparel keywords.

Why is Fashion (Apparel) Space Lucrative?

Simple: It’s a high margin business, unlike electronics. Plus, private labels are catching up (that’s how Sher Singh gained popularity, though the story is over now) and this category is driving margins up to 40%!

Myntra has definitely created a certain niche in fashion space and the two can battle competition like Amazon and Snapdeal (backed by eBay) pretty well. Unlike other ecommerce companies, Myntra continues to work on the inventory model (and is not a marketplace yet). This is a great fit for Flipkart as it provides them the right category connect/IP around the apparel category.

Of course, the two have common investors, but for Flipkart, Myntra could just add the long-term revenue and margin boost, Flipkart is looking for (at a valuation of $250 mn, Myntra is still is a comfortable buy, given that the common investors have forced a few other acquisitions for both of these companies).

Sachin had also mentioned recently that some portion of their recent fundraise has been specifically earmarked for buying other companies. So isn’t it logical to put 2 and 2 together?

Plus, others like Snapdeal might not be interested in Myntra owing to the inventory model (and companies like Homeshop18 and Infibeam would need to raise funding for any M&A activity). Myntra also might be above the ballpark of Snapdeal as well – considering their funding and direction, in the context of what Flipkart is looking for.

As far as Myntra is concerned, vertical/niche categories do have a ceiling (unless geographical expansion is on the cards) and getting in bed with a horizontal player is the most logical step.

What are your thoughts?

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