Is a Flipkart & Snapdeal merger in the offing

Snapdeal, the third largest e-retailer in the country, has been going through a rough patch, is a known fact. There doesn’t even seem to be the chances of revival. In such a scenario, there are chances that Flipkart may step in to merge the two. The Bengaluru-based market research firm RedSeer Consulting evaluated benefits Flipkart can reap if the deal comes through. According to the research firm, the e-tailing sector as a whole seems to be nearing a standstill in India. Research shows that the industry size in Q4 in fiscal 2017 (January to March) amounted to 14.7 billion dollars—a meager 5 per cent uptick year-to-year. (RedSeer assumed an exchange rate of 1 dollar being equivalent to Rs60.) Flipkart could use Snapdeal to stay afloat.

The Snapdeal advantage

This deal gives Flipkart a way to expand its supply chain reach quickly and inorganically by getting access to Snapdeal’s numerous small and big warehouses, especially in Northern India. While Flipkart and Snapdeal arguably cater to similar audiences, there are pockets of Snapdeal’s audience—particularly from its stronghold in the north—that Flipkart could add to its bank of 100 million users. New Delhi-based Snapdeal boasts a series of exclusive partnerships with brands globally. Snapdeal recently added 120 brands to its offerings, including Puma, Nautica, US Polo Association and Steve Madden. Access to these brands should especially help (Flipkart) in home and fashion categories portfolio diversification.

It’s well known that from the time Amazon is on an immense investment spree in India. The merger would strengthen Flipkart’s overall positioning in the market and build its financial muscle. Ultimately, it would also bolster the company’s supply chain stronghold over its rivals.

The probable downsides

A Flipkart-Snapdeal merger might have the makings of an e-commerce powerhouse, but bringing the two companies together will pose its own set of challenges. Flipkart has more than 8,000 employees. Snapdeal’s workforce comprises over 1,500. According to Anil Kumar, Co-founder & CEO, RedSeer Consulting, extracting synergies and value from this acquisition would be a challenging task for Flipkart said. However, if the post-merger integration is executed successfully, the deal could play out similar to Ola/TFS (TaxiForSure) acquisition in online cabs space, which gave Ola significant funding and capability firepower to hold off Uber in India. Something which would help Flipkart fend off Amazon for much longer. On the hindsight, if the Ola deal is anything to go by, Snapdeal’s post-acquisition future also appears bleak. After all, cab aggregator Ola did shut smaller rival TFS within a year.