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India-based ecommerce firm Snapdeal finally put an end to ongoing talks for its sale to homegrown rival Flipkart earlier this week, ending months of rumors about the possible purchase. The conclusion of negotiations came a little over a week after Flipkart increased its bid for Snapdeal to between $900 million and $950 million, according to Reuters.
In a statement to employees released earlier this week, Snapdeal said it would restructure the company in a gambit it described as “Snapdeal 2.0.” As part of those efforts, Snapdeal plans on laying off about 80% of its 1,200 employees.
The news has significant implications for India’s ecommerce sector, which is expected to expand at a significant clip over the next few years. eMarketer estimates retail ecommerce sales in the country will reach $22.35 billion this year and grow to $54.63 billion by 2021. However, the share of total retail sales conducted digitally will remain well under 5% over the forecast period.
In a letter to employees, Snapdeal co-founder Kunal Bahl said part of the Snapdeal 2.0 strategy included “a laser focus on being a champion for all sellers in India, enabling anyone to set up a store online in a few minutes and focusing on providing a large selection of products at great prices to consumers.”
But there’s no way around it—a stripped down Snapdeal is in for a challenge. According to projections from Bank of America Merrill Lynch, Snapdeal’s share of retail ecommerce sales in India is expected to dwindle from 11% this year to 9% in 2019. Given Snapdeal’s plan for the future, that decline is likely to be even more dramatic.
Snapdeal has already shed one of the major assets it held outside of its core ecommerce business, selling its digital payments service FreeCharge to Axis Bank last week in an all-cash deal worth about $60 million. The payments platform claimed about 54 million customers, but did not reveal its number of active users.
Meanwhile, Flipkart is setting its sights on expansion. Following news of the collapse of the Snapdeal sale, local media began reporting rumors that the SoftBank Vision Fund, a tech investment fund founded by SoftBank Group Corp. chairman and CEO Masayoshi Son, was in discussions to pump as much as $2 billion into Flipkart.
(Japan-based telecom Softbank Group Corp., which operates as a separate entity from the Vision Fund, is one of Snapdeal’s largest investors.)
That infusion of new capital could help Flipkart in its efforts to keep battling Amazon, the other major ecommerce player left in India. Customer acquisition in ecommerce is expensive, and neither Flipkart nor Amazon are likely to have established loyalty among a group of consumers willing to head to the retailer offering them the lowest price.
Flipkart has established a pattern of expansion this year, having recently completed its acquisition of eBay’s India unit, eBay.in. Flipkart said eBay.in will operate as an independent unit, but it expected to partner with its new acquisition on matters like cross-border ecommerce.
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