Thursday 16 October 2014

Amazon in talks to acquire Jabong; move a counter to Flipkart's Myntra buy?

Amazon is in preliminary talks to buy Jabong, part of the US-based online retailer's plan to bolster its presence selling fashion products, four people aware of the discussions told ET.

Jabong is one of the fashion portals that Amazon is interested in acquiring, and Jabong has other suitors, the sources said, cautioning that a deal is not imminent. A regulatory filing by Rocket Internet, which incubated Jabong, put the value of the fashion portal at 388 million euros, or $500 million (Rs 3,000 crore).

A person with direct knowledge of negotiations said that Jabong is holding out for much more at least $700 million. Amazon said it does "not comment on anything we may or may not do in the future". Jabong did not reply to emailed questions.

Deal to be complicated

"After Myntra got acquired by Flipkart, Jabong is the ideal candidate," said a person who is working closely with Amazon on the negotiation. A big chunk of the $2 billion that Amazon founder Jeff Bezos has promised to invest in India is meant for acquisitions, this person said. Amazon is battling leader Flipkart for dominance in one of the world's fastest-growing markets for online retail, expected to reach Rs 50,000 crore by 2016 according to consultancy Crisil.

Last month, Bezos told ET that the value of goods sold by Amazon India in a year had topped $1 billion and that fashion was one of the "exciting frontiers" for the Seattlebased company. Jabong, which counts Germany's Rocket Internet and Swedish investment firm Kinnevik among its investors, is the secondlargest fashion portal in India after Myntra, which was acquired by Flipkart in May for an estimated value of $370 million.

According to industry estimates, the Flipkart-Myntra combine has a market share of over 50% in fashion retail and Jabong 25%. Fashionara and Limeroad are the other significant fashion portals. ET has not been able to establish if they are in talks with Amazon. For Amazon, getting it right in India is vital to its fortunes, especially because its presence in China is negligible where Alibaba dominates.

And the key to getting it right in India lies in fashion, the fastest-growing category for online retailers. According to retail consultancy Technopak, fashion accounts for 25% of the online retail industry's sales. To boot, operating margins in fashion are around 35% in an industry where gross margins are in negative territory.

Amazon India started offering fashion products on its marketplace in May, and an acquisition offers a swift route to scaling up. In the United States, Amazon chose a similar strategy to improve its fashion credentials by buying Zappos in 2009. Shares of UK-based clothing portal Asos have been on the rise after rumours of an acquisition by Amazon.

A deal with Jabong, while it may be desirable, will be complicated, said a source who is directly involved in the talks. The complication arises from the fact that in September, investors Rocket and Kinnevik began the process of merging five of their international fashion ecommerce companies, including Jabong, into a single global entity.

No comments:

Post a Comment