NEW DELHI, India — Snapdeal on Monday rejected a $950 million offer from India’s biggest e-commerce company Flipkart after months of negotiations — a move that immediately sparked a reappraisal of the country’s e-tail scene and potential cost-cutting at Snapdeal.
“Snapdeal has been exploring strategic options over the last several months. The company has now decided to pursue an independent path and is terminating all strategic discussions as a result,” the company said.
Sources said a plan to cut costs and reduce employees would swing into place quickly. Snapdeal has an estimated 1,500 employees at this time.
The company has also been reducing overhead in other ways — its digital payments unit FreeCharge was sold to Axis bank for $60 million last week.
The collapse of the deal has major significance for global firms that have invested in the Indian market. The Flipkart-Snapdeal merger was expected to give Amazon — presently the second-largest etailer in India — greater competition but the deal’s failure now gives the U.S. web giant time to continue on its rapid growth curve.
The other two major global investors in Indian e-tailing include Softbank of Japan, which has a 33 percent stake in Snapdeal, and Alibaba, which has a 3 percent stake in the firm.
Although Alibaba has a minor stake in Snapdeal, industry analysts note that the Chinese company’s interests in India are on the rise — it has a 40 percent investment in digital wallet company Paytm and also made a bid for Flipkart in 2016.
Global interest remains high as India’s e-commerce industry is expected to grow to $100 billion by 2020, up from $30 billion in 2016, according to Indian Brand Equity Foundation, a resource center operated by the Indian Department of Commerce.
The decline in Snapdeal’s fortunes has been a key lesson for e-tailers. The company was the second-largest e-tailer in India two years ago and had a valuation of $6.5 billion in February 2016. Last week the company was negotiating over the $850 million offered by Flipkart, pushing to get the bid upped to $1 billion.
It is clear that India’s e-commerce market is changing fast — with one of the key lessons being that discounting, customer-grabbing models need tempering, and that money is easy to burn when it comes to e-tail.
Snapdeal, which was launched in 2010, acquired luxury fashion e-tailer Exclusively.com in February 2015, which analysts described as a mistake — it was shut down in little over a year. Although Snapdeal has a big fashion offering and grew rapidly, customer complaints about delivery times and returns were among the reasons for its decline.
The company also was squeezed by Amazon’s huge investment in India, with Amazon founder Jeff Bezos committing to spend $5 billion to build the brand after it was launched in the country in 2013.
Flipkart, which was launched in 2007, has maintained its lead with a clear focus on electronics as well as fashion — the country’s two biggest e-commerce segments. Flipkart has kept up the pace with two major acquisitions in the fashion space, acquiring Myntra in May 2014 and Jabong in July 2016. Flipkart also acquired eBay India in April this year.
Although Flipkart raised an additional $1.4 billion in funding from China’s Tencent Holdings, Microsoft and eBay in April, the company’s fortunes also reflect the changing market. Flipkart was valued at $15.1 billion in 2014, which is now down to $11.6 billion, with a net loss of 20 billion rupees, or $300 million, in 2016.
SoftBank, meanwhile, is showing support for Snapdeal, despite its eagerness to see the company sold to Flipkart, stating that it “respects the decision to steer the company in a different direction.”
“We look forward to the results of the Snapdeal 2.0 strategy, and to remaining invested in the vibrant Indian e-commerce space,” Softbank said Monday.