We don't support landscape mode yet. Please go back to portrait mode for the best experience
After multiple pivots and teetering on the brink of death, Snapdeal is in a make-or-break situation again, seeking to cement its place in value commerce. It has one shot and it cannot let this opportunity go
After a prolonged hiatus from the limelight following the dramatic collapse of a merger with rival Flipkart and the subsequent unveiling of the ‘2.0 journey’ in 2017, Snapdeal was back in the spotlight in 2021 with a surprising announcement. It said it would go public. But things didn’t pan out that way, and it shelved that plan just a year later.
Of course, market conditions were primarily to blame for the IPO’s withdrawal. But this loss of heart mirrored the company’s 16-year journey in some ways—a tale of grand plans gone awry and a gnawing sense of untapped potential. In the world of Snapdeal, the only constant is surprise.
When Snapdeal walked away from the negotiation table with Flipkart, it needed to devise industry-beating operational efficiencies, cut down on cash burn, and build a steady funding pipeline to even attempt a turnaround.
Kunal Bahl
Co-founder
Snapdeal
“It was an audacious move. To say that e-commerce in India is a high-intensity and high-cash-burn endeavour would be an understatement. I recall during that period, I woke up one morning to a well wisher’s message that a VC told him, ‘Snapdeal will not see a day of 2018 and will definitely shut down before the end of 2017’,” Co-founder Kunal Bahl wrote in a LinkedIn post in 2018.
But Bahl and his school friend Rohit Bansal did chart a turnaround. It would completely change course. It would look at value commerce. It would focus on the non-English-speaking, non-digital native, non-affluent majority of India’s population in Tier II cities and beyond.
Looking back, it’s apparent that this value commerce focus might indeed represent the company’s ultimate pivot in the unforgiving e-commerce world, where there’s little room for many marketplaces. It has to contend with the two giants—Flipkart and Amazon—and a new rival in Meesho.
Rohit Bansal
Co-founder
Snapdeal
“It’s a company that has come back from being dead—not once, but thrice, at least. You’ve got to hand it to the founders. But if they don’t make it this time, would they get another shot at horizontal e-commerce in today’s market? I doubt it. This might just be their shot, maybe even the last one,” says a veteran venture capital investor.
Back in 2017, Snapdeal’s 2.0 journey kicked off with a strategic makeover, starting with exiting money-draining, hard-to-sell, heavily commoditised categories that no longer resonated with its new, value-hunting customer base. The platform bid farewell to categories such as smartphones and large appliances that contributed to about 50–60 per cent of the business. Instead, it doubled down on home, fashion, and general merchandise categories. Value fashion is the largest category on the platform today, accounting for nearly 50 per cent of the business. Over 90 per cent of the products on the platform are priced under Rs 1,000, and 75 per cent of its business comes in from Tier II cities and beyond.
But this transformation was a slow burn, and left a dent in the company’s top line. Revenue from operations plummeted from Rs 1,158.9 crore in FY16 to Rs 436.1 crore in FY18. And just when the new business was showing promise, the pandemic hit.
In late 2021, retail industry veteran Himanshu Chakrawarti was brought in as the President of the Snapdeal marketplace business, with Bahl and Bansal stepping aside from daily operations to take on more strategic roles. Chakrawarti previously led Arvind Lifestyle Brands’ value fashion retail chain.
What we have is a self-sufficient model. We are here to create a very good value lifestyle online destination for customers
Himanshu Chakrawarti
CEO
Snapdeal
Former and current executives of the firm that BT spoke to say the founders sought to bring in someone with experience in building budget-friendly, ultra-low-value brands. Their experience at Unicommerce, an e-commerce management software provider acquired in 2015 and run by a professional CEO, gave them the confidence to adopt a similar model at Snapdeal. It took about a year for Chakrawarti and the founders to get in sync, before he was elevated to the post of CEO in November 2022.
“Today, the day-to-day running of the company is with Himanshu. He understands the fashion space really well, as well as value commerce. Rohit and Kunal are still involved, but more on the strategic side. They interact with the management team quite regularly,” says a senior executive at the company.
As a new breed of sellers began to arrive on the platform, the company established stringent quality checks to instil a sense of predictability in product quality.
“For a T-shirt at Rs 399, there is no brand catering to this segment. The consumer experience is quite erratic because the quality in this segment is erratic in general. One of the principal things we did was build predictability on quality,” Chakrawarti says.
Meanwhile, a host of initiatives were taken to enhance the buying experience for the first-time e-commerce audience it targets, including the introduction of vernacular languages, more visual design, and AI and ML capabilities to customise feeds for each user.
To simplify pricing and reduce product costs, the firm removed shipping fees for customers in mid-2021. But this came at a price, with marketplace losses more than doubling to Rs 350 crore in FY22.
“A large part (of the FY22 loss) was due to this. Our revenues come from commission plus shipment, so if you remove the shipment charge, it obviously impacts revenue and profitability. But in hindsight, it was a very good measure. It set us up for something far more customer focussed, far more relevant for our target group,” says Chakrawarti.
Snapdeal has limited its marketing spends to mostly influencer-led digital campaigns. According to Chakrawarti, the company enjoys 77 per cent repeat customers.
“It is not easy to sell low-quality products. They seem to have got the quality part right and understood the value of having repeat customers. In most industries, it is very well known that every new customer will cost you a couple of thousand, but a retained customer is the one who is going to bring value to your business,” says Anil Joshi, Managing Partner of venture capital firm Unicorn India Ventures.
The company has reduced its workforce over the years, slashed a great deal of tech costs, and divested all non-core assets, including the fintech platform Freecharge and logistics arm Vulcan Express.
Snapdeal’s monthly burn rate has come down to about Rs 1 crore from Rs 40-45 crore in 2021, says a person in the know. Chakrawarti says the firm is hovering near break-even today. “We have been very near the black line for the last few months. We now have two formulas: unit economics efficiency and an acquisition engine that is not value-depletive. The burn is optional today; so if we decide, we can start putting money back in the bank or we can continue to invest in growth.” Today, the company operates lean with no inventory on hand and relies on third-party logistics partners to manage shipments.
It is very difficult to win in [the Tier II and beyond] segment. It is not easy to just overtake the market overnight
Amit Nawka
Partner
Deals, PwC
Meanwhile, the company launched about a dozen private labels, such as Urban Mark, Rangita, Hometales, Miyuki, Aragma, and NORD, across fashion and home décor categories. For a pure-play marketplace, these private labels not only serve as a substantial revenue source but also provide a degree of control over product quality. Snapdeal also lists its private label brands on other platforms like Amazon, Ajio, and Myntra.
“Initially, the goal was to provide a better assortment, get better margins, and offer better pricing to consumers. Once these private labels started doing quite well, the team said let’s not limit the demand only to our platform, but sell them wherever there is demand, online and offline,” says a former employee.
Today, a major chunk of revenue for some of these brands comes from outside Snapdeal. In fact, the Snapdeal platform contributes only about 15 per cent of the revenues of Stellaro Brands, the entity that houses these private labels.
Subsequently, in July 2022, the company introduced a formalised group structure under the name AceVector Group, consolidating all three ventures—Snapdeal, Unicommerce, and Stellaro Brands.
While Snapdeal is hovering around break-even, e-commerce enablement service provider Unicommerce saw its operating revenue grow by 52.5 per cent to Rs 90 crore and profits rise 8 per cent to Rs 6.45 crore in FY23. Per company executives, who didn’t want to be named, Stellaro Brands has achieved substantial scale across multiple brands, and it too is near profitability. Both Snapdeal and Stellaro Brands have not filed FY23 financials.
At the other end, Titan Capital, floated by Bahl and Bansal in 2015 to formalise their expanding portfolio of personal investments, has evolved into an active early-stage VC fund. It has a portfolio of 200 companies, including unicorns Urban Company, Razorpay, and Ola. Notably, the fund achieved a remarkable 100x return on its recent exit during Mamaearth’s public offering in November.
Snapdeal appears in good shape, but it can’t push for aggressive growth because of tight cash flows and uncertain funding prospects. And that puts it at risk of losing its market position once again to reigning titans Flipkart and Amazon, and an aggressively growing Meesho.
In August, Meesho announced that it achieved a post-tax profit (PAT) in the “single-digit crore rupee” range, marking the first horizontal e-commerce company in India to achieve this feat. Meesho could also potentially make a bold move in the market if its proposed IPO becomes a reality next year. SoftBank, which wrote down its investment in Snapdeal, is a leading stakeholder in Meesho. Despite being Snapdeal’s largest shareholder with a 35.40 per cent stake, SoftBank is expected to lean towards Meesho, now valued at a whopping $5 billion, if there is a funding showdown.
On the other hand, Flipkart’s value e-commerce arm, Shopsy, reported a threefold increase in the number of units sold, customers, and sellers on its platform. It delivered to 16 million customers during the quarter ended March 31, 2023. In fact, Shopsy already accounts for 40 per cent of Flipkart’s new customers.
“Competition is getting intense. Earlier, they didn’t have direct competition. Now they have multiple players with the same focus and approach. Meesho is the primary challenger (to Snapdeal)… they have cash, they are growing, customers seem to trust them, they are doing volumes, and they seem to be having big plans,” says Satish Meena, Principal Analyst at Datum Intel.
It is not easy to navigate in the Tier II market and beyond. Snapdeal’s advantage lies in the ecosystem it has created over the years—a strong supply chain and vendor network, a solid logistics partner system, mastery of pricing nuances and product curation, and a tailor-made user interface.
“It’s not easy to build a business in non-metros. It is so heterogeneous. User preferences change from location to location. Large commerce firms still focus on metros because the ROI is immediate as it is a concentrated set of people. In Tier II and beyond, it is very spread out. From average population to user preferences to supply chain infrastructure and logistics and reverse logistics, the challenges are manifold,” says Amit Nawka, Partner-Deals at PwC.
Chakrawarti is not worried about the competition; he’s clear on the growth path: it’s going to be thoughtful growth that will depend on market opportunities.
“It will be a more thoughtful rate, but not the [modest] growth rate of 3-5 per cent. You can grow steadily, and then you can use a step function to grow faster when opportunities arise,” he adds.
Chakrawarti says 75 per cent of the value commerce market is dominated by traditional retail; modern retail chains such as the Landmark Group-owned Max Fashion or Tata’s Zudio make up about 17 per cent; and the remaining 8 per cent belongs to e-commerce. A report by consultancy Redseer says the value lifestyle retail market was valued at $88 billion in FY21 and is projected to grow to $175 billion by 2026.
“Over the next four to five years, this 8 per cent will go to 24 per cent. If we’re to make a broad assumption that 150–200 million—who are relatively better off and digitally native—out of the 700–800 million who have access to data or have smartphones are shopping online today, the next 200 million will essentially come from the value segment,” Chakrawarti says.
He says the firm will invest the cash flow back into the business and, when required, fund them through external means, which could be an IPO or a fundraise.
However, finding new investments won’t be easy. Snapdeal’s last substantial funding round was way back in 2016. “Every investment has two key risks: market risk and execution risk. The market is there; everyone knows it. But are these guys (the founders) the right execution people? The founders come with a lot of baggage. Many early investors in India have a history with them. They are anyway personally well off, running a pretty successful VC firm. Will investors find them to be driven enough to drive the company to success?” asks a fund manager at a global venture capital firm.
Another venture capital investor says the absence of benchmarking for its valuation and intensifying competition could impede its prospects of securing substantial external funding.
Do the rising competition and need for substantial investments pose a danger to Snapdeal’s market standing? Is this a resounding call to arms for Snapdeal to cement its position, knowing there might not be another shot at it? Chakrawarti is unwavering in his confidence.
“When you have cash burn-led growth, how many chances you get depends on the market environment and on the promoters and investors. What we have is a self-sufficient model. We are here to create a very good value lifestyle online destination for customers and a great business. When you look through that lens, it is not about one last chance that you need to grab. In many ways, it’s more to do with [building] long-term sustainable businesses than with buying growth,” he adds.
There’s a lot banking on that confidence.
UI Developer : Pankaj Negi
Creative Producer : Raj Verma
Videos : Mohsin Shaikh