Flipkart Case Study (Strategic Management)

9B14M066

FLIPKART.COM1

Dr. Tripti Ghosh Sharma, Rohith Desikan, Lakshmi Narasimhan S. and Shalabh Jain wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2014, Richard Ivey School of Business Foundation Version: 2014-06-18

Jeff Bezos o n c e said that if there was anything he would like to change in the model, it is the warehouses . . . that they are too costly. I think what Jeff Bezos meant by that is, probably, that although it is an Internet business, you have to run a very large backend support operation, 90 per cent of which is not Internet. Maybe, that is what he will want to change . . . focus more on the Internet side of things than on logistics. But I think the real value is definitely in the backend because it is not about getting customers and selling them something on the website. It is about serving that order.

Sachin Bansal, co-founder, Flipkart.com1

After blazing a trail in the Indian e-commerce sector, one of India’s most endearing growth stories found itself facing some tough decisions. Started in 2007, the rise to fame of India’s leading online e- retailer, Flipkart.com, has been widely documented. An Indian venture incorporating elements of global corporate strategy along with quintessential “Jugaad,”2 the ingenious Indian approach to problem- solving, Flipkart took the Indian e-commerce world by storm. Beginning with books and diversifying to include a gamut of products, Flipkart promised a great online shopping experience to the skeptical Indian consumer who, in 2013, was still hesitant to purchase online.3 Through its innovative services and advertisements, Flipkart created an aura of inclusiveness in the minds of its customers. Despite its rapid growth and diversification over the last five years, and being perceived as an extremely successful business venture, it had to face a plethora of setbacks along the way. A few mistakes here, a couple of missed steps there and, suddenly, murmurs were heard about its deteriorating service. With competitors hot on its heels, and new avenues of investment hard to come by, Flipkart needed to address a variety of problems that included an inefficient operating model as well as logistics and warehousing issues.

ORIGINS OF FLIPKART

With the Indian e-commerce industry showing signs of exponential growth, augmented by industry projections giving strong indications that e-commerce was the “next big thing” after the Information 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Flipkart.com or any of its employees.

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Page 2 9B14M066 Technology Enabled Services/Business Process Outsourcing ( ITES/BPO) bubble earlier in the decade, it was no surprise that a flurry of activity was seen in terms of online retail website launches in the second half of the decade. While several individual brands started coming out with their own online channel offerings to supplement their brick and mortar operations, dedicated online marketplaces and e- retailers (apart from IndiaPlaza.com) were few and far between. Flipkart.com was started in the year 2007 by Sachin Bansal and Binny Bansal, friends who grew up together and graduated from the same college, the prestigious Indian Institute of Technology, Delhi (IIT- D). Both former employees at Amazon.com, they learned the ropes from the world’s largest online retailer and recognized the potential for growth in the e-commerce sector in India. Exploring the possibility of launching a similar (if not as extensive) product in the Indian market, their initial idea was to launch Flipkart as a price-comparison platform that compared prices for a product across the spectrum. However, they soon realized that there were not enough e-retailer websites to compare. That was when they started to wonder, “why not start an e-commerce website on our own”? Flipkart was thus born.4 When it began with an initial outlay of a mere US$8,0005, Flipkart’s product portfolio for selling on its website included books but nothing else. Their objective was “making books easily available to anyone who had Internet access.”6 With such humble beginnings, the meteoric rise of the company over the next five years was staggering. In 2012, Flipkart was worth more than $100 million with $83 million in revenues, a 400 per cent jump over the previous year (see Exhibit 1 ). The website routinely saw more than 17,500 items across 17 product categories sold on average every single day — or 6.5 million pieces in a year. It had a presence in most consumer categories including music, movies, mobiles, games, cameras, healthcare and personal products, computers, home appliances and electronics, perfumes, stationary, toys, apparel and shoes. By 2013, Flipkart employed nearly 5,000 people. It bought four companies in five years, including the acquisitions of popular Bollywood media outlet Chakpak.com and India’s second largest e-retailer LetsBuy.com. It even delved into the business services segment, offering logistical services with a subsidiary offshoot, Flipkart Logistics, which offered courier services to other companies for hire. As Sachin Bansal, CEO of Flipkart, put it, “A simple desire to create a tailor-made product for the Indian consumer had grown into something beyond what we imagined.”7 EVOLUTION OF THE INDIAN E-COMMERCE INDUSTRY The growth of the e-commerce industry in India can be traced back to two distinct phases, the pre- dotcom bust and the post-dotcom bust. The first phase occurred during the late 1990s when information technology took root and led to heightened awareness about “being online.” In 1999, when there were about three million Internet users in the country, Fabmart.com, (renamed later as IndiaPlaza.in) India’s first e-commerce venture, was launched. The second wave coincided with the entry of l ow-cost carriers in the Indian aviation sector that led to the growth of online ticketing and travel customization options. Banks had also introduced Internet banking facilities with the number of payment transactions made online expected to increase. As of 2007, India had around 42 million Internet users. This was despite the fact that Internet penetration was pegged at a mere 3.7 per cent of the total population.8 In recent years, increasing levels of Internet and broadband penetration had led to a boom in the Indian e- commerce industry. As of June 30, 2012, India had around 137 million Internet users — an impressive total, considering the fact that Internet penetration was still pegged at a mere 11.4 per cent of the total

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Page 3 9B14M066 population of more than 1.3 billion. Factors that contributed to the mushrooming of the e-commerce industry in India included increasing disposable income; gradual migration towards metropolitan, urban and suburban areas; and a growing affinity for technology amongst the youth (below 30 years of age) who accounted for more than 50 per cent of India’s population. An indication of the exponential growth of the sector was in the raw numbers: the e-commerce sector that was pegged at $28 million at the end of 2002/03, grew to a staggering $1.5 billion in 2006/07 (an enormous 5,346 per cent growth in five years) and was expected to reach $2 billion by 2007/08, an increase of 30 per cent9. However, surpassing all expectations, the Indian e-commerce industry grew by leaps and bounds to stand at $14 billion in 2012, from a more modest $6.3 billion the year earlier. It was expected that this figure should reach $24 billion by 201510. When the Indian railways began introducing online ticket-booking services, the online travel industry witnessed a tremendous upswing. To date, online travel was the most moneymaking segment in the Indian e-commerce scenario, contributing up to 80 per cent of total revenues.11 However, the e-tailing industry was catching up rapidly. From being an underdog at around 10 per cent in 2010, the segment reportedly grew around 80 per cent in 2011 and 139 per cent in 2012. It was expected that the segment would continue its astonishing trajectory upwards to reach $13.5 billion in 2017, overtaking online travel bookings by value by 2016. The share of e-tailing was estimated to rise to a staggering 49 per cent from a mere 10 per cent in 2010, whereas the share of online travel was estimated to fall from 90 per cent in 2010 to 51 per cent in 2015.12 FLIPKART’S GROWTH STORY: THE KEY FACTORS Although Flipkart’s success was unprecedented in the Indian e-commerce context, it had to face significant challenges throughout its evolution. Internet penetration was low in India even as late as 2007, and the typical consumer was skeptical of e-commerce in general and online transactions in particular, actively shying away from them. So, in order to be successful, Flipkart not only had to convince the consumer of its credibility and product quality, but i t also had to educate the target audience on the benefits of online retail. Flipkart was successful in doing both which led to its rapid growth. Initially, the Bansals resorted to inexpensive means of promotion (such as word-of-mouth advertising) and worked around the clock trying to increase visibility and establish the brand name. With increasing sales came investment: the company received nearly $200 million from Accel Partners and Tiger Global, hedge funds that specialized in scouring for investment opportunities in online start-ups. Flipkart, being a services-oriented organization, owed its success to the unflinching focus of the Bansals towards customer-centricity and satisfaction. Other reasons for success included a diverse range of offerings backed by competitive pricing as well as a clever communication strategy used to educate customers. Comprehensive Range of Offerings Flipkart began as an online book retailer mainly due to three reasons: first, the margins on books were high; second, books were easier to deliver; and third, there was a large market for them in India. Books were just the tip of the consumer market iceberg though — things were just getting started. Flipkart scaled up its product portfolio with remarkable alacrity after its launch in 2007.

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Page 4 9B14M066 Their first foray into category expansion was in June 2010, when they diversified their offerings to include music, movies and games. Mobile phones and associated accessories followed later in the year and, with additional funding kicking in from Tiger Global, more categories were added at a furious pace. Within the next year, computers, cameras, MP3 players, home accessories, personal and health care products were all added (see Exhibit 2). Despite the rapid addition of product categories (the number of verticals grew to 17), Flipkart did not lose sight of its core offering — books. By 2013, Flipkart stocked 15 million titles and had the largest market share for selling books in the country, with an online share of 80 per cent.13 By combining convenience with unmatched variety (consumers could even order books in rare genres such as manga and Japanese literature), Flipkart simply delivered. Competitive Pricing  Two things contributed to Flipkart’s growth in the initial days: positive word-of-mouth that spread due to their focus on customer-centric services and the lure of the lowest price available online for its products. In order to gain wide acceptance in a market known for being price-conscious, Flipkart priced its products below market to drive demand. With margins on books typically ranging between 40 to 60 per cent of MRP14, it was able to offer large discounts on products and still make a profit-per-transaction. Coupling discounts with other value-added services such as free delivery served to make them popular quickly. Clever Communication Strategy  Apart from its very successful word-of-mouth promotional initiatives, Flipkart took the advertising world by storm with a highly creative ad campaign in 2011. The campaign, entitled “No kidding. No worries” saw children dressed up as adults to illustrate day-to-day circumstances and portrayed Flipkart as an online megastore. The ads were meant to leverage the fact that children were usually associated with qualities such as innocence and credibility and lent an undertone of trust and likeability to the brand. The entire campaign was a result of market research aimed at uncovering consumer apprehensions with regard to online transactions. With innovative execution and a specific message, Flipkart was able to educate consumers on the benefits of online shopping in a humorous but extremely effective way. It was so effective, in fact, that the campaign was voted one of the top five most popular ad campaigns on Indian television in 2012. Besides mass media, Flipkart also promoted online coupons and seasonal discounts on a regular basis. Search Engine Optimization (SEO) and Google Ad-Words were used as marketing tools to attract eyeballs online. Customer engagement happened through popular social media platforms such as Facebook and Twitter (the company’s Facebook page had more than 1.75 million ‘likes’) and other similar pages. Online competitions included ‘Bookmarks with Flipkart’ and the popular ‘Six Degrees of Separation’ contest, where fans were asked to identify patterns and connecting threads between seemingly unrelated pictures. Ravi Vora, Flipkart’s senior vice president of marketing, stated:

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Page 5 9B14M066

Our social media identity has always been one that has tried to go beyond the corporate façade. Our Facebook/Twitter avatar is that of a friend who hangs out with you, someone you can swap jokes and have intelligent conversations with. As a result, we have always consciously stayed away from focusing on content purely for the sake of basic metrics such as retweets, likes and shares. We rarely ever ask for our fans and followers to endorse us on social media. We believe in building that virality through smart, witty and clutter-breaking content — so we don’t just talk about our products but also look at fun, engaging properties that add to the brand personality.15

Accessibility One of the keys for a successful online retail portal was the support of a robust back-end supply chain operation. Once the customer had completed a transaction on the website, it was the responsibility of the back-end to ‘connect the dots’. Back-end operations at Flipkart were initially based on the consignment model. That is, the procurement of goods from suppliers occurred on demand generated from orders on the website. This was later changed to the traditional warehouse model as the scale of operations grew and Flipkart diversified into other product categories apart from books.16 Keeping in line with Flipkart’s stated mantra of delighting customers, innovative delivery options were introduced such as the popular cash-on-delivery (CoD) which allowed customers to pay for their purchases at the time of product arrival, and doorstep credit card payments whereby customers could pay using their credit or debit cards at the time of delivery. Apart from keeping user misgivings about online payments at bay, CoD also enabled consumers who did not own a credit or debit card to buy online — thus indirectly increasing Flipkart’s potential consumer-base. Flipkart also instituted a 30-day return guarantee for its products, the first of its kind in the country. This customer-centric move permitted consumers to return goods bought online for up to 30 days after delivery if the goods were found to be defective or damaged during transit. Customer-Centricity Sachin Bansal was a staunch proponent of Flipkart providing its customers with superior service right from its inception. Be it the user-friendly and hassle-free design of the website that made navigation simple and intuitive, or their dispatch services that delivered within a couple of days of order irrespective of user location, Flipkart intended to “delight customers, whatever the cost.”17

Flipkart’s intensive customer service efforts were richly rewarded: it generated a massive customer base with more than 1.5 million individual customers visiting its website on a daily basis, with more than 70 per cent of them being repeat patrons. Feedback surveys indicated customers were invariably more satisfied with Flipkart as their online retail service provider when compared with competitors such as Tradus.in and IndiaPlaza.in. “Do not count your customers before they smile” was the mantra the company operated under.18 Apart from the above factors, there was a change in consumer preference that was driven by a lack of time for traditional shopping and the unrivalled ease of access and variety of products offered through online channels.

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Page 6 9B14M066 COMPETITORS: THEN AND NOW A lucrative market space that drew investors, corporate houses and entrepreneurs, the key players in the e- commerce arena at the time of Flipkart’s entry were Fabmart.com (Fabmall, currently indiaplaza.in), Rediff (shopping.rediff.com), Indiatimes shopping.indiatimes.com), Ebay India (ebay.in), Future Group (futurebazaar.com), Sify.com, Sirindia.com and Infibeam (infibeam.com). New entrants (post 2007) included Myntra (www.myntra.com), Jabong (www.jabong.com), SnapDeal (www.snapdeal.com), HomeShop18 (www.homeshop18.com), Naaptol (www.naaptol.com), Yebhi (www.yebhi.com) and Tradus (www.tradus.com) (see Exhibit 3). ISSUES PLAGUING FLIPKART Flipkart’s success story had been well documented. However, it had not come this far without its fair share of problems. Increasing competition from comparable online retailers such as Jabong.com, Myntra.com and Junglee.com, among others, had led to an array of choices for the consumer at no switching cost from one e-retailer to another. Apart from the threat of increasing competition, the fact that Flipkart had not reached profitability in spite of being a leader in its segment for nearly six years was the biggest cause of worry for its investors, Tiger Global and Accel Partners.19 This was compounded by the stringent regulatory environment in India with respect to Initial Public Offerings (IPO). The Securities and Exchange Board of India (SEBI) mandates, for example, profitability as a necessary requirement for a public listing on local exchanges. It was therefore becoming extremely difficult for Flipkart to raise money in the short term. Having exhausted nearly $181 million dollars in venture capitalist funding so far, Flipkart’s current investors were understandably reluctant to provide more funding until profits were realized. The Bansals controlled about 37 per cent of Flipkart equity, while Accel Partners and Tiger Global together possessed 48 per cent. Flipkart’s management held the remaining 15 per cent. This left the Bansals with little elbow room to discuss potential deals with private equities, bringing down the valuation of the company. Some of the biggest issues the company faced included the following logistics, working capital, consumer complaints and employee turnover. Logistics  One of the problems with a central warehousing model is the associated strain it puts on the critical structures. Flipkart did nearly 60 to 70 per cent of deliveries through its in-house network.20 With only five warehouses across the country, the rapidly burgeoning scale of operations placed an enormous amount of pressure on the storage facilities. The cost of warehousing was thus increasing by the day. This was especially an area of concern during weekends and festival holidays when Flipkart attracted the maximum number of orders and was hard-pressed to manage its warehousing operations. In fact, the need for “larger warehouses” had been acknowledged by Sachin Bansal.21 According to the Economist.com, the head of venture capitalist firm Matrix partners, Avnish Bajaj, believes that “e-commerce in India is extremely capital inefficient.” He suggests that “stocking inventory for 60 to 90 days with an annual sales target of $200 million [would] require working capital of about $40 to $50 million.” The major issue with this is that “banks were unwilling to offer support to companies with unproven business models, so almost all of the funding was from capricious sources like private equity.22

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Page 7 9B14M066 In order to fully grasp the magnitude of the problem facing Flipkart’s logistics model, an understanding of the model and all of its constituents is necessary (see Exhibit 4). Additionally, Flipkart had been facing significant challenges in reverse logistics. The Bansals averred that it was a formidable task to track unsuccessful orders, which were usually very expensive to manage. There were several instances wherein the equated monthly installment (EMI) term had commenced but the product had not reached the consumer. The tracking status on the website was not updated on several occasions which posed serious issues directly relating to logistics. In some instances, even the product was missing from the delivery package. Most logistics providers were not adequately geared to manage returns from customers. Furthermore, players who offered such services charged an additional sum to handle returns. This adversely affected the retailer, who ended up paying twice for a product that was not accepted by the customer. The CoD service posed more problems with the major issue being a disturbance in the cash flow cycle. In the absence of credit cards, CoD was emerging as the preferred mode of payment for a large section of Indian customers making online purchases, with some estimates putting the figure at 24 per cent.23 However, it entailed a host of challenges, especially when third-party logistics providers were used, including:

 Extra charges levied by logistics providers to collect cash from customers. Service providers charged a combination of fixed charges for the collection of CoD, along with a percentage of the shipment value (1 to 2 per cent), thereby increasing the cost of delivery.

 Delays in remittance of cash collected by logistics providers. Some logistics providers were known to remit collected cash after up to six weeks, which led to working capital issues. In addition, the reconciliation of accounts with logistics providers added another layer of administrative expense, which was expected to grow in complexity as operations also grew.

Given that India’s e-commerce market was expected to grow at an exponential rate by 2014,24 Flipkart’s logistics headache was only going to worsen in the near future. Working Capital   Flipkart had always had severe problems associated with its working capital and cash burnout figures — as did any other e-retailer. Working capital w as stretched and Flipkart was burning out cash faster than it was bringing it in, resulting in negative operating margins and cash flows. In the words of one industry analyst, Flipkart’s model was described as a money guzzler.25 Several reports emerged in leading business dailies and magazines that the company was losing money — and fast. According to company sources with knowledge of its operations, losses were estimated to be as high as $1.1 million a month. The company’s regulatory filings with the Registrar of Companies26 claimed the company lost $2,740 in 2008/09 with a further $202,822 loss reported in 2009/10. The rise in costs and increased losses for 2009/10 was attributed to the necessity of scaling up demand and acquiring new customers. Experts in the domain opined that the marginal cost involved in adding every new customer — costs that included advertisements, promotion and SEO costs — could range anywhere from $16 to $30. The average book sold on Flipkart cost $6.27

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Page 8 9B14M066 Consumer Complaints  Flipkart prided itself on its exemplary customer service and rightly so — the company had virtually made every move in the market while keeping the end consumer in mind. It was therefore a matter of concern for the company when its complaints started to climb. 28 Murmurs started surfacing in popular consumer forums about a dip in service quality. With most of the complaints centering on deliveries (nearly 50 per cent of all consumers rated Flipkart’s services as one star on a scale of one to five),29 it was evident that complaints were on the rise primarily due to logistics issues. Further, the decision of Flipkart’s management to take up certain measures in an effort to cut costs and ease their working capital pains only served to antagonize customers even more. For example, they reduced the margins of discounts offered and they increased the minimum order value that would qualify for free shipping from $0 to $4, then to $6 and finally to $10. Employee Turnover  Top management churn had long been a sore point for Flipkart30 — it had seen many a top executive leave the company in recent years, including its CFO, its vice-president of finance and its head of new product category development. Working with a variety of third party suppliers and logistics partners for a supply-chain network that was growing in scale on a daily basis meant that employee churn at the ground-level was also an area of concern — reaching as high as 25 per cent as recently as March 2013. Add to this the fact that the number of deliveries nearly doubled during times of popular festivals in the country (from 100 shipments per day to between 170 and 200 shipments per day), company officials estimated such peak demands would require an additional workforce ranging anywhere between 1,800 to 2,000 more contract hires. With turnover already being high, operational costs in maintaining such an exercise tended to skyrocket. Unable to improve on product margins and offerings, Flipkart had resorted to trimming unnecessary operating costs through cost-cutting measures and lay-offs. More than eight senior executives had resigned over the last six months, the most high-profile exit being the CFO himself, Karandeep Singh, in February 2013. Kalyan Krishnamurthy, a director from Tiger Global Management, one of Flipkart’s key stakeholders, filled in as the interim CFO. With customers moving away to competitors’ portals at the drop of a hat in the highly competitive e- commerce market, Flipkart was forced to revise its discounts margin again, leading to an impact on gross margins. Investors were seriously concerned that the company had not shown operating profits for the fifth year in succession. Flipkart’s category expansion plans did not take off as expected, causing further problems. Entering new businesses such as the consumer durables business and the digital media market through its Flyte store caused more concerns. Rampant online piracy, in the case of Flyte, and the increasing returns due to breakage and logistical issues, in the case of consumer durables, only caused additional headaches.31

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Page 9 9B14M066 In these circumstances Flipkart was forced to take full responsibility for the problems caused and bear the losses. The trust that had been built was eroding, as was the customer service that had propped up Flipkart. THE WAY AHEAD Prominent private equity (PE) giants like Bain Capital and Kohlberg Kravis Roberts had rejected Flipkart’s proposal for an infusion of fresh equity on the grounds of a flawed money-guzzling business model. Flipkart was also unable to come out with an Initial Public Offering (IPO) due to SEBI mandates on its negative profit margins. Given these two issues alone, it certainly seemed that this brash young leader of Indian e-commerce had run its course. Or had it? Company sources, including the venture capitalists that funded it, remained convinced that Flipkart was in complete control of its direction. It had issued several statements that exuded confidence. As one company spokesperson put it, “Currently, Flipkart is making a profit at a per transaction level. If we stop investing, we can become profitable in a day but our aim is to grow and become India’s largest retailer.”32 Some existing schools of thought, however, claimed that up to 70 per cent of venture-funded Indian e- commerce companies would disappear over the next six months.33 The potential in the Indian e-commerce market was immense. Leading financial services advisory firm, the Avendus Group, expected the segment to be worth a whopping $24 billion by 2015 — more than tripling in a span of three years. The number of online transactions in the country numbered in the range of eight to 10 million. This was expected to spiral to 38 million as early as 2015 — still a miniscule population compared to China (145 million) or the United States (170 million).34 Given the rapidly changing dynamics in the Indian e-commerce sector, Flipkart was at a crossroads. Achieving profitability within the next year or two was chief among its concerns. There were several approaches it could take. A change in its business model, spinning off businesses that were not in sync with its operational capabilities, aggressive cost-cutting measures, or alliances with retail partners were just a few of the myriad choices that were in front of management. With the imminent entry of Amazon into the Indian e-commerce space, speculations were rife of a possible takeover of Flipkart by Amazon.35 It is important to remember that Amazon, the world’s largest online retailer, reached profitability only after six years of operation. So, the question that was on top of most minds was, could this “flipped kart” right itself in time?

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EXHIBIT 1: FLIPKART’S REVENUES YEAR-ON-YEAR

Note: ₹ million. Source: Prepared by case authors from www.business-standard.com/article/companies/flipkart-may-launch-online- marketplace-on-its-website-112100200140_1.html, accessed September 16, 2013; www.businessweek.com/news/2011-11- 23/india-s-amazon-flipkart-expects-sales-to-surge-10-fold-this-year.html, accessed September 16, 2013.

EXHIBIT 2: TIMELINE OF EVENTS: EVOLUTION OF FLIPKART.COM

Source: Created by case authors from press releases. (i) www.iamwire.com/2013/03/the-flipkart-category-expansion-timeline/, accessed September 7, 2013. (ii) www.crunchbase.com/company/flipkart, accessed September 7, 2013.

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EXHIBIT 3: MAJOR COMPETITORS IN THE E-COMMERCE RETAIL SPACE IN INDIA

Source: Prepared by case authors from information compiled from the following sources: www.iamwire.com/2013/04/indiaplaza-looking-to-ctrl-alt-del-its-operations-negotiating-dues-with-sellers/, accessed August 11, 2013; www.dnaindia.com/bangalore/1697986/report-indiaplaza-the-quest-for-capturing-mindshare, accessed August 7, 2013; www.techcircle.vccircle.com/2013/03/11/excl-infibeam-integrates-controlled-marketplace-to-existing-e- com-site-signs- up-1000-sellers/, accessed August 7, 2013; www.articles.economictimes.indiatimes.com/2013-05-09/news/39144066_1_e- tailer-industry-myntra-com, accessed August 3, 2013; www.nextbigwhat.com/ebay-invests-in-snapdeal-297/, accessed August 20, 2013;www.livemint.com/Industry/D2Xufph6zu7w9ZYg8Ze0dM/Snapdeal-CEO-defends-marketplace- model- looking-for-acquisit.html, accessed August 20, 2013; www.timesofindia.indiatimes.com/topic/ebay-buying-snapdeal-stake, accessed August 20, 2013; www.thehindu.com/business/Industry/ebay-puts-money-in-snapdeal/article4570374.ece, accessed August 20, 2013.

EXHIBIT 4: SUPPLY-CHAIN AND LOGISTICS AT FLIPKART Flipkart started its operations on the consignment model (i.e., goods were procured from suppliers on demand, based on the orders received through the website). However, customer issues like delivery delays or faulty products motivated the organization to open its own warehouses. Flipkart opened its first warehouse in Bangalore and later went to open warehouses in Delhi, Kolkata and Mumbai. It quickly expanded its operations on a large scale. Starting with a couple of employees, Flipkart e v e n t u a l l y employed close to 5,000 people and had 500 suppliers across India. It had five warehouses and 35 delivery centres and investment in the logistics was on a rise. Logistics at Flipkart were comprised of three components:  Warehouses  Distribution Centres  Order Management and Delivery

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EXHIBIT 4 (CONTINUED) Warehouses Flipkart, with its initial m o d e l of b o o k s -to-electronics e-shop, eventu ally adopted the warehouse model. The warehouses were maintained in a very organized way and were also located in the same cities as the offices. If an order had to be delivered in some city having no warehouse, then the delivery was made from the closest city having a warehouse or a distribution centre. In an interview in 2012, co-founder of Flipkart Sachin Bansal stated that “nearly 60 to 70 per cent of deliveries take place through our own network.” He believed that such a model provided for better control over the entire logistics management piece. Thus, the systematic way in which the warehouses were maintained combined with the vision of Flipkart’s founders; it was no wonder that Flipkart was planning to expand its number of warehouses from five to 25 in the future. Distribution Centres Apart from having five warehouses, Flipkart also possessed 35 distribution stores, which were strategically positioned in such a way so as to speed up the whole distribution process. Distribution centres were stocked with products which were then redistributed among the customers. The product movement through distribution centres was faster compared to warehouses which, o n the other hand w e r e designed to accommodate long term storage. Flipkart was planning to increase the number of distribution centres from 35 to 60. Order Management and Delivery Flipkart shipped products to almost all parts of India. As mentioned by a company official, they had tie- ups with more than 15 courier companies to deliver their products. L ocations inaccessible to couriers were served through the Indian Postal service.” Blue Dart, First Flight, Fedex, Aramex and professional couriers were some of the courier services used. Buying an item online from the Flipkart website was a convenient process. Buyers visited the website and selected a product from the various categories of products that exist. They then proceeded to the payment page where they were asked to enter their shipping address and their phone numbers. The payment process followed wherein a buyer had options to pay through credit/debit cards, net banking, credit card (EMI), cash-on-delivery, and e-Gift vouchers. All items, especially electronic products, had transit insurance against theft and damages caused while in transport. During the early days of Flipkart, consumers only had to pay for the product and were charged nothing for the delivery. But this gradually changed and Flipkart soon charged for delivery if the value of goods purchased was worth less than a certain pre-decided amount. The expected time of delivery and availability of the provision of cash-on-delivery were mentioned beside each product on the website. A buyer was able to enter his/her pin code to check the availability of cash-on-delivery in their respective cities. Typically, it took anywhere between 24 hours to three weeks for the delivery of goods depending on the location and the availability of the items. If an item had to be imported from outside of India, then it would take two to three weeks for delivery because the item first had to arrive from a foreign country (mostly the United States and the United Kingdom) and was then shipped to the delivery destination in India.

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EXHIBIT 4 (CONTINUED) The inter-city and inter-zone deliveries were managed through air cargo. If the delivery had to be made between two cities in close proximity, then trains and other means of land transports were used. In cities where Flipkart had its warehouses, delivery was made through a two-wheeler or bicycle or o n foot for the shorter distances; many of the local deliveries were made on the same day as placing t h e order. To reduce costs related to making individual deliveries in the same district or city, F l i p k a r t was looking into the possibility of starting deliveries via vans, with one delivery van serving a common area. This required fewer delivery people and also simplified the tracking of deliveries in progress. Flipkart trained all its team members to be efficient, organized and quick, in order to reduce time lag and to speed up operations and the update of information. Source: Prepared by case authors based on inputs taken from secondary sources including: www.scribd.com/doc/136499193/Flipkart-SCM-Report-Group-12, accessed October 7, 2013; www.quora.com/Flipkart/What- is-the-work-flow-at-Flipkart-after-the-order-is-placed-online/answer/Nikunj-Agarwal?srid=piPA&share=1 accessed October 28, 2013; www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece, accessed August 2, 2013.

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Page 14 9B14M066 ENDNOTES 1 Excerpt from an interview with Sachin Bansal — CEO of Flipkart.com, www.businessworld.in/news/opinion/interviews/%18how-we-scale-up-will-be-key-to- success%19/382347/page-1.html, accessed August 10, 2013. 2 Jugaad is a native Indian term that can be loosely defined “as a creative or innovative idea providing a quick alternative solution” — the Indian version of ‘anything goes’. 3 The Hindu Business Line, www.thehindubusinessline.com/features/weekend-life/buying-consumer- trust/article4856695.ece, accessed August 1, 2013. 4 The Hindu, www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece, accessed August 1, 2013. 5 All currencies are in US$ unless otherwise stated. 6 Flipkart website “About us,” www.flipkart.com/about-us, accessed August 1, 2013. 7 The Hindu, www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece, accessed August 2, 2013. 8 www.internetworldstats.com/top20.htm, accessed August 12, 2013. 9 www.domain-b.com/ebusiness/general/iamai_add.pdf, accessed August 9, 2013. 10 www.avendus.com/files/india_goes_digital.pdf, accessed August 8, 2013. 11 www.economist.com/blogs/schumpeter/2012/04/e-commerce-india, accessed August 6, 2013; www.ey.com/Publication/vwLUAssets/Rebirth_of_e-Commerce_in_India/$FILE/EY_RE-BIRTH_OF_ECOMMERCE.pdf, accessed August 4, 2013. 12 www.avendus.com/files/india_goes_digital.pdf, accessed August 8, 2013. 13 www.digitalsoch.com, accessed August 17, 2013. 14 MRP stands for Maximum Retail Price and is the maximum a consumer can be charged for a product (inclusive of all Indian state and central taxes/duties); www.blog.pothi.com/lf-publishing-guide-self-publishing-your-book-step-4- distribution/, accessed August 3, 2013. 15 “Social Media Marketing — India Trends Study 2013,” Ernst & Young. 16 The Hindu, www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece, accessed August 2, 2013. 17 Forbes, www.forbesindia.com/article/boardroom/can-flipkart-deliver/33240/0, accessed July 30, 2013. 18 The Hindu, www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece, accessed August 2, 2013. 19 http://timesofindia.indiatimes.com/business/india-business/Flipkart-needs-big-money-to-keep- delivering/articleshow/15012709.cms accessed August 16, 2013; www.business-standard.com/article/companies/is-flipkart- a-speeding-train-without-brakes-113071100669_1.html accessed August 16, 2013. 20 www.thehindu.com/features/magazine/the-flipkart -story/article3290735.ece, accessed August 2, 2013. 21 www.sunday-guardian.com/artbeat/an-interview-with-flipkarts-ceo, accessed September 16, 2013. 22 www.economist.com/blogs/schumpeter/2012/04/e-commerce-india, accessed September 16, 2013. 23 www.indian-ecommerce.com/post/41538151096/cash-on-delivery-should-indian-online-retailers, accessed August 8, 2013. 24 www.hindustantimes.com/technology/IndustryTrends/Online-shopping-touched-new-heights-in-India-in-2012/SP-Article1- 983068.aspx, accessed August 8, 2013. 25 www.business-standard.com/article/companies/is-flipkart-a-speeding-train-without-brakes-113071100669_1.html accessed August 10, 2013; www.economist.com/blogs/schumpeter/2012/04/e-commerce-india accessed September 16, 2013. 26 The Registrar of Companies India is the official agency that deals with administration of Companies Act 1956, India. Falling under the Ministry of Corporate Affairs and is the primary regulator for company-related matters in India. 27 www.businesstoday.intoday.in/story/online-retailers-india-struggle/1/24172.html, accessed August 13, 2013. 28 http://trak.in/tags/business/2012/01/24/open-letter-sachin-bansal-flipkart-ceo-founder/ accessed August 21, 2013. 29 www.mouthshut.com/flipkart#allreviews, accessed September 15, 2013. 30 www.livemint.com/Companies/rsAuB9LnV1NwCYbw6eYhjI/Flipkart-struggles-to-retain-senior-managers.html accessed September 2, 2013. 31 http://businessworld.in/en/storypage/-/bw/amazon-is-here-but-flipkart-fails-to-raise-ante/r924455.37489/page/0, accessed September 16, 2013; www.medianama.com/2013/05/223-why-flipkart-shut-flyte-music/ accessed September 16, 2013. 32 www.businesstoday.intoday.in/story/online-retailers-india-struggle/1/24172.html, accessed August 21, 2013. 33 www.zdnet.com/in/india-e-commerce-industry-faces-consolidation-7000016219/, accessed August 20, 2013. 34 www.businesstoday.intoday.in/story/online-retailers-india-struggle/1/24172.html, accessed August 16, 2013. 35 https://medium.com/internet-marketing-data-brands/da6b2520f62d accessed September 16, 2013.

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