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wwww.digitalerra.com
Snapdeal’s Alternate Facet of Sustenance
Beleaguered e-commerce firm Snapdeal which is in talks with rival Flipkart for a potential stake
sale is mulling an alternative survival plan in case the company's stake sale doesn't go through.
#Digitalerra Thought Corner
According to the alternative plan, Snapdeal may witness another round of layoffs which may
impact 600 to 1,000 odd employees, two people privy to the development inside the company
told Moneycontrol.
There wasn't an immediate clarity as to what the company will do with around 250-300 people
left. "This is a backup plan in case the deal doesn't happen. There's no fine print as of now but it
may involve shutting down of the company's logistics unit Vulcan alongside all the warehouses it
currently runs," said one of the person quoted above.
Snapdeal currently controls its own logistics and payments. It is likely to route these services
through someone else if the standalone plan is to be processed. The standalone plan would
include a strategy to run a leaner organisation that can last for up to 24-36 months.
wwww.digitalerra.com
(Source: moneycontrol)
Reportedly, Snapdeal's mobile wallet firm Freecharge was in talks with Bank of Baroda (BOB)
and Times Internet for an all-cash acquisition. The Freecharge deal is expected to be in the range
of $60-75 million.The money could bring some cash relief to Snapdeal as its internal reserves
continue to deplete with each passing day.
Around February, the company was left with around $100 million in the bank. Its monthly burn
rate was about $10 million then. The burn is expected to have reduced to about $5 million per
month now.
wwww.digitalerra.com
(Snapdeal's funding rounds. Source: Tracxn)
According to an industry expert, "The deal is going slow but that is because the structuring of
this deal is very different. This is going to be a landmark deal. There are multiple large investors
involved. It should take significant time. It has to take care of the regulatory, the stock angle
among many other things," he said.
Cash Burn Global Scenario
Snapdeal’s story reflects back on these two things:
 Willingness of the players to keep burning.
 Global experience, does anyone ever make money in e-commerce?
It is clear that the leaders – Amazon and Alibaba – make money at scale. They leverage their
business model to make money not as much directly from retail (as in buying and selling) but
from services – advertising/logistics/listing in the case of Alibaba, and Amazon Web
Services/Prime in the case of Amazon.
However, things get murkier when you move past the leaders and even very large players with
GMV over $100 billion like JD.com continue to lose money.
That said, the scale of burn for the level of GMV achieved in India is historic, to say the least.
Amazon has raised less than $7 billion in equity and Alibaba a similar amount while delivering
wwww.digitalerra.com
hundreds of billions of dollars in GMV. On the other hand, Flipkart has raised almost $5 billion,
while barely achieving GMV of $3 billion. Although, Snapdeal’s downfall is one in which the
founders and even some of the investors have made decent returns.
Even in e-commerce, it is only the platforms that lose money hand over fist; the other
participants – vendors and logistics players make some money. The whole point of e-commerce
is to avoid paying for rent, sales people, store fixtures and instead leverage economies of scale to
offer a huge selection, lower prices and deliver directly to the consumer.
“This is also where the waste shows up in the form of crazy spending on marketing, overpaid
and just too many employees. Either the e-commerce companies have to deliver 5 times the
volume or reduce costs dramatically,” says Sarbvir Singh- founding Managing Director of
Capital18.
Ad

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Snapdeal’s Alternate Facet of Sustenance

  • 1. wwww.digitalerra.com Snapdeal’s Alternate Facet of Sustenance Beleaguered e-commerce firm Snapdeal which is in talks with rival Flipkart for a potential stake sale is mulling an alternative survival plan in case the company's stake sale doesn't go through. #Digitalerra Thought Corner According to the alternative plan, Snapdeal may witness another round of layoffs which may impact 600 to 1,000 odd employees, two people privy to the development inside the company told Moneycontrol. There wasn't an immediate clarity as to what the company will do with around 250-300 people left. "This is a backup plan in case the deal doesn't happen. There's no fine print as of now but it may involve shutting down of the company's logistics unit Vulcan alongside all the warehouses it currently runs," said one of the person quoted above. Snapdeal currently controls its own logistics and payments. It is likely to route these services through someone else if the standalone plan is to be processed. The standalone plan would include a strategy to run a leaner organisation that can last for up to 24-36 months.
  • 2. wwww.digitalerra.com (Source: moneycontrol) Reportedly, Snapdeal's mobile wallet firm Freecharge was in talks with Bank of Baroda (BOB) and Times Internet for an all-cash acquisition. The Freecharge deal is expected to be in the range of $60-75 million.The money could bring some cash relief to Snapdeal as its internal reserves continue to deplete with each passing day. Around February, the company was left with around $100 million in the bank. Its monthly burn rate was about $10 million then. The burn is expected to have reduced to about $5 million per month now.
  • 3. wwww.digitalerra.com (Snapdeal's funding rounds. Source: Tracxn) According to an industry expert, "The deal is going slow but that is because the structuring of this deal is very different. This is going to be a landmark deal. There are multiple large investors involved. It should take significant time. It has to take care of the regulatory, the stock angle among many other things," he said. Cash Burn Global Scenario Snapdeal’s story reflects back on these two things:  Willingness of the players to keep burning.  Global experience, does anyone ever make money in e-commerce? It is clear that the leaders – Amazon and Alibaba – make money at scale. They leverage their business model to make money not as much directly from retail (as in buying and selling) but from services – advertising/logistics/listing in the case of Alibaba, and Amazon Web Services/Prime in the case of Amazon. However, things get murkier when you move past the leaders and even very large players with GMV over $100 billion like JD.com continue to lose money. That said, the scale of burn for the level of GMV achieved in India is historic, to say the least. Amazon has raised less than $7 billion in equity and Alibaba a similar amount while delivering
  • 4. wwww.digitalerra.com hundreds of billions of dollars in GMV. On the other hand, Flipkart has raised almost $5 billion, while barely achieving GMV of $3 billion. Although, Snapdeal’s downfall is one in which the founders and even some of the investors have made decent returns. Even in e-commerce, it is only the platforms that lose money hand over fist; the other participants – vendors and logistics players make some money. The whole point of e-commerce is to avoid paying for rent, sales people, store fixtures and instead leverage economies of scale to offer a huge selection, lower prices and deliver directly to the consumer. “This is also where the waste shows up in the form of crazy spending on marketing, overpaid and just too many employees. Either the e-commerce companies have to deliver 5 times the volume or reduce costs dramatically,” says Sarbvir Singh- founding Managing Director of Capital18.