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Author: Das, Goutam
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Abstract:
You can sense that pressure when Indian marketplaces talk of
"capital dumping" and seek a "level-playing field" from the
government. Many of the same companies got carried away by
the reckless funding environment of 2014 and 2015 and spent
their way into the hearts and minds of the Indian consumer. "It
was a lavish organisation in that sense because there is
abundance of money," Flipkarts former CFO Sanjay Baweja told
Business Today on phone. "Unless money is constrained, it gets
used up very quickly."
Salary expectations have moderated even at the entry level.
Rohan Diwan, Co-founder of Quickli, a hyper-local delivery
start-up, says that a year back, the biggest challenge in doing a
start-up in Bangalore or the NCR was finding tech talent. "They
were very expensive. Someone who was being paid Rs 50,000
by an Infosys or TCS, would expect Rs 1 lakh a month from a
small start-up like us. These were people with one and half-two
years of experience," he says. "They would reject our offers
because a Paytm, a [Snapdeal], or a Flipkart would offer them a
Rs 8 lakh package," he adds. This has changed. "We are now
getting a massive surge in resumes since the last three months.
Earlier, we were running helter-skelter to find an Android guy; I
now have a pipeline of 30 guys waiting to join. And a fresher is
accepting a Rs 12 lakh offer," Diwan says.
The reason is many companies are cutting headcount or aren't
hiring in the same breadth they were last year. Grofers went on
a hiring spree to build capacity before demand materialised.

Many other companies did that too - hired candidates with a one
year outlook. But tough times meant tougher calls. They now
hire with a three month outlook. In fact, a panel responsible for
campus hiring at the Indian Institute of Technology (IIT)
blacklisted 31 start-ups in August after many of them revoked
job offers or delayed hiring. In 2015, Flipkart hired 250 across
business schools, Nitin Seth, the chief administrative officer at
Flipkart, told Business Today's E. Kumar Sharma recently. The
company had deferred joining dates for those picked from June
to December since Flipkart "was undergoing a major
restructuring" and was not ideally placed to "offer the learning
opportunity to the 250." Without citing numbers for hiring in
the current fiscal year, Seth said that "the management
philosophy is that we want to be lot more prudent in terms of
our planning."
Full text:
At online grocery start-up Grofer's aggregation centre in
Gurgaon, Co-founder Albinder Dhindsa shows an orange-
coloured delivery bag, one that his delivery boys once carried
on their backs, zipping across more than 20 cities in bikes to
deliver everything from lemons to detergent powder. From the
time the orders were placed by customers, they had two hours to
deliver. That's the nature of the hyper-local, on-demand
business Grofers played in. But the bag would hold only two
crates. As volumes shot up in many cities, the company
employed more and more bikers. One delivery boy couldnt do
more than nine orders a day; the size of the bag limited the
volume they could execute.
Realisation struck Dhindsa early in 2016. The on-demand model
would work but at a huge scale. However, investors no longer
had the appetite for the amount of capital it could require - in
people, aggregation centres, and other parts of the supply-chain.
Although Grofers had raised $120 million in November 2015,
the funding climate was getting chillier. The online grocery
sector, itself, was in a crisis; Grofers closed down operations in
nine cities in January last year as scale remained elusive even

after a marketing blitz.
In May 2016, the start-up pivoted to a next-day delivery model
that gave it more time to plan the delivery. Instead of bikes, it
switched to vans that could do 22 orders a day. Vans also
accommodated bigger orders with higher margins. The value of
goods delivered more than doubled. While a bike delivered
orders worth Rs 9,000 a day, a van can carry groceries worth Rs
25,000. "Our operational costs last year were at 100 per cent of
sales. Currently, it is close to 25 per cent," says Dhindsa. "We
were running four aggregation centres in Gurgaon alone because
you had to get to the customer in two hours. Now, we are
running just one." In 2015, Grofers employed 4,000 people. The
headcount has halved to about 2,000 at present.
Not just Grofers - most large and mid-sized consumer Internet
businesses, including all e-commerce start-ups - are now
focused on stemming their fixed and variable expenses. Myntra,
for instance, says it has reduced discounts by 800 basis points
over time; Flipkart has been able to arrest the growth of its
selling, general and administrative (SG&A) expenses;
Snapdeal's net revenues have grown three times over the last
year; ShopClues' shipping costs have dropped 20-25 per cent a
unit; budget hotel aggregator OYO Rooms has saved up 30 per
cent month-on-month in travel expenses; Zomato has reduced its
monthly burn by 89 per cent, from about $9 million in mid-2015
to a million by the end of 2016 - as it redirected its geographic
focus, cut down on non-discretionary spending, and improved
efficiencies.
At an industry level, expenses on logistics may be down 10-20
per cent versus 2015. Manpower is down about 15 per cent,
advisory firm RedSeer says. For some e-tailers, 85 per cent of
the monthly burn is in marketing. "There is more rationality
kicking in discounting and coupons. Television advertisement
has significantly gone down. Outdoor and print is much lower.
In my view, there is at least 50 per cent decline in advertising
on a year-on-year basis," says Sandeep Aggarwal, founder of e-
commerce marketplace Shopclues and used vehicle marketplace

Droom. He estimates that e-commerce companies, put together,
spent between $1.2 billion and 1.5 billion on every type of
marketing in 2015. "In 2016, it is more in the $800million-900
million range." Companies did splurge on marketing during the
festival season. In the run up to Diwali, Snapdeal said it will
spend more than Rs 200 crore on marketing campaigns over the
next 60 days. But most companies ran low-decibel campaigns or
none for most months of the year as wary investors increasingly
demand a path to profitability. They want e-commerce
companies to reduce cash burn. Nikesh Arora, former President
& Chief Operating Officer of SoftBank, one of the biggest
dealmakers in the Indian Internet consumer play with
investments in Snapdeal and Olacabs, popularised a new term
among its portfolio companies: thinking about the "islands of
profitability".
Lawyer Roma Priya, Founding Partner of Burgeon Bizsupport,
which represents both start-ups and investors, says that while
most 'affirmative rights' - rights investors have a veto power on
- haven't changed, increasingly in 2016, some rights that help
venture capitalists exert greater control over a start-up's
spending and operations have found their way into agreements.
"Investors have tried to control expenditure by saying you need
hiring consent above a certain bracket. Or if you take a loan
beyond a certain threshold, you need his consent. They could
also ask for monthly income statement to see how the money is
being spent," she says.
According to data from the Ministry of Corporate Affairs, the
combined losses of India's top eight consumer Internet
companies, which include Flipkart, Amazon, Snapdeal,
ShopClues, Ola, Quikr, Paytm, and Zomato, has more than
quadrupled from Rs 1,210 crore in the year ending March 2014
to Rs 5,885 crore in March 2015. That number would have
further bloated in the year ending March 2016 - loss data for
every company is not yet available. Notably, there is one
category of companies that is well capitalised and sustains high
decibel marketing campaigns. Paytm (One97, which runs Paytm,

had a loss of Rs 1,535 crore in 2015/16) is on a marketing
overdrive, particularly after the government's demonitisation
move in November. Amazon lost Rs 3,572 crore in 2015/16.
Nevertheless, there is no break in its spending. In a talk widely
circulated on YouTube, Scott Galloway, an Adjunct Professor of
Marketing at the NYU Stern School of Business, says that no
company in the world has ever had access to cheap capital in a
way Amazon did and now they are taking advantage of it. "They
are going underwater into the world of fulfillment which is very
expensive, with the largest oxygen tanks, forcing every other
retailer to follow them. But everyone else is following with a
smaller oxygen tank and will begin drowning."
You can sense that pressure when Indian marketplaces talk of
"capital dumping" and seek a "level-playing field" from the
government. Many of the same companies got carried away by
the reckless funding environment of 2014 and 2015 and spent
their way into the hearts and minds of the Indian consumer. "It
was a lavish organisation in that sense because there is
abundance of money," Flipkarts former CFO Sanjay Baweja told
Business Today on phone. "Unless money is constrained, it gets
used up very quickly."
E-tailers and other start-ups may have finally started treating
capital as a finite commodity.
SG&A: Caution in the wind
Business Today met Swati Bhargava, the Co-Founder of
affiliate marketing company CashKaro.com, a day before
Amazon's Great Indian Festival Sale. Her office, in Gurgaon,
was being decked up with balloons. "Today, the whole sector is
so energised. It almost feels like the battle ground is set," she
quipped, gleefully. "It's Amazon and Shopclues tomorrow;
Flipkart and Snapdeal come next. Every employee will be here
at midnight. There will be pizzas. This Diwali will be bigger
than last year," she predicted.
In hindsight, she was correct. October 2016 was a bumper
month for the e-tailing industry as festival sales raked in a gross
GMV of $2.25 billion versus $1.5 billion in the same month the

year before, research from RedSeer states.
But there was a major change in the way discounting added up.
E-tailers got banks to fund the discounts, or a part of it. This
could have reduced the burn they would have otherwise
incurred. "Every retailer negotiated a bank card discount, which
is often funded part by the retailer and part by the bank. But
never before have we seen every offer accompanied by a card
offer," Bhargava says. Just before Flipkart's 'The Big Billion
Days Sale' that ran from October 2-6, the company nudged
customers to "apply right away for SBI credit cards and debit
cards that will fetch you the biggest, juiciest deals". Bank offers
went up to Rs 2000-3000, where as last year it was much lesser,
says Bhargava.
December-end, Flipkart was still sending consumers mailers
with the subject line, "We are feeling generous today".
However, the company's SG&A expenses are tapering off,
Sanjay Baweja told this writer soon after he quit, around
October last year. When he joined Flipkart in November 2014,
he wrote on LinkedIn: "Moved here to the hugely exciting and
the very fast moving world of E- Commerce, the Sunrise
industry of today". He said he resigned because "the company is
in a different mode and it is a continuous restructuring process.
I thought it best that I should move into a different area".
Baweja denied rumours of any conflict with the company's
board, particularly one that relates to cash burn.
"If you were to look at SG&A expenses, and if you were to
compare what was the trend two years ago, first I was able to
stabilise it as a straight line and then now it is coming off,"
Baweja says. "We have been able to stem the growth of that
expense completely. It is now about getting the unit economics
right and then the scale benefits will continue to come." Baweja
says SG&A expenses were controlled because of manpower
rationalization. "The only growth in manpower we allowed was
in the tech team. There was a contraction in some of the other
teams that were over staffed. Other frivolous expenses were
done away with," he says.

Accounting in Flipkart was in a "desperate" situation when
Baweja joined in 2014. "Now, we are in a place where we are
able to get our monthly numbers in quickly. Lot of the numbers
are available on a daily and a weekly basis. Taking decisions is
therefore much faster and importantly, there were expenses that
shouldn't have been there. That is taken care of," Baweja says.
He did not want to talk numbers but Flipkart burnt Rs 192 crore
a month, going by its filings. In the year ending March 2016,
Flipkart Internet lost Rs 2,306 crore on revenues of Rs 1,952
crore.
At some companies, data science is being used effectively to
check marketing expenses. Ritesh Agarwal, CEO of OYO
Rooms, says his cost of customer acquisition has dived at least
by half versus 2015. "We are spending our dollars in a way
more intelligent manner than earlier. Data science now says
which channels we should be on and at what hour. Data also
tells us at what hour of the day we should incentivise a
customer for downloads," he says.
Like Flipkart, OYO, too, has built processes around managing
SG&A expenses. A case in point is the flight, train, and bus
tickets booked by employees travelling on company
assignments. A while back, they booked the tickets themselves
and applied for reimbursements later. "Now, we have partnered
an agency that has a lot of flights they pre-buy. They are able to
give us cheaper options," says Agarwal. "Then there are best
practices like booking seven days in advance for a flight. And
whenever you travel to a new city, there will be a per diem and
no questions are asked on where you spent it. Earlier, three
people spent time approving it," he adds. For OYO, these
measures corresponded with the recruitment of the CFO,
Abhishek Gupta, in June 2015. "The mandate for him was to
help the organisation operate more sanely. He brought in a lot
of the systems and processes. We have saved more than 20 per
cent on a month-on-month basis in terms of travel expenses,"
Agarwal says.
OYO recently moved to a spanking new office in Gurgaon's

Sector 69. Agarwal had negotiated a rent-free period of six
months - OYO is the anchor tenant for the builder. One of
Agarwal's quirkiness was to move around the office bare-feet.
But the day this writer met him, he was wearing shoes. He had
important visitors. And this office was too huge to be a
fashionable, bare-footed entrepreneur.
Supply-chain: Redesigned
Things changed in six months for this large lingerie maker who
sells backless bras, balconettes, G-strings and thongs on all
marketplaces. Very little commission was initially charged by e-
tailers on the category and the seller was encouraged to make
prices attractive for customers. They did. However, since March
2016, commissions rose. Marketplaces started charging between
12 and 20 per cent. Many other fees were slapped as well: for
the units stored at the e-tailer's warehouse; for the goods that
are returned by customers; a cash collection fee; a small
component of the marketing fee, even. "None of these were
there before March. The storage fee never existed. For any item
we sell, these charges take up Rs 130-140," says the lingerie
maker, who didn't want to be identified.
What's happening here? Many e-tailers, according to Sreedhar
Prasad, Partner E-Commerce at KPMG, have worked on
reducing logistics expenses. "Today, we see many initiatives.
Some have started charging both customers and sellers.
Categories where the average order value is small, like in
electronics accessories, toys, books etc, have a delivery charge
associated with it. Further, e-tailers today are evaluating
multiple delivery models and alliances for last mile delivery. If
implemented well, these have the potential to reduce the impact
due to logistics costs by 20 per cent," he estimates.
ShopClues, for instance, is one company that has started
charging for shipping. "Because of the sanity in the
marketplace, everyone started paying attention to shipping
costs. We were also able to charge for shipping," CEO of
ShopClues Sanjay Sethi says. "We will give you free shipping if
you buy many products but if you happen to be in a remote

place, you may have to pay Rs 30 for a shirt. This is on since
May 2016," he adds.
ShopClues also tries to avoid air shipping by showing shoppers
inventory closer to their location. "As soon as you move away
from air shipping, your cost drops by as much as 70 per cent.
The distance travelled is less when it is a regional supply-
chain," Sethi explains. The company's courier partners now run
dedicated trucks. ShopClues also has 48 courier partners; the
large number ensures a better bargaining chip, and thereby,
better rates. "Our shipping cost per unit is dramatically low and
that is because we have a large catchment of suppliers. We have
seen about 20-25 per cent drop in shipping costs per unit," the
CEO says.
Snapdeal is another company to have worked aggressively on
reducing supply-chain costs. When Business Today met Kunal
Bahl, CEO of Snapdeal, in April last year to talk about the
influence of Softbank, he said that "Nikesh (Arora) started
pushing us to find the islands of profitability in our company";
that the company's gross margins tripled in the last six months
and "its fulfilment cost as a percentage of sales is the lowest in
the industry".
How did the company achieve this? Snapdeal stocks goods
closest to where they sell. "We intelligently use data. If you
want to sell something in western India , the goods are stocked
in warehouses in the west, not in the north. Goods move much
less, which means there is much less transportation cost," says a
spokesperson. Second, the company prefers shipping the
ordered goods faster. "There is a high level of correlation
between fast deliveries and returns. If it is delivered in one or
two days, a consumer is still in the purchase mode. After a
week, you may change your mind," he explains. Third, almost
80 per cent of the goods now go through Snapdeal's own
fulfilment centres. This way, the company is able to scan the
goods - either through X-ray machines or even open the packets.
It cuts down incidents of incorrect shipping. "Because incidents
of returns come down a lot, it helps the seller reduce his costs

and also helps us reduce our logistics cost," the spokesperson
says.
The pressure on delivery companies for better rates and
efficiency has driven them to rethink network design. Ecom
Express, for instance, now covers more locations with the same
number of fleet it operates. In many cases, the company has
preponed the departure time of vehicles by an hour. "Earlier, a
vehicle carried three location shipments in Delhi. By preponing
the departure time, we have added one more location," says
Sanjeev Saxena, Co-founder of Ecom Express. This way, the
company requires lesser number of vehicles for a city. Vehicle
costs, according to him, are 30 per cent of the logistics cost.
"We have cut about 8-10 per cent."
People 1: The age of reason
Sanjay Sethi is lean and tall. He explains everything in great
detail and smiles a lot. But he is rarely animated. His eyes must
have popped after this conversation.
In June 2015, the CEO of ShopClues wanted to hire a head of
product. After two rounds of interviews with a candidate, Sethi
initiated a chat on salary expectations. The candidate, who lived
in the US, said he was paid $3 million a year. Stock options
extra.
"There was no conversation to be had after that. I had to tell my
recruiters not to introduce me to anybody who is above the Rs 1
crore bracket," Sethi recalls. "In the past six months, people
have become much more reasonable in their remuneration
expectation. A product manager would now cost between from
Rs 70 lakh and Rs 3.4 crore," he adds.
Salary expectations have moderated even at the entry level.
Rohan Diwan, Co-founder of Quickli, a hyper-local delivery
start-up, says that a year back, the biggest challenge in doing a
start-up in Bangalore or the NCR was finding tech talent. "They
were very expensive. Someone who was being paid Rs 50,000
by an Infosys or TCS, would expect Rs 1 lakh a month from a
small start-up like us. These were people with one and half-two
years of experience," he says. "They would reject our offers

because a Paytm, a Snapdeal, or a Flipkart would offer them a
Rs 8 lakh package," he adds. This has changed. "We are now
getting a massive surge in resumes since the last three months.
Earlier, we were running helter-skelter to find an Android guy; I
now have a pipeline of 30 guys waiting to join. And a fresher is
accepting a Rs 12 lakh offer," Diwan says.
The reason is many companies are cutting headcount or aren't
hiring in the same breadth they were last year. Grofers went on
a hiring spree to build capacity before demand materialised.
Many other companies did that too - hired candidates with a one
year outlook. But tough times meant tougher calls. They now
hire with a three month outlook. In fact, a panel responsible for
campus hiring at the Indian Institute of Technology (IIT)
blacklisted 31 start-ups in August after many of them revoked
job offers or delayed hiring. In 2015, Flipkart hired 250 across
business schools, Nitin Seth, the chief administrative officer at
Flipkart, told Business Today's E. Kumar Sharma recently. The
company had deferred joining dates for those picked from June
to December since Flipkart "was undergoing a major
restructuring" and was not ideally placed to "offer the learning
opportunity to the 250." Without citing numbers for hiring in
the current fiscal year, Seth said that "the management
philosophy is that we want to be lot more prudent in terms of
our planning."
Like in marketing or logistics, technology is playing a part in
making the workforce more efficient, or even keep employee
costs in check. Automation is playing a role in customer
service, which can account for upto 25-30 per cent of an e-
tailer's workforce. Fashion e-tailer LimeRoad says its 'contact
per order' - the number of times a customer contacts the service
centre for an order - has dived 35-40 per cent in a year's time.
"We have deployed technology so that customers contact you
less. For example, if I know your package is running late, I will
pre-emptively message so that you don't have to call us," says
CEO of LimeRoad Suchi Mukherjee. The company's refund
related queries have reduced after it implemented a one-click

refund process. LimeRoad's cost per order is down significantly
since October 2015 when it was at Rs 19.5 per order. In
September 2016, it trended at Rs 8.8 an order. If first time
resolution improves dramatically, it reduces the need for repeat
contacts per order. By extension, it can potentially cut the need
for customer support employees.
The fact that LimeRoad has an inventory-less model helps in
cash preservation. Mukherjee fiercely scribbles on a board.
"There are two evils in the P&L," she explains. "Discounting
and inventory. These are two bad words, scary." Those building
private label businesses will have stock. Some will sell while
some may not. Stock, therefore, is a negative drain on the cash.
"To clear this stock, you will have to drop prices. Its the biggest
folly," Mukherjee says.
To cut down on such follies, consumer Internet businesses have
been hiring folks that can carry out surgical strikes.
People 2: The rise of CFOs
You could conclude it is a sign of the e-commerce industry's
growing maturity. Most large companies have appointed
experienced CFOs over the past one year. In October 2016,
Paytm appointed former Citigroup executive Madhur Deora as
CFO; the former CFO of Wipro, RPG Enterprises and InMobi
Manish Dugar joined online healthcare firm Practo in May;
Rajiv Bansal joined Ola after many years of working in IT
services exporter Infosys; Snapdeal appointed Anup Vikal in
2015, who in his last role was the CFO of mobile network
operator Aircel. It is sort of a signal to investors. They are
serious about preserving cash.
This writer met the newly hired CFO of fashion marketplace
Voonik Prabhakar Sunder in Bangalore's Manyata Embassy
Business Park where the company is located. He joined Voonik
after seven years in Myntra's finance wing. Sunder hints at what
marketplaces will work on, going ahead, to preserve cash and
ensure a healthy working capital. Large companies could
increasingly try to create a higher 'float' because India is still a
cash market and cash on delivery (CODs) still remains a chunky

mode for e-commerce payments. Yes, even after demonitisation.
"Let's say I am able to collect the money from courier
companies in three days but the liability to sellers is in five
days. I have a two day float. As the company grows, the two day
float will keep increasing. This is where cash is generated. You
have cash to run your businesses. That is what matters," Sunder
says.
Voonik currently has a day's float. "I don't want it to go too
high because it sends a wrong message to the sellers. They
would feel I am making money at their cost," he says, before
adding: "But if I get to a three-four days' float, I will be
extremely happy." Third party logistics companies could be
squeezed more. Sunder says that cash cycles could improve if
courier companies deliver and collect the cash fast enough.
"Then push them to give that cash to you in a short service level
agreement."
Manish Dugar had implemented a 60-30-10 rule in InMobi; he is
doing the same at Practo. 60 per cent of a company's money
goes into the bread and butter business, which generates cash.
10 per cent is for moonshots; 30 per cent of the 10 per cent may
have the potential to become commercially feasible.
In simpler terms, this rule means shutting down exotic products
that don't make much near-term sense or isn't scaling. "It is the
finance guy who has to do the surgery. He has to sit with the
founders and say this is not working," Dugar says.
No doubt, CFOs are becoming increasingly hefty people in
Indian e-commerce. "After the CEO, the second most powerful
guy I am starting to see is the CFO," says OYO's Ritesh
Agarwal. That is good news for the industry, its employees and
investors. If 2016 was a year of realism, 2017 is heading
towards Realism 2.0.
CFOs may ensure there is no irrational exuberance, only
cautious optimism.
@Goutam20
People: Dhindsa, Albinder Baweja, Sanjay Bhargava, Swati
Agarwal, Ritesh Sethi, Sanjay

Company: Flipkart
Publication title: Business Today; New Delhi
Publication year: 2017
Publication date: Jan 29, 2017
Section: Cover Story
Publisher: Living Media India, Limited
Place of publication: New Delhi
Country of publication: India
Publication subject: Business And Economics
ISSN: 0974-3650
Source type: Magazines
Language of publication: English
Document type: News
ProQuest document ID: 1857571419
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URL: https://search.proquest.com/docview/1857571419?account
id=458
Copyright: (Copyright (c) Living Media India Limited. Not to
be reprinted or reused in any way without prior permission of
the publisher.)
Last updated: 2017-01-12
Database: ProQuest Central
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