Binny Bansal’s to-do list

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After a restructuring, and the loss of two key executives, the pressure is squarely on Flipkart Ltd co-founder and its newly appointed chief executive officer (CEO) Binny Bansal to deliver accelerating sales growth and cut costs this year.

Bansal has consolidated power and taken control over all of Flipkart’s business after co-founder and CEO Sachin Bansal moved to the position of chairman in January and Mukesh Bansal resigned.

Last week, India’s largest e-commerce firm said Mukesh Bansal, who headed the company’s commerce platform and advertising business, and chief business officer Ankit Nagori were leaving to start their own ventures.

Binny Bansal will have to show an immediate improvement in results to justify the organisational shake-up, investors and analysts said.

One of his top priorities will be to keep Amazon.com’s India unit at bay. Last year, Amazon India gained market share at the expense of Flipkart and Snapdeal (Jasper Infotech Pvt. Ltd), according to publicly available data and several company executives.

It’s clear Amazon’s rapid expansion in India, fuelled by an unprecedented spending spree on advertising, discounts and logistics and its technology expertise, is affecting Flipkart and Snapdeal.

Early last year, Flipkart set a target of generating annualized gross merchandise value (GMV) of $8 billion by December. However, the company’s current average monthly annualized GMV is roughly $5 billion, three people familiar with the matter said.

This number, which includes sales at Flipkart’s unit Myntra, indicates Flipkart missed its internal sales target. GMV refers to the value of goods sold on the site, not actual revenue, and excludes discounts.

“Flipkart along with Myntra continue to be in a very strong leadership position with over 60% market share of the m-commerce market which currently contributes to 70-75%of the growth in the total etail market,” Flipkart said in an emailed reply to queries from Mint. “We have clear leadership in three of the largest segments—smartphones, fashion and electronics with over 60% market share in each area.”

Still, with Amazon quickening its pace of investment in India—it has pumped in Rs.3,676 crore over the past 45 days—Binny has become CEO at a particularly challenging time.

Binny has to find new avenues for sales growth, protect Flipkart’s dominance in fashion as well as its early lead in large appliances. He will be expected to squeeze out efficiencies in Flipkart’s massive logistics operation that employs more than 20,000 people, quickly expand the company’s fledgling ads business and manage a relatively new bunch of senior leaders, many of whom lack experience in running e-commerce companies.

“This year will be key for Flipkart—it has to step up its game or run the risk of being overrun by Amazon,” said Rutvik Doshi, director at Inventus India Advisors, a venture capital firm.

Apart from boosting sales, investors expect Binny to control losses. For the year ended March 2015, two main entities controlled by Flipkart reported a loss of about Rs.2,000 crore, up from a loss of Rs.715 crore in the previous year.

“We always look for operational and cost efficiencies in all our areas of operation and will continue to do so in future,” Flipkart said in response to a query on how it planned to cut losses.

Cutting losses in the current market environment will be tough. With Amazon increasing its investments, Flipkart will be forced to spend more on discounts, advertising and logistics. That’s why Flipkart, which has already raised more than $3 billion since starting out in 2007, wants to convince investors to continue pumping in hundreds of millions of dollars this year in order to have enough firepower to match Amazon’s spending.

Mint reported on 4 February that China’s Alibaba Group, which has backed Paytm and Snapdeal, is in early talks to buy a stake in Flipkart.

“The funds that we have raised till now are sufficient to fuel our business for (a) few years,” Flipkart said in its e-mailed response. “We are not in the process of actively raising money, however having said that we keep engaging with potential investors.”

To be sure, Flipkart has formidable strengths.

Its brand resonates with shoppers; its service quality, which suffered in 2014, is now returning to high levels; it is dominant in online fashion sales, the most profitable large product category in online retail.

And in Binny, it has a proven entrepreneur who knows the Indian e-commerce business as well as anyone else.

To maintain its market leadership, however, Flipkart under Binny will have to avoid the kind of missteps that affected the company’s performance last year.

First, there was the distraction of the company’s mooted app-only strategy. After Myntra went app-only last May (it subsequently re-opened its mobile site this week), Flipkart also considered shutting its desktop site. For months, an intense and sometimes acrimonious debate raged among senior leaders whether the company should abandon desktop users, four former and current Flipkart executives said. Sachin was the chief proponent of the move, but the company eventually decided against it some time in August, these people said.

The app-only discussion not only proved to be a major distraction, it also got the company negative publicity. Many users lashed out on social media sites at Myntra’s app-only move.

Flipkart’s massive organizational restructuring was also tough. A year ago, Flipkart split the company into three units, giving Mukesh Bansal control of the day-to-day running of the marketplace and retail business. CEO Sachin Bansal took over its fledgling ads business and Binny Bansal, then chief operating officer, was made supply chain chief.

The reorganization was the result of Flipkart’s decision to change its business model to that of an ads-driven marketplace from direct online retail. The change in business model was inspired by China’s Alibaba Group, which went public in September 2014 at a valuation of more than $230 billion.

However, the reorganization disrupted business as Flipkart suddenly moved sales in a big way to third-party sellers from WS Retail Service Pvt. Ltd, its selling entity. Flipkart started offering products from third-party sellers in early 2013, but only accelerated the move last year.

The reorganization also created confusion internally about who was really in charge at Flipkart, the four people cited above said.

“It became a case of too many cooks. There were three powerful leaders at the top and it seemed as if Mukesh had been given control of the company. People weren’t sure about whether Mukesh was running the show or Sachin. However, a few months after the reorganization, Sachin again started driving the business actively. The reorganization was haphazard,” one of the executives said.

Flipkart said it was “completely incorrect and baseless” to say that the new structure was an attempt to address the confusion created by last year’s reorganisation.

“Even in the new structure, Commerce, Supply chain and Ads continue to be three separate focus groups, with each unit contributing to overall Flipkart charter and growth,” Flipkart said.

Management change proved to be another distraction. Over a period of four months in the middle of last year, seven senior Flipkart leaders quit the company. These included Ravi Vora, CEO of Flipkart’s strategic brands group; chief technology officer Amod Malviya; engineering head Sameer Nigam; logistics head Sujeet Kumar; and chief people officer Mekin Maheshwari. In their place, Flipkart hired a new leadership team as it sought to bring in experienced executives from established companies.

Together, all these changes distracted Flipkart from its core business of e-commerce, paving the way for Amazon’s market share gains last year.

“Last year, it seemed as if Flipkart was making too many changes too soon. That kind of disruption—business model changes, leadership churn—is easier to manage if you are a clear market leader. But when you are involved in an intense competition with a giant like Amazon, that kind of change is risky,” Inventus’ Doshi said.

Last month, Flipkart announced another organizational restructuring, splitting its commerce platform into three product groups, in an effort to increase its focus on tech.

In practice, the latest reorganization leaves no one in doubt about who’s in charge at Flipkart.

Binny has been identified as the man best qualified to run the company when it’s facing its toughest times yet.

“Binny has the full backing of the board and Sachin,” one Flipkart investor said, speaking on condition of anonymity. “But he really has to produce the results—and soon. This is the last throw of the dice, kind of.”