The Snapdeal Crisis

Snapdeal Crisis – 23-Mar-2017

Pink Slips are not a new concept in the Corporate World, whether it’s TCS who did it few years back on a massive scale in order to revive the Middle Management, Cognizant which is planning to lay off a large number of employees as a part of annual appraisal process, Cisco, IBM or Snapdeal which is forced to do so in the context on its on-going crisis. Hundreds of employees are being handed the pink slip by beleaguered companies like Snapdeal and Stayzilla after these firms went into cost cutting mode.

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E-retailer Snapdeal notched up losses that were more than twice its revenues last year, a sign of how much cash is being burnt in the sector. Despite strong backers, Snapdeal is increasingly losing relevance among customers and needs to find its unique selling proposition (USP) soon. “Snapdeal has been having an identity crisis for the last couple of years,” said Sanchit Vir Gogia, ‎chief analyst at Delhi-based Greyhound Research. The SoftBank-backed firm, which has been struggling to raise fresh funding, is also laying off hundreds employees and eliminating non-core projects to focus on “profitable growth”. “We are combining teams, reducing layers, eliminating non-core projects and strengthening the focus on profitable growth. Sadly, we will also be saying really painful goodbyes to some of our colleagues in this process,” Snapdeal founder Kunal Bahl said. All these developments are a result of Snapdeal’s sales plummeting by 50% over the past year in an e-commerce market that has remained largely muted. Marketplace providers like Snapdeal earn commissions from sellers on their platform as a percentage of value of goods sold. Snapdeal was valued at USD 6.5 billion after a fund-raising last year. But valuations of Indian e-commerce firms are generally believed to have softened since then. Indian e-commerce, which is one of the world’s fastest growing internet services market, has largely been driven by steep discounts, resulting in investor markdowns due to concerns about profitability. With this, Snapdeal may die a slow and painful death, but as Zig Ziglar mentioned, “When obstacles arise, you change your direction to reach your goal; you do not change your decision to get there”.

 

Where things went wrong

Co-Founder Kunal Bahl admitted to making mistake in growing much before it could figure out right economic model. “Over a period of time, costs have a tendency to creep up on us and we need to keep an eye on any expense which doesn’t bring us value. It is important to analyze and curtail expenses which are contributing neither to our efficiency nor to the customers’ or sellers’ experience. In the history of every company, there are points of inflection and this is one of those,” the founders said. The former Chief Financial Officer of Infosys, Mohandas Pai, said Snapdeal fate is no surprise, new-age startups have no clear strategy and very poor execution, startup model is to blame. Some sources blame the company’s autocratic structure for all its misfortune, with former employees saying the founders were incapable of running the firm and never allowed others to participate in decisions or shares. Some blame the lack of a healthy workplace culture. The company also started diversifying and starting new projects while it still hadn’t perfected the first or made it profitable. It also started building team and capabilities for a much larger size of business than what was required with the present scale. In fact, massive recruitments were done at handsome unnecessary package to lure talented minds. A large amount of capital with ambition can be a potent mix that drives a company to defocus from its core which might happened with it. The e-tailer even launched a massive campaign around Diwali last year, allocating Rs 200 crore to push its new logo and positioning in what was seen as a major effort to gain lost ground.

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Kunal Bahl and Rohit Bansal (Founders of Snapdeal) had announced that they will take a 100 per cent salary cut, and also said many senior leaders had “offered to take a significant cut in their compensation.”

 

What will happen to employees?

Around 30 percent of Snapdeal’s employees will lose their jobs in the next few months as the e-commerce firm drastically cuts costs amid a slowdown in growth and funding. Snapdeal, which faces intense competition from Amazon and Flipkart, had last reported employee strength of 8,000. The report quoted four people aware of the downsizing plan as saying that around 1,000 staff members directly employed by the company will be let off apart from nearly 8,000 contract workers in the online marketplace’s logistics divisions. But Start-ups, which are in dire need of talented engineers, will quickly absorb this shock, as most of the engineers were hired by them. In sense, the current layoffs provide an opportunity in disguise. Many e-Retail players are on the verge of expansion, and are now looking at a talent pool that needs jobs and that can help them to grow to a new level and create a buzz in the industry. But this also throws a very vital question to the whole industry, How much dynamic and flexible this industry is, and how much ‘job security’ can it provide? Why doesn’t training and motivation assist their under-performing employees, and why can’t these companies provide a cushion for their employees against fluctuations in business and profits?

 

The Response

An online sellers community has sent another letter addressed to the country’s commerce minister Nirmala Sitharaman, asking for tighter e-commerce regulations to be framed to help safeguard the interest of merchants selling on these platforms. The Union Commerce Ministry intends to probe vendors’ complaints of payments default by e-commerce player Snapdeal, a top official said. In another blow to the embattled Snapdeal, around 40% of the 2,000 online merchants who are part of the All India Online Vendors Association (AIOVA) have stopped selling on the e-tailer’s website, asking it to clear their pending payments. Earlier, AIOVA claimed that Rs 300-400 crore of unpaid dues were stuck with Snapdeal, as reported by TOI its February 23 edition. Axis Bank, HDFC and then SBI have asked a group of Snapdeal sellers to clear their loans, failing which the bank will be forced to stop the overdraft facility to them. Snapdeal coming out all clean and admitting their shortcomings is a very bold move. Snapdeal’s drastic step can also be seen as a smart move since now they have the opportunity to specialize in a certain vertical and build on it over time. The recent layoffs at Snapdeal are not a very good sign for the industry as a whole. The e-retail giant is hastily targeting for positive bottom-lines which will result into steep decline in their GMV, hence creating a void in the market and will give space for emergence of niche e-Retail players, creating their own brand identities. Also, the startups have a lot to learn from this crisis.

 

 

 

Snapdeal in deal talks with rivals Flipkart, Paytm for a potential sale. However, a Snapdeal spokesperson denied the report as incorrect and without basis. We are making decisive progress in our journey towards profitability and all our efforts are aligned in this direction”, the spokesperson said. Also, Snapdeal is in talks with US online payment system PayPal to sell Freecharge, three people with knowledge of the development told. The deal would value the online recharge company at around $500 million, they said, compared with the $400 million that Snapdeal paid for it in 2015. A deal will help PayPal strengthen its India presence. A Snapdeal spokesperson said in an email: “We deny all such speculations.” Paypal and Freecharge also declined to comment on the matter, dismissing it as speculation. Snapdeal, earlier this month, had announced shutting down of its consumer to consumer marketplace Shopo. As part of the revival plan, the company will reorganise into “a lean, focussed and entrepreneurial one” by combining teams, reducing layers, eliminating non-core projects and strengthening focus on profitable growth. After announcing the closure of its consumer-to-consumer marketplace Shopo last week, the e-tailer has now disbanded its SD Instant team.

 

The Organizational Change

Snapdeal has seen an exodus of senior executives in the past two months, the latest being the exit of Freecharge chief executive Govind Rajan.  Funding failures and the decision to sell Freecharge to PayPal are said to be among the reasons that led to Rajan’s exit. The e-commerce firm appointed Jason Kothari as the Chief Executive Officer of its digital payment platform FreeCharge and a commitment to invest an additional $ 20 million in the e-wallet firm. Softbank has appointed its most experienced e-commerce veteran Kabir Mishra to the board of Snapdeal to support the company. Snapdeal’s cost-cutting drive has coincided with a string of senior level exits. The latest being Amit Maheshwari, fashion head of Snapdeal, who had been elevated as the CEO of Exclusively, the e-tailer’s premium and luxury fashion goods platform, which was shuttered last year. Maheshwari has left the company after a four-year stint; he joins other old-timers who have recently quit including Tony Navin, Sandeep Komaravelly and Abhishek Kumar.

 

The way ahead

Indian e-commerce firm Snapdeal expects to turn profitable in the next two years, its CEO said, as the company cuts costs and boosts efficiency in a market currently dominated by homegrown Flipkart and US internet giant Amazon. Snapdeal’s captive logistics arm Vulcan Express will turn profitable next month, Bahl said, thanks to significant investment over the past two years.

Vulcan has helped Snapdeal make inroads into the far-flung corners of India and building the unit “thoughtfully” without excess capacity has helped, he said. Snapdeal, which also uses third-party logistics services to deliver products to customers, has plans to allow Vulcan to seek external business in the coming months, Bahl said. It has also entered with Japan External Trade Organisation (JETRO) to sell products from popular Japanese small and medium enterprise (SME) brands. The partnership will enable customers to purchase JETRO products across various categories directly from Snapdeal. By way of this partnership, it will be able to showcase the best of Japanese SMEs and bring a wide assort.

 

I see a relatively clear line of sight to (profit) and we’ve been making great progress in that direction also,” Bahl said. We needed capital to build the infrastructure which we have, now we have to take control of our destiny. The co-founders said that the company will now only look at profitability than a race with others to increase their GMV (Gross Merchandise Volume).

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                            In the hope on unveiling New Snapdeal soon…

 “That said, there is almost no successful company on the planet, which hasn’t gone through this phase in their lifetime – Apple, Amazon, Netflix, Tesla, Lego, SpiceJet, you name it! Each one of them had painted themselves into a corner many times over before they became as wildly successful as they are today. A quick look at their stock prices over the last 15 years will show you what we’re talking about. The formula to revive the company is uncannily similar for almost all of them – focus on only your core, stop all non-core activities, reduce costs drastically, turn profitable as soon as you can, and use those profits to spur further growth and new projects. We must do the same, and there is no doubt that with the really smart folks we have in the company, we will make it something that we are all very proud of” – Kunal Bahl mentioned.

 

 

 

 

 

 

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