The chief executive of Indian e-commerce player Snapdeal expects the company to turn profitable in two years as it renews a drive to boost efficiencies and enhance consumer experiences. Speaking to Reuters in Mumbai, Kunal Bahl forecast that Indian e-commerce will grow to $350 billion in a decade as online shopping gets easier and more people use high-speed Internet connections on their phones.
Here are edited excerpts:
Q: E-commerce companies’ revenues are growing, but discounts are causing wider losses. When will we see profits?
A: The problem that e-commerce is solving in India is access to selection, price discovery and convenience. We all know it’s hard to get around in cities. So it’s very clear that those are the three large problems that e-commerce is solving as we speak. An industry which is $15 billion today will probably go to $350 billion in the next 10 years. I don’t have concerns about market size or whether it will become large or not. It will. The question is, can we do it sustainably or not. And honestly there is no other way to achieve it but sustainably, because unless you’re making money on everything you’re selling, over a period of time as you get larger you lose more money.
Q: Snapdeal is up against Flipkart and Amazon, two companies with deep pockets. How do you set yourself apart and is there really room for multiple players in the market?
A: I feel that there will always be multiple players in every industry. The reason for that is India is a heterogeneous consumer market. There is no one type of homogeneous consumer, where if you’ve captured that consumer, you’ve captured them all. And consumers end up gravitating for a variety of reasons towards particular platforms and gravitating away from certain platforms. Maybe it’s because someone is more focused on consumers of a higher-end demographic and some are focused on relatively more mass consumers. So as a company, you have to figure out which audience are you targeting and have you built the necessary infrastructure and capabilities to cater to the needs of that customer.
Q: Do you mean you’re focused more on getting to a certain type of customer and last mile connectivity?
A: There are certain high-density locations where we want to service ourselves because there is higher predictability of demand and hence your utilization is always higher. But the long tail of towns and cities, we’d rather work with a few select third-party logistics partners.
Q: So that’s one way you reduce the burn rate?
A: How I see it is two inputs to deliver three outputs. The two inputs are efficiency and experience. If you focus on these two inputs the three outputs that you will get are low prices for your consumers, highly convenient experience and a large selection, because these are three things consumers care about.
Q: How do you see the market?
A: Our view is that much of the growth is going to come from smaller towns and cities. Especially, we’re seeing this explosion in 4G users on our platform. Six months ago, less than 5 percent of our traffic, daily downloads were from 4G network. Now it’s 60 percent. … So the contribution of sales from small and cities has grown considerably over the last one year. In one example, we’ve really strengthened our network in the Northeast. Northeast accounts for almost 15 percent of our sales, and some months it’s even 20 percent of our sales.
Q: The first time experience of users determines what their future aspirations are. One problem, with having sellers is that perhaps you cannot always guarantee experience. How do you manage that?
A: We believe that for 80 percent of whatever we sell we can actually check before a product is shipped, which is exactly what we do.
Q: How do you differentiate yourself in terms of having exclusive deals? Are you looking at forging those partnerships?
A: You can try and do everything that everyone else is doing and then you will not have a point of view of your own. Chasing down each exclusive launch where you will have to fund potentially, the price, the discount, you have to fund the marketing and you have to take inventory risk — I just don’t know if that’s the right path, or the sustainable path for our industry. We’re not in the gross merchandise value game, we’re very clear about that. We’re in the game for building a profitable company.
Q: What is your timeline to profitability?
A: If I were to look at nine months to this financial year versus the nine months of the previous financial year, our EBITDA (earnings before interest, taxes, depreciation and amortization) has improved by almost 40 percent, which is quite a lot at a time when our revenues have grown — real revenues not the nebulous top line number only. The commission we make has grown 3.5 times. Being able to grow revenues while you’re reducing costs is actually not easy. Companies tend to do a great job of one at a time.
Q: How soon do you expect to turn a profit?
A: I think probably a couple of years.
Q: At least two years?
A: I see a relatively clear line of sight to (profit) and we’ve been making great progress in that direction also. We needed capital to build the infrastructure which we have, now we have to take control of our destiny.
Q: Are you looking at raising funds or an IPO?
A: We can get to profitability based on our recent months’ trajectory on costs and how fast they are dropping. I think that is probably enough or maybe we need a little bit more but today as per our current plan it should be probably enough.
Q: So you are confirming that you have $250 million in the bank?
A: I cannot confirm or deny it. But whatever capital we have today is largely sufficient for us… If we need to go acquire something, go invest in something that’s over and above what our current plan is, for that we may need to raise additional capital.
Q: Is SoftBank pumping in more money, possibly at a lower valuation?
A: Private-market financing are just milestones along the way for building a profitable business that, may be, eventually goes public. I’ve never been the one chasing valuations or trying to top them up. I feel at the end of the day the true absolute in our business or any business is building a profitable company.
Q: If SoftBank raises its stake in the company, will the founders have a direct say in the running Snapdeal?
A: Today our shareholders and our board believe we’re the best people to run the company.
Q: If you’re looking at profitability in 2019, would you also consider an IPO around that time?
A: I think it’s too early right now which option right now to comment which option we would take.
Q: Will you invest more in your logistics arm Vulcan?
A: I don’t think Vulcan requires any more investment because at profitability the operations pay for itself. We’re considering if we should open it up for third parties or not. Chances are very bright - we will open Vulcan to third parties in the next few months.
Q: Would you try to sell a part of your e-wallet FreeCharge?
A: If there is a good reason, we would consider it… It’s not the No.1 thing on my mind.
Editing by Robert MacMillan