Flipkart CEO Sachin Bansal
Sachin Bansal, CEO of India's largest e-tailer Flipkart, spoke to Business Today about the Flipkart story so far, his experience and what lies ahead as the market grows. Bansal spoke to BT on two occasions. Edited excerpts:
Tell us about your personal journey. How is it that you talk like the CEO of a FMCG company, rather than like a hardcore tech guy?
Personally it has been very exciting and challenging at the same time. I think the excitement has come from the fact that what we continue to generate a lot of value for customers. That continues to be the motivation. It is very satisfying to know that we are making a difference to customers' lives. Growth has challenged us in multiple ways. I have learnt a lot of things at Flipkart itself. If I had spent six years of my life in a software job, I wouldn't have learnt even five per cent of what I know today. The business thought process, the dhanda culture came from my family. My brother runs an FMCG company in Chandigarh. My dad used to be a trader of food grains, oil seeds, etc. I think that helps a lot.
What did you learn while you worked at Amazon?
We were one year out of college, when we joined Amazon. We were pretty young at that time. We learnt a few things such as how large technology companies operate and how important building the right culture in your organization is. From a more functional aspect, we learnt how to build a large scale distribution system. Another crucial thing that Amazon had was customer focus. That is something we have at Flipkart as well.
Where is Flipkart as a company?
We have grown from a very small organisation to emerge successful is selling books online. We are spreading this success to other categories. Ecommerce was a billion dollar play last year. It will be probably be close to Rs 50 billion by 2020. That's a huge change. Whatever we are doing today, is very insignificant compared to what will be required at that scale. This means we need to be the market leader now and even later when the market grows. At present, that is what we are focusing on.
What are the three big things for you in the next three years?
First is mobile. This is a year when mobile has become a prominent thing, a growth driver for ecommerce companies in comparison to desktops and laptops. Second is adding more third party sellers, which is a big growth area. The third and biggest area which continues to be our focus is growth. Besides, expanding into more categories and plugging gaps in existing categories.
Competition from Amazon. Does that scare you?
We have grown amid competition. There were a bunch of big international players when we started. I think that's a good thing that we have grown with competition and know how to tackle it. When we were small, competition was small, when we are big, competition is bigger. It makes things more interesting. We have been very aggressive on growth, irrespective of Amazon's entry. We are not a very competition focused company. We take our own decisions. We take feedback from our customers. There are gaps that emerge from the feedbacks. The payment options we have or the supply chain innovations we keep introducing are all the result of feedback. With or without competition, we want to add new categories. That's not a reaction to competition.
You launched one-day delivery within five days of Amazon launching the same service in India?
Our No, we didn't react to competition. We could not have launched one-day delivery in five days. We had been working on it for three months.
What will play a bigger role, third party logistics or eKart?
Having your own logistics can pay off well. As we scale the benefits of economics, we see these benefits coming to us rather than to logistics companies. Pricing between vendors is different. The payments reconciliation cycle with vendors is much longer [one to two weeks]. It is not clear whether Flipkart Logistics or third party companies will have a bigger play. I think we will be pushing against the bar on both sides. If we have reliable partners who are able to meet our needs in a cost effective manner, we'd love to partner with them. Cost, reliability and quality will be the qualifying criteria.
About half of our business runs on COD system (Cash on Delivery). It will continue to run in the same way. Also, the friction on credit and debit card transaction is much higher. We have been trying to give special offers and discounts on card usage, but the needle doesn't move much on that. At present, 50 per cent of our transactions are on COD and they will probably be more as we go into Tier 1 and Tier 2 cities.
What more do we expect on the logistics front, this year and the next?
There is big room for improvement. Logistics in the country does not reach everyone. We are able to reach about 150 cities (with all products). Our books can reach every part of the country that has a post office. But not all logistics companies are reliable. Look at China. Their logistics networks reach as many as 2,000 cities and towns. That means reaching out to a village with a population of 1,000 as well. That's an area of improvement for ecommerce in general and for Flipkart as well.
We started the next-day delivery system in six cities and now we have expanded that to 12 cities. The big challenge is to take this to 50 to 100 cities. We know that infrastructure is a challenge in terms of road, rail and air connectivity.
Is everything going to be tech-defined eventually? What sort of investments are going into technology now?
As far as investments in tech are concerned, they are going to be about hiring more people. The biggest thing is investing in people. We are ramping up the number of tech people we have. We have been using technology heavily in every part of our business. During our recent US visit we met with tech leaders in companies like Google, LinkedIn, Twitter to exchange ideas. We are looking to hire not just in India, but from abroad as well. We have about 300 people in the technology team, headed by Amod Malviya, an IIT Kharagpur guy who has mostly worked with startups. He joined Flipkart in 2010. We want to hire every good person who comes our way. Because we believe that returns on every good person in Flipkart are huge.
How is Flipkart using analytics?
As we grow bigger, our success depends on how well we use the data we generate on a daily basis. We get millions of users daily. We have lakhs of shipments going out from Flipkart on a weekly basis. Our ability to use that data to generate better products for customers will be crucial. That's our focus.
Flipkart is a good place to shop if you know what you want to buy. There is a bigger market opportunity waiting for us if we are able to induce purchases, affect purchasing behavior and our ability to recommend. For instance, if you are buying a Google Nexus 5 phone, we would recommend what accessories can go with it. Then based on your purchase pattern we will see whether you would prefer an expensive smartphone cover or a cheaper cover. Today, we are a full platform where customers come and tell us what they want and we are able to provide these to them. There are two things here. One is using the data, analysing it and taking decisions to create more personalised experiences. The other thing is predictive analytics which is different. It is more real time. We will be building most of this technology in-house.
What are Flipkart's plans with marketplace?
Marketplace is a big thing we are betting on. The idea was to basically increase selection without increasing fixed costs disproportionately. It was not about controlling costs, but expanding selection 10X times. It is an innovation on the selection side of things that gives us selection play. Within the category of mobile accessories, we can now offer 5,000 instead of 500 products, 20, 000 types of shoes, instead of 3,000. That's just a start. Even here we manage customer experience by controlling delivery. We decide which logistics partner to give a particular order to.
We have a very strict process of selecting and adding sellers, because efficiency and reliability are the biggest problems in the whole thing. That's why we haven't gone beyond 1,000 sellers. To deliver the customer promise, we have to own the end-to-end experience. We go on TV and say, "Jo dikhta hai, wo bikta hai". I tell my team here that when you think of Flipkart as a product or as a service, it should be something that you are able to recommend to your mother and feel comfortable that it will not be a bad experience.
How many sellers do you have on board?
We have more than 1,000 sellers now. It will be 10,000 to 15,000 in a year's time. In terms of GMV (gross merchandise value) contribution, 1,000 sellers is just a start. I think it is mostly a learning experience for us. We have learnt a lot about the ecosystem and what technology platforms are required to scale up the business. In the longer term, we see more than half of our business coming from third party sellers. In four to five years, we want to be at a few lakh sellers.
How do you plan to expand across categories? With acquisitions?
Yes, from the last funds raised we have set aside a bit for acquisitions. Acquisitions are not going to be just for adding categories. They are also about the team that operates there and the culture that could fit in. If we are able to spot a strong player which matches our culture, we will acquire it, or else build categories on our own. We did acquire LetsBuy for electronics but that was more for a consolidation play. We have to consider technology capabilities, supply chain capabilities, process capabilities and management capabilities. LetsBuy acquisition was good. After Letsbuy acquisition we didn't have a close competitor in electronics.
We are a horizontal player. We will eventually sell everything. What will happen overtime is some things will naturally fit into the horizontal play structure and some will not. There are things we are never going to do. For example, if you want to buy health supplements by taking consultancy online, Flipkart is not the place for you. Or you want to buy your wedding clothes, Flipkart is not the place. There are a few things that will make sense for horizontal players, for others you have niche players.
Which are the categories you are focusing on now?
Less than a year ago, we started developing clothes and shoes as a category. However, the skew is more towards electronics. But from about a third of the total market, shoes and clothes could be bigger than electronics. There is a lot of speculation that Flipkart is acquiring Myntra. That is pure speculation.
In the fashion/apparel segment, how do you think online companies are doing?
Most of the people who have their strategy right are focusing on growth, not profitability, at a time when the market is small but is going to be a huge market in the future. In general, ecommerce is a low-margin business. There is a trade-off between growth and profitability, so growth has to be the focus area for most people right now.
But then, it's a question of how long your cash lasts.
We are not thinking of how long cash is going to last. I think the money we have raised puts us in a comfortable position today. If the market grows faster than we expect, we will invest faster. If the market grows slower, we will invest slowly. With the current funding ($360 million), we are in a comfortable position to invest in our short-term goals as well as long-term goals.
Flipkart loses money per transaction and profits after tax still remain negative. Are you still making losses?
Gross marginwise we are in the green. What we are doing is whatever gross margins we are making and whatever we are raising from the market, we are reinvesting into the business. We will continue to do that. The speed of this investment will depend a lot on the growth of the market.
So controlling costs, margins, efficiency is not on Flipkart's agenda?
Of course, we do take up things that improve margins, efficiency. But at present there aren't enough people buying online. If we try to optimise for the last paisa of efficiency as things scale up, it won't mean anything when the scale is 50 times of what it is now. At present, the biggest innovations at Flipkart are in getting more and more people to shop online. Although we like to say that about a crore people shop online and that's a big number, very few of these are people who think of ecommerce as the primary medium for shopping.
If we start optimising right now, we will be focusing too far away from growth or market share. For instance, there could be 100 things we would like to do, 20 for improving margins, 20 for efficiencies, 20 for market share, 20 for cash flows, etc. But as a company, we have limited bandwidth, so out of 100, we have to pick 30 things. So a large share of these 30 things will be things that improve our market share.
You are running at an annual run rate of $550 or 600 million. Is that correct?
Yes that's right. We have reached more than half way towards the $1 billion target.
What sorts of investments are going into physical infrastructure?
We have six warehouses, out of which three are large ones in Bangalore, Mumbai and Gurgaon. We are expanding our warehouse infrastructure as the current capacity will not be enough, given the kind of growth we are projecting.
What portion of your unique visitors come from mobile? How many people transact on mobile and where are you going from here?
More than 40 per cent of our traffic comes from mobile, whether on apps or on our mobile website. It is a huge change from one year ago when it was in single digit percentage. Two things will have added to that. One is that smartphones have grown. Two, we have become better at our mobile experience. Our mobile experience was very basic a year ago. Today our apps and mobile websites are in much better shape. A year or 18 months from now, about half of our traffic will be from mobile. We launched our android app in September and the iOS app was launched in December. Mobile transaction can help us take decisions on categories. E-books is a hundred percent mobile category.
Is Flipkart going private label?
When we launched digital accessories brand Digiflip in 2012, it was largely to fill in the gaps within product categories. Another extension of our private label is Flippd, an experiment on the clothes and shoes side. The number of products on Flippd is very small. We are yet to observe how consumers take it up.
How many registered and active users do you have at this point of time?
We have about a crore registered users - those who would have shopped once or more with us. About half of them would have been active in the last one year, i.e. shopped in last one year. That's the norm accepted internationally.
Loyalty is a problem with ecommerce sites. What are you doing to ensure consumers come back again?
We are going to do that through more and more use of technology. Right now, most of our technology efforts are concentrated on getting more and more people to shop online, more transactions and more traffic. Second, we have focused on scaling up our supply chain, cataloging, order fulfillment.
Users will come back to Flipkart primarily for trust and reliability. Besides, we are also giving things at lower prices. The third party is going to be improving selection. We are thinking: why do we have only 150 brands of shirts, when there are over thousand brands.
Why did Flyte fail?
We were not able to get enough customers. We went into it with the confidence that if there is a decent, easy-to-use service, there will be a good number of people ready to pay for it. We realised that the market was not ready to pay for music downloads. But thankfully we didn't burn much money on that. We believe in the failed/passed strategy. Once it doesn't work out, we quickly move out of it. We don't necessarily measure success in terms of cash flows, cash burnt, topline, or bottomline. Success may sometimes also look like number of customers, number of repeat customers sometimes. Those kinds of things also become super important. None of those metrics met up with Flyte.
What is your advertising spend like? Is it highest amongst ecommerce sites?
Yes, that's right. Our advertising spend is the highest. On the marketing side, there is a focus to diversify our marketing efforts across channels. When we focus only on TV, or only Google ads, the returns are not that great. If I spread it across multiple channels like affiliate marketing where we give commissions to people who drive traffic to us, Google ads, mobile app ads, Facebook ads, TV, print etc, diversification generates more value. Diversification is happening as we speak. It is the focus area for us.
From outside, your leadership appears to be thin. Binny and you are majorly seen in the press.
I think mostly you see only one or two people visible from outside. Even in a company like Airtel, how many people will you know other than Sunil Mittal. But definitely Sunil Mittal is not involved in all sorts of operations. There is a lot of decision making that is distributed at multiple levels who report to him. We have a very empowered leadership. Our leaders almost act as CEOs in their units. They take decisions independently. Binny and I largely stick to strategy and direction of the company. That's our role. It's not the case that we are a two-people company. We have pretty senior people joining us.
Are you shifting base to Singapore?
This happened last to last year. We have aspirations to be a global point. And being headquartered in Singapore makes it easier. Also, IPO options open up, whether we want to do an IPO in India or elsewhere.