MUMBAI (NewsRise) -- Myntra Designs, a unit of India's Flipkart Internet, has agreed to buy Germany's Rocket Internet-backed online fashion retailer Jabong for $70 million in cash, as a consolidation wave sweeps across India's cash-starved e-commerce market.
The acquisition will bolster Flipkart's position in the online fashion market -- the fastest growing category in India -- amid intensifying competition from archrival Amazon.com that has been briskly expanding in the south Asian nation. Fashion-focused shopping sites have been mushrooming over the last few years, as a growing population of Indians shop for everything from phones to clothes and accessories on the Internet.
"Fashion and lifestyle is one of the biggest drivers of e-commerce growth in India," said Binny Bansal, chief executive of Flipkart, India's largest e-commerce company. "This acquisition is a continuation of the group's journey to transform commerce in India."
India's e-commerce market was estimated to be worth $22 billion in 2015, according to data from PricewaterhouseCoopers. Clothing accounted for nearly a fourth of that market, the PwC data showed.
The growth of apparel shopping sites far outpaced that of other sectors in the five years beginning 2009. While fashion e-commerce sales expanded 56%, the overall e-commerce market grew 34%.
Flipkart had acquired Myntra for $330 million in 2014 in a bid to expand its customer base and fortify its leadership position in the online fashion market, a high-margin category that allows companies to cut the losses incurred in other segments, where profit margins are razor-thin amid deep discounts. In March, Flipkart infused 3.38 billion rupees ($50 million) into Myntra.
Jabong, owned by Global Fashion Group -- the holding company that houses six of Rocket Internet's fashion ecommerce companies -- has been struggling to expand in the face of stiff competition in the market. In the fiscal year that ended in March, Jabong posted a net revenue of 126 million euros, with adjusted operating loss of 56 million euros, the company said in a statement.
A crunch in private-funding and a steady pace of top level executive departures had added to Jabong's worries in the last one year. Many Indian e-commerce startups such as Flipkart has been struggling to raise money since mid-last year, as investors slashed their values amid a greater focus on profitability.
Unprofitable Flipkart has seen its value erode as much as 30% in the last six months, as several of its top investors marked down their valuations of the company. Amid the funding crunch, many smaller startups have been trimming their business or merging with larger rivals.
On Monday, New York-based Tiger Global Management-backed online classifieds portal Quikr said it agreed to buy a smaller online white-collar hiring company Hiree for an undisclosed amount, in a bid to strengthen its job offerings services across industries.
Analysts say the latest deal adds heft to Flipkart's business, given the revenue and profitability potential in fashion retailing. As per local media reports, Jabong has been scouting for a buyer for several months now, and had held talks with Flipkart's rivals such as Snapdeal.com and Amazon.com.
"This deal makes a lot of sense to Flipkart because many of its competitors were looking to buy Jabong," said Arvind Singhal, managing director of retail consulting firm Technopak. "By taking Jabong out of the plate, Flipkart is making it that much more difficult for competitors to get a head-start in the fashion online retail space."