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Flipkart reshuffles top management as investors wait for profit

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Sachin Bansal, right, co-founder of Flipkart, looks on as Mukesh Bansal, the then-chief executive of online fashion retailer Myntra, speaks during a news conference in Bangalore, India, on May 12, 2015.   © Reuters

NEW DELHI   Flipkart began life as an online bookseller more than eight years ago. Since then, it has written a new chapter for itself, becoming India's largest e-commerce platform. Now, a recent reshuffle at the top hints at more changes to come.

     The Bangalore-based company founded by Sachin Bansal, 34, and Binny Bansal, 33, no relation, is valued at around $15 billion, according to Venture Intelligence. It is widely regarded as one of India's most successful Internet companies.

     Flipkart, which controls 44% of India's online retail market despite stiff competition from local rival Snapdeal and the Indian unit of U.S.-based, is used to making headlines. But the company's Jan. 11 announcement caught the local business community off guard. Less than 10 years since they founded Flipkart in 2007, the two Bansals have decided to take on new roles. Sachin, previously the company's chief executive, has stepped down to become executive chairman. Binny has succeeded him. The news has fueled talk that the company will soon go public.

     The co-founders, however, do not seem to be in any hurry on that score. "I think [an] IPO will happen, probably in the next two to five years," Binny said in October, according to the PTI news agency, adding he had no firm date on when the company might list. A year earlier, Sachin had indicated there was no rush. The company's investors, he said, were "patient" enough.

     The announcement in early January about the reshuffle at the top followed reports that Flipkart had posted losses of about 20 billion rupees ($295 million) in the financial year through March 2015, nearly triple the previous year's losses.

MONEY NO OBJECT   Flipkart's revenue has been growing at a fast clip ever since the fiscal year through March 2010, when it brought in 116 million rupees (about $1.7 million at the time). In fiscal 2013, it had sales of 30.4 billion rupees. The following year, it brought in 103.9 billion rupees. But during that same span, its losses have also mushroomed.

     Turning a profit, like going public, does not appear to be the company's top priority -- at least not yet.

     The two Bansals have managed to raise over $3 billion from investors since the company was founded, including Accel, Tiger Global, Steadview and Greenoaks Capital. The latest injection, $700 million, came in late July, from Tiger, Steadview and others.

     This unending flow of new money has allowed Flipkart to invest heavily in becoming the market leader without worrying about losses. In October 2015, and the same month a year earlier, Flipkart offered crazy deals to attract first-time customers. During the 2014 campaign, it sold some gadgets for 1 rupee (about 1 cent), drawing flak from brick-and-mortar retailers.

     Flipkart does not disclose how it spends its money, but it is obviously pouring cash into technology, supply chains and logistics -- everything needed for robust back-end operations. "Since the day we started our company," Binny said in a 2014 interview, "we [have] always leveraged technologies in every aspect of our business, and built all [our] infrastructure in-house."

NUMBER CRUNCHERS   Both Sachin and Binny are alumni of the Indian Institutes of Technology, which has turned out top brains such as Reserve Bank of India Gov. Raghuram Rajan, Infosys co-founder Nandan Nilekani, SoftBank President Nikesh Arora and Google CEO Sundar Pichai. Before the entrepreneurship bug bit them, the two computer science graduates worked for in Bangalore -- Sachin for a year and a half and Binny for less than a year. The two decided to quit their software engineering jobs to launch their own venture. Their technology skills came in handy in developing an e-commerce platform.

     Although the two studied at IIT Delhi, they were not classmates. An unfinished project once forced Sachin to stay in the lab. Binny was in the same situation. They met and immediately hit it off.

     The two started Flipkart in a small apartment with 400,000 rupees in savings. They initially thought of getting into the comparison shopping business. Once they got started, they realized there were opportunities in e-commerce in India.

     According to Sachin, Flipkart sets itself apart from its competitors through technological excellence, quality service and customer focus.

     The duo chose to sell books first. "A book comes for as low as 100 rupees, so it's very easy for a customer to trust you with that first transaction," Sachin said in one of his initial TV interviews, adding that shipping and handling of books is relatively easy as they don't break and have long shelf lives.

     There were hurdles. Online payment services were hesitant to do business with the new kid on the block. Book vendors and distributors also needed convincing. The Bansals talk about their early struggles. One anecdote has them standing outside bookstores to hand out Flipkart bookmarks -- but only to those who came out with books. This focused strategy paid off. Flipkart soon became India's largest online bookstore. In less than two years, it was selling more than one book per minute.

     Another game-changing tactic came in 2010, when Flipkart began accepting cash on delivery. This worked wonders. Relatively few of India's 1.25 billion people have credit cards. Only a little over half of all Indians have a bank account. Flipkart grew, adding product after product. It began selling smartphones, home appliances, clothes, shoes, cosmetics and a bevy of other items.

    The company predicts it will sell up to $12 billion worth of merchandise in the fiscal year through March, triple the previous year's figure. So when will the profits come? Flipkart says in two to three years.

     Although Flipkart is the country's online retail leader, with 60% of India's mobile online market and more than 46 million customers, the Bansals are feeling heat from Snapdeal and Amazon, both of which are trying to grab a larger slice of India's e-commerce pie, which is estimated to grow tenfold to $100 billion by 2020.

     Snapdeal, founded in 2010, has grown rapidly. Backed by Japan's SoftBank, China's Alibaba Group Holding and Taiwan's Hon Hai Precision Industry, Snapdeal is aiming to overtake Flipkart in terms of sales this financial year. It crossed the $4 billion mark in gross merchandise value six months ago.

     Amazon, meanwhile, plans to invest $5 billion in India and is fast gaining a foothold there. It cited market data specialist comScore, which said it was India's most-visited e-commerce company in October of last year.

POWER COUPLE   With the reshuffle behind them, the two Bansals are planning the "next phase of the journey," during which, Sachin said in a statement, they will be working to prove that "India can produce a world-class Internet company that can outshine any global behemoth."

     Sachin's new roles will include providing strategic direction, mentoring senior leaders and looking for new investment opportunities. He will retain the role of chairman. Binny, the new chief executive, will be responsible for Flipkart's overall performance. The heads of all the company's divisions, including the popular fashion portal Myntra, which the company acquired in 2014 for an estimated $300 million, will report to him.

     "Together we'll create magic," Sachin said on Twitter, signaling the Bansals' determination to turn their company into a $100 billion enterprise.

     Despite the common belief that the two drew inspiration from Amazon, Sachin once told reporters that "our role model is [China's] Alibaba ... because the market, customers, thought process and income levels are similar here."

     Prateek Srivastava, founder and chief executive of talent advisory firm Basil Advisors, who is being mentored by Binny, says Binny encouraged him to become an entrepreneur in 2013. Binny is a "quiet man who is not a meeting guy," he told the Nikkei Asian Review.

     "So far, both co-founders [have been] looking more into the internal environment to build the business," said Arvind K. Singhal, chairman of consultancy Technopak. "Now, they have split the role between the two, where one [Sachin] manages the external matters and challenges, and [Binny focuses] on the business itself."

     Sanchit Gogia, chief analyst at Greyhound Research, said the change in job titles is "not extraordinary or shocking." It is a strategic move, "a new lease on life for Flipkart," he said.

     "The journey ahead is equally exciting and challenging," Binny said. "We will continue to build a world-class customer experience, expand our supply-chain infrastructure to reach all parts of India, drive innovations in mobile commerce and bring in disruptive technologies."

     To realize Flipkart's $100 billion dream, Binny, a chief executive with an engineer's spirit, will set the company's technological course. "We are talking about implementing intelligence to all systems across our value chain," he said.

     But analysts say Flipkart cannot rest on its laurels. As rivals go all out to catch it, and with Internet penetration and smartphone use on the rise, the situation is fluid. Flipkart will have to focus more on logistics for faster deliveries in remote areas, as well as maintain an edge in discounting as customers flit from one online retailer to another.

     Some argue that only online shopping portals capable of absorbing losses in the hundreds of millions of dollars will be able to lead the pack in the years ahead.  But the Bansal duo must turn Flipkart into a profit-making business soon or their backers' patience may run out. Flipkart has upended Web retailing in India; now it must show that it can make money, too.

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