Flipkart Goes Flapping

Flipkart’s new CEO Binny Bansal has gone to town explaining some new matrix on how to judge the e-tailer’s performance. It is an apology. At best, it is a remarkable bit of squirming and twisting having been caught on the wrong foot.

Bansal’s media chat on Monday focused on two simple issues: First, that Gross Merchandise Value (GMC), the total sale revenue it generates on its platform, is no more going to be the benchmark of performance for the online marketplace, since it was an ephemeral number that did not give the right picture. Instead, Flipkart, from hence forth will replace GMV with ‘customer loyalty’. He has therefore now ‘discovered’ ‘Net Promoters Score’ (NPS) as the new and real currency of good performance.

Second, he has dismissed the recent couple of devaluations of perceived worth of Flipkart as irrelevant, calling the valuation game a “theoretical exercise by small investors.” Adding to the new e-lexican, he says: “From our perspective, valuation is when we raise money.”

What is this new type of valuation called ‘customer loyalty’? In reality, there is no such thing. The only loyalty a customer knows is to the lowest price he pays for a product or service, delivered in the most efficient way. It is no secret; any online buyer goes to the several options he has from Snapdeal, Jabong and Amazon, and then makes up his mind. It’s like shopping in a mall. Therefore, how is Flipkart going to measure this NPS when the same customer shops for his mobile phone on Amazon, comes to Flipkart for his favourite books, and then goes to Myntra to buy designer clothes?

And how come Bansal is dismissing valuation as a “theoretical exercise by small investors” when it was Flipkart which has been at the centre of the valuation game? In December 2014, Flipkart raised $700 million at a valuation of $11 billion. By July 2015, Steadview Capital, one of the existing investors, invested another $700 in Flipkart equity at a valuation of $15.2 billion. Till December, last year, it was the Bansals who were crowing that Flipkart has a valuation figure of $15.2 billion.

Obviously, things thereafter went wrong. Realistic valuation showed many of the e-tailing businesses were overpriced, and investors were concerned they would not be able to get their money worth at exit. Growth rates envisioned were found to be over the top. By February this year, a regulatory filing by Morgan Stanley Institutional Trust Fund showed it had marked down its Flipkart shares 27 per cent putting the etailer back to its December 2014 $11 billion valuation. By the beginning of this month, 2 other investors Valic Co 1 and Fidelity Rutland Square Trust in separate filings marked down the value of the company by 21.1 per cent, eroding Flipkart to a valuation of $ 9 billion.

Binny and Sachin Bansal, now chairman of Flipkart, may not concede they have been ‘marked down’, but they are now unable to raise money at a $15 billion valuation. Amazon with a war chest of $7 billion and more is snapping at their heels. They are indeed in trouble.

Flipkart shifted last year to a marketplace model where thousands of vendors were selling goods without verification of quality and proper delivery. Service levels and the Flipkart brand itself took a knock. The company is trying to be more focused with a more reliable and smaller repertoire of products like mobile phones, white goods and appliances and fashion wear. But to succeed it needs to raise money at more reasonable valuations.

Binny Bansal cannot pit ‘customer loyalty’ (NPS) against ‘turnover’ (GMV). Every etailer and retailer needs to have both.

And Bansal cannot pretend valuations don’t exist.