Exclusive: Absolutely not true that Jabong and Myntra are consolidating: Ananth Narayanan

Almost two years after fashion e-tailor Jabong was acquired by Flipkart-owned bigger rival Myntra, the company saw multiple senior level exists, including that of its chief finance officer, chief buying officer and head of revenue among others. While Myntra targets to retain the two brands, the plan is to merge common functions such as finance, technology, etc. Jabong recently also started a re-designation exercise for its employees to match their level with Myntra employees. However, not many employees are reportedly pleased with this move.

These events are happening at a time when its own group entity Flipkart Fashion claims to be ahead of the rest of the two brands by claiming a larger market share.

In an exclusive chat with Moneycontrol, Ananth Narayanan, the chief executive officer of Myntra and Jabong, tries to address all these issues and talks about the future plans of the two brands.

When Myntra acquired Jabong, the latter was de-growing at about 16 per cent. Post the acquisition, it started growing and in 2017 posted 27 per cent growth. However, we learn that in the first three months of this year, the rate of growth has slowed down to 10 per cent. Can you confirm this and state the reason behind that?
So, overall you are exactly right. When we acquired Jabong, it was de-growing. It started growing again. So overall for the financial year, I think it is 27-28 per cent. I don't think it has gone down to 10 per cent in January or February. Overall for this quarter, that is January-March, I think it is 25 or 26 per cent growth.

What has triggered this growth?
The overall growth is down to three factors. Firstly, we have improved our services dramatically. If you compare us before the acquisition and at the time of the acquisition, the NPS (net promoter score) was 37. In March 2018, the NPS score was 50. So, there is a dramatic rise in the service levels driven by the use of Myntra Logistics, which is one big reason for the increasing repeat and increasing overall traffic. Secondly, we have almost increased 180 new brands on the Jabong platform. Thirdly, we have done three 360 degree campaigns and all of them have helped improve the brand perception of Jabong.

You have been talking about profitability for a while now. How are you positioned currently?
In terms of profitability, we only talk about Myntra plus Jabong together. The reason is that a lot of the functions are actually common -- technology supply chain, support functions, etc.

Overall, we have made dramatic improvement in profitability across Myntra and Jabong over the course of one year. So we will exit the year close to about 5 per cent in terms of negative EBITDA, which is great. So we are very close to profitability. We have made almost 8 percentage point improvement from the last year to this year. To put that in perspective, it is an extraordinary achievement because we have actually improved.

In that case, by when are you targeting net profitability?
Across Myntra and Jabong, a negative 3 to 5 per cent (EBITDA) is almost like being profitable. The reason is at our scale at USD 1.2 billion, you could turn profitable at any point of time. We are choosing to invest in a whole new set of categories like personal care, omni-channel and a host of things which are all included in the negative 3 to 5 per cent. So, actually the core of the business like the Myntra fashion brand is already profitable.

Jabong had a negative EBITDA of Rs 13 crore (16 per cent) during February. During January, it ha negative EBITDA of 17 per cent. Now these numbers are far from profitability and nowhere near negative 3 and 5 that you are sharing.
We don't track separate profitability at the Jabong level. All our technology cost and supply chain cost are common. So there's no point looking at Jabong platform profitability separately.

All this while, we have known Jabong and Myntra as two separate brands. It appears that there is consolidation in progress.
Absolutely not true. The two brands continue to remain completely independent. As an independent brand, Jabong may continue to grow as a brand and that is why we are investing in marketing. There is a separate revenue team, marketing team and buying team and all the consumer facing functions are separate.

In that case, even the marketing budgets for both the companies would be separate.
Yes

Can you take us through the difference in the budget of Myntra and Jabong?
I don't want to comment on it. I will say it will be proportionate to the revenue.

There have been lot of developments in the company in the past six months. There have been a lot of senior level exists, including the CFO, CBO, head of revenue, among many others. Is it fair to say that these exists happened just because their functions were merged with Myntra?
I don't think lot of people have left. The overall level of attrition in my mind is still in line with the industry. There have been a few senior exists that have happened and I don't want to comment about that. However, we are in the process of strengthening the team. Gunjan runs the business and we continue to add people to the team. There is a new head of marketing and there's also finance head that's coming in. So, it is not because of a consolidation but the regular management changes that happen and this is part of that cycle. In a two year time frame, when the new management takes over, there will be some amount of change in the overall management team and that's what has happened.

Have all the senior level positions where exits took place been replaced with new talent and are you looking to hire people with similar amount of seniority or relatively younger?
Yes we have filled all the roles and they are people with relevant experience and we feel very good about them. There have also been people who have come from consultancies where we believe it is the right background for a certain role. There have been people who have come from a deep finance background. They are senior folks and are going to be the core management team of Jabong going forward.

How many of these people have been hired because about six to seven senior leaders have exited the company in the recent past?
About six have come in at the senior positions.

Can you share their names?
Not really. As a policy, we do not comment on individuals during exits or even when they join.

There was a big investment in the Flipkart last year where SoftBank came on board. SoftBank is known to look at broader horizon and expect growth from its portfolio firms against immediate profitability. How have things changed for Myntra and Jabong post the entry of SoftBank?
Overall there has been no change. Our long term strategy is to grow and scale the business and make it profitable. And I think there is no conflict of interest at all because fashion is a contribution margin positive business because unit economics are positive. The more you grow, the more profitable you become. So I think there is no conflict between growth and profitability.

Have you had a chance of presenting your growth plans to SoftBank board members so far?
I don't want to comment on that.

No timeline for profitability?
I do not know yet. At this point, being negative 3 to 5 per cent (EBITDA) is almost like being profitable. We could turn profitable in a couple of quarters if we really wanted to but we continue to invest in growth across new categories. So we have made a strategic call to go into personal care and therefore we are very aggressive on that front. We have made a strategic call to go into omni-channel and therefore we will invest there.

Why I am stressing on that is because in the last few interviews, you were pretty bullish about turning profitable by March 2018. That hasn't happened. Why this sudden u-turn?
There is no sudden u-turn. I think the goal in my profitability push and whenever I have spoken about it has always been that the core business should become profitable and if you look at our contribution margin all of that in the core business .. men and women apparel all of those have become almost profitable. These are very profitable not just profitable.

In a fast growing and dynamic business, every six months we evaluate. If we see five new growth opportunities we almost think of it as a separate growth investment opportunity.

Jabong recently also tried re-designating its employees to match their designations to that of Myntra's employees. I have been speaking to a lot of Jabong employees who were not very pleased with this development. While post major acquisitions, re-designations or a lot of other developments happen across companies. However, why was it required after two years of acquisition of Jabong?
It wasn't two years. It was after a year and a half. Since August 2017, we have been having this conversation. We created common levels across Myntra and Jabong and the reason we did that is because we want to offer the same benefits and the same kind of stock options.

If you continue to go back and check with your sources, especially after the allocation of extra stock options, they will tell you that the mood is quite positive and people have all settled into their new roles. There is no demotion which you had actually written about and it is actually false. It is a good thing that people are happy with it because it has come for making the benefits of the stock options common across Myntra and Jabong.

When we wrote about demotion, we also wrote that this was to bring Jabong employees at par with those of Myntra's and offer them all the similar benefits. Now demotion was written specifically because in all practicality, the levels were one grade down. However, what my sources have been telling me all this while is that a lot of people have expressed their grievances and have chosen to exit the company.
If you have facts on the number of people, please let me know because that is not a fact but an allegation which I completely refuse.

Jabong had a lot of exclusive brands and so did Myntra. Post the acquisitions, the two brands seem to have combined their forces together and that's how they sell exclusive brands. Does sharing of exclusive brands help?
Combining the power of both the platforms is actually very helpful for both the brands because they are our customer base. A customer overlap between Myntra and Jabong is only 30 per cent like I have told you before. Therefore, if any brand is seen across both the platforms now you have 70 per cent more customers that you can access.

Secondly, let us take the example of Nike. What we sell of Nike at Myntra and what we sell of Nike at Jabong is very different. The buying happens separately.

How much market share Jabong and Myntra combined currently hold? In a recent interaction, Flipkart Fashion claimed to have about 35 per cent of the market share when Flipkart, Myntra and Jabong all together have a market share of about 60-62 per cent.
I never comment on the group. Overall, across the Flipkart group, we are continuing to do very well in fashion. The market share for Myntra and Jabong is about 40 percent. Overall the only thing I would say is that the Flipkart group is winning hands down in fashion.

Jabong and Myntra will be in the mass premium space. Jabong will be bending more towards more premium than Myntra. Won't comment on Flipkart.

Where do we see Jabong a year down the line?Overall I would make three comments.

We had an extraordinarily successful run over the last couple of years after we bought Jabong. Jabong has been one of the better investments we have made at Myntra and we feel very positive about it because that has added to the top line. It has got us 70 per cent new customers. Therefore, for the combined entity to become profitable, Jabong has actually helped us through that journey.

We believe that the platforms are very different. Jabong will continue to evolve in premium ... will have more women, will be more metro-centric. Myntra will continue to evolve into a mass premium platform. It will serve both metros as well as tier 1 and tier 2 and it will focus on both fashion and things like personal care etc so we believe that they are very complimentary platform. and having multiple brands and platforms helps us win.

The third point I want to make is that online fashion is only four percent today, this number will become 16 to 25 per cent. Thus it is not about market share, it is about who goes and captures the growth. and I believe across Myntra and Jabong we are really well positioned to go capture the growth.

Across Myntra and Jabong, we feel incredibly good about the year gone by because not only has it grown by 60 per cent. we have improved profitability by almost 8 percentage points and are close to break-even.

Is there a sales target for FY 2019 Myntra and Jabong combined?
Around USD 1.8 billion.