E-commerce giant Flipkart will likely merge Myntra Logistics with its own logistics arm Ekart in order to cut costs, sources told Moneycontrol.
This comes less than a month after the company laid off around 250 employees of its fashion brand Jabong and called for a "closer integration" of Myntra and Jabong.
"The plan is to roll off the support functions of Myntra and Jabong in order to reduce cost and merge it with itself. For instance, now Myntra Logistics becomes a unit of Ekart," said one of the sources quoted above.
Till around a month ago, Jabong's operation was resulting in a monthly cash burn of Rs 6-7 crore, as against Myntra's Rs 28-30 crore and Flipkart Fashion's Rs 30-35 crore, another source said.
"The three combined together burn around Rs 65-70 crore. The aim is to bring that down to Rs 30 crore," the source said.
Both Ekart and Myntra Logistics were started as in-house logistics businesses of Flipkart and Myntra, respectively.
In 2014, when Flipkart had acquired Myntra, it also retained Myntra Logistics as a brand, despite already having Ekart.
On the face of it, it didn't make much sense for Flipkart to retain two separate logistics units. However, according to one of the sources, it was decision taken by the Myntra management.
The management thought it would be helpful to have an in-house brand, especially when almost all other e-commerce companies were busy setting up their own logistics units.
Logistics has always been regarded as one of the most important and resource-intensive areas in the e-commerce business.
Theoretically, the idea behind having a self-operated logistics unit was to keep the cost of delivery of products under control, besides keeping customer experience in check.
Many companies also tried experimenting with the idea of segregating clusters where their in-house brands would deliver.
They often used in-house units to do deliveries in metros and large cities with bigger ticket sizes, and passed on the tier 2-3 deliveries to third-party firms.
However, over the last few years, there have been a bunch of sorry stories about how e-commerce companies failed to make the most out of their logistics units.
In 2017, GoJavas (Quickdel Logistics), which had Snapdeal as a key investor, got acquired by courier firm Pigeon Express.
While it appeared that the deal will give a fresh lease of life to the beleaguered logistics firm, what actually happened was something entirely else.
Within months of acquiring GoJavas, Anand Rai -- the founder of pigeon Express -- filed a criminal complaint against Snapdeal, alleging breach of trust and misappropriation of funds.
Vulcan Express, which was Snapdeal's in-house logistics arm, was sold to Kishore Biyani's Future Group in January as part of Snapdeal's decision to divest all of its non-core business units.
This took place after Snapdeal decided against merging with Flipkart and chose to go solo.
Coming back to the latest development at Flipkart, employees of Myntra Logistics are now expected to report to Amitesh Jha, who heads Ekart Services.
"There can be the same workforce and warehouses. Each warehouse means a massive capital expenditure. Merging the two will release capital. This is very logical. It would have happened an year ago but just got resisted as long as Ananth (Narayanan) was there," said one of the sources quoted above.
"Now Myntra will end up being just a commercial platform since the buying and warehousing is getting centralised in Flipkat. Just the category level decision will remain with the brand," the source said.
While Ekart does deliveries for both Flipkart and other third-party companies, Myntra Logistics sticks to delivering products sold by only Myntra and Jabong.
Over 85-90 percent of Ekart's business, however, still comes from the three brands -- Flipkart, Myntra and Jabong.
Last month, Moneycontrol had reported that Myntra CEO Ananth Narayanan had resigned from his post on November 15 and is expected to exit the company in the next 3-6 months.
Even Myntra's CFO Dipanjan Basu has quit the company now and is set to join venture fund Fireside Ventures.
An email sent to Flipkart seeking comment went unanswered.Also read: Jabong lays off 200-250 employees as growth slows down