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Where will Flipkart spend its $1 billion?

Last updated on: August 02, 2014 12:53 IST

Where will Flipkart spend its $1 billion?

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Anusha Soni in New Delhi

E-commerce major Flipkart’s latest round of $1-billion fund-raising is being linked to the company’s appetite for further acquisitions in the market.

It had recently acquired rival company Myntra in a $300-million cash-and-stock deal.

Flipkart is yet to announce the $1-billion funding, which might push up its valuation to $5 billion.

Having raised about $570 million since July 2013 in three rounds and $760 million total since its launch in 2007, the question is where and how Flipkart will spend its war chest. The company, meanwhile, is also looking at an international stock-market listing.

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Image: Binny Bansal and Sachin Bansal.
Photographs: Courtesy, Flipkart

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Where will Flipkart spend its $1 billion?

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If Flipkart goes for a funding of $1 billion, it will be the highest amount of money to be raised so far by any e-commerce company in India in a single round.

In fact, no e-commerce company in the country has raised that much overall.

According to analysts, its acquisition plans triggered by increasing competition are behind this fund-raising activity.

Besides Amazon going all out in India, the world’s largest retailer Walmart has begun a pilot of cash-and-carry e-commerce and will roll out pan-India service around October.

Future group and Reliance Retail, too, have ambitious online retail plans.

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Where will Flipkart spend its $1 billion?

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With so much competition around, Flipkart plans further capacity creation with a focus on building supply chain and hiring more talent.

According to people close to the development, the company will invest in warehouse automation using latest technology such as robotics, further acquisitions and category expansions.

The company could not be reached for comments.

It is learnt that Flipkart has increased its headcount five-fold in less than one year.

The number of people employed by it stood at about 2,500 in October 2013, which has jumped to 13,000 people.

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Where will Flipkart spend its $1 billion?

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The supply chain of the company consists of warehouses in six cities and its own logistics company called eKart, which reaches over 150 cities along with third-party logistics partners.

Flipkart plans to expand its warehousing facility to Tier-II and Tier-III cities and further open the eKart services to other e-commerce companies. The firm is soon expected to launch its furniture category.

However, critics argue that the amount of money is way too high for the investment to be limited to these areas.

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Photographs: Reuters
Tags: III

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“The warehouse cost is just about five per cent in the overall operational cost and logistics cost is less than 20 per cent for a company like Flipkart.

All e-commerce companies are leasing warehouses, so there is not much capital expenditure there.

“When you have an annual gross merchandise value of $1 billion, how will you spend this kind of money?” asked a competitor.

Others say it is clear that the company is not looking for immediate profitability.

The focus is to further tap the increasing demand.

Flipkart could build more logistics, spend more aggressively on categories and hiring.

The next one year will also be about aggressive marketing and building brand value, say industry insiders.

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Image: Binny Bansal and Sachin Bansal.

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Where will Flipkart spend its $1 billion?

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KART FULL OF CASH

  • Flipkart recently acquired Myntra in a $300-million cash and stock deal
  • If Flipkart goes for a funding of $1 billion, it will be the record amount of money to be raised so far by any e-commerce company in India in a single round
  • According to sources, the company will invest in warehouse automation using latest technology like robotics, further acquisitions and category expansions

Disclaimer: Rediff.com also has an e-commerce business which competes in some areas with Flipkart.



Tags: Myntra , India

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