Slowdown creates opportunity for e-commerce to grow faster: Sachin Bansal

Bansal speaks about expanding into new product categories and the shift to the marketplace model

Flipkart.com, which recently raised $200 million from investors, including Accel Partners and Tiger Global, is the face of e-commerce in India. Having launched its marketplace platform earlier this year, the company has also attracted the attention of regulators, who have banned foreign direct investment (FDI) in e-commerce. In February, Flipkart effectively moved to Singapore, setting up Flipkart Holdings Singapore that owns and runs the technology and the back-end, and selling the front-end operationWS Retail Services to a group of Indian investors. The change came even as India’s Enforcement Directorate was probing the company for violations of India’s foreign exchange laws. Indian laws do not prohibit foreign investment in a marketplace.

In an interview, co-founder and chief executive Sachin Bansal spoke about expanding into new product categories, the shift to the marketplace model (WS Retail is one of the sellers in Flipkart’s marketplace), the status of the probe by the Enforcement Directorate and working with co-founder Binny Bansal. Edited excerpts:

You started out as a bookseller and then entered many product categories over the years. What are the things or criteria for entering a new category?

E-commerce in India is a land grab opportunity. We see an opportunity in almost every category. The expansion is limited only by our capabilities because the market is huge. Reliability and scalability on the supply side are the main things.

Which new product categories are you looking at entering currently?

We’re already in most categories. What I’m looking forward to is (selling) large items—large electronics, refrigerators, TVs, washing machines, furniture, large sporting gear. There is a very big market for heavy, bulky items. We don’t have these and we’re focusing on how to solve it. It requires a different supply chain investment and we are going to make it. Another category is fashion. We are in it but we can make it huge. In India, the market for clothes and shoes is bigger than electronics.

You’ve exited some categories, online music store Flyte for example. What went wrong?

Our understanding of the market was not deep enough. But in a sense the launch of the product itself was the test for the market. Sometimes, we need a sense of over optimism otherwise you will never try things.

Flipkart launched its marketplace platform earlier this year. Do you own inventory or are you a pure marketplace?

All our sales (to consumers) happen through the marketplace now. We do keep some inventory. Some of the inventory we keep and sell it to our sellers. There are other B2B (business to business) players who buy from us as well. So our own inventory is for B2B sales and as support for sellers. We have 700 sellers now and we’re ramping up. In a year’s time, we want to get to 10,000 sellers.

When did you sell WS Retail (the company’s former front-end business)? What kind of business relationship does Flipkart have with WS Retail now?

It’s a seller on Flipkart now. It’s our largest seller in fact. The change happened a few years back when we made it a separate company. We started separating the front-end and backend of the business in 2009 and our idea was to get separate investors. As regulations changed, we had to sell it.

What’s the status of the Enforcement Directorate probe and what questions have they asked you?

Without getting into the specifics, government bodies have the right to ask questions and our job is to comply and answer their questions. We feel that we’re completely on the right side of the law and completely compliant with regulations. I wouldn’t be able to get into more specifics.

How much of your business comes from mobile and at what rate is that growing?

Twenty percent of our traffic comes from mobile, excluding tablets. 3G speeds are improving, rates have come down … The rate of growth on mobile is exponential.

What are the important things that you’ve learnt about the Indian consumer?

Lately, there have been service issues at Flipkart (regarding delivery of large items). We got a lot of negative publicity about it and rightly so. We did not meet our promises. But we are fixing that and we’ll come back … What that taught me is Indian consumers care deeply about service. That’s what our premise was when we started Flipkart. There were always players who were cheaper than us. We said we’ll differentiate Flipkart on service. And our success is living proof that Indian consumers greatly appreciate quality service and give more importance to service than just cheap prices.

E-commerce is a small sector right now. Even so, has the weak economy affected your growth?

E-commerce is too small right now to be influenced by macro factors. The slowdown possibly creates an opportunity for e-commerce to grow faster. If you look at Amazon, it’s faster after the recession of 2008. Consumers become more price and value conscious during a slowdown. Offline stores because of their high cost structure struggle during slowdown.

For entrepreneurs there’s always the question, when do I sell? What about you? Are you building to sell?

There are pros and cons for both sides. It’s about what the founders want. We want to build the company.

It can be one the largest e-commerce companies in the world; we can be in the top five. India can produce that kind of a company, given the number of the consumers. So we want to be independent and build the company. Our role models are not companies which have sold, but companies like Airtel andInfosys, which have built large businesses.

You’ve raised more money than probably any other start-up in India. What kind of pressure are you under from investors?

Investors invest money obviously where they can make money. From an investor point of view Flipkart is a gold mine. The market is huge and there’s no limit to growth and then you look at our leadership position—we’re more than a third of the market. Then you look at the kind of management talent here … If you put all that together the answer is obvious. I don’t feel the pressure. It’s a personal thing. The kind of investors we have are not just money investors. Tiger Global for example has 50-60 e-commerce investments. So they bring a great perspective.

As you grow larger how is your board evolving?

We want to make our board more independent. We have one independent director right now, Rajesh Magow, the CEO of MakeMyTrip. He’s added a lot of value and we’ll be looking to add more independent board members.

E-commerce is a new sector. Is it challenging to explain what you do to regulators? What regulations do you want passed?

We work very hard with trade and government bodies to build a case for e-commerce. They are taking some time to understand … On the regulations front, we would like to see stability. There’s uncertainty right now and it should not always be a catch up game. The definition of group company is an example—regulations on that have changed a few times and it’s still a bit ambiguous.

Flipkart has seen many executive departures at the senior management level. Is the company struggling to retain talent and what do you do to reduce attrition?

If someone thinks Flipkart is not the right place, or that there’s something better out there, there’s not much you can do. But trying to do a better job while hiring is one thing we can do.

When you hire, you don’t just look for capabilities. It’s also the alignment on what the company needs and what the hires want to do. We can do that better and we’ve been doing better after making a few mistakes. In any case, the number of senior executives who have left Flipkart is not more than for any other company.

It’s essential for start-ups that their founders have functional relationships, at the least. What are the dynamics between Binny Bansal and you?

Trust and understanding between founders are very important. Mistakes happen. There are disagreements and sometimes I would decide to do something because I was so passionate about it but it turned out to be the wrong decision. What we’ve been able to do is not blame each other for mistakes. If we’re not able to come to an agreement, the guy who’s more passionate about the issue will take the decision. But we never do things like, ‘I told you so.’ That’s wrong, even if you had told the other so! Having complementary skills is also important. Binny is able to analyse a lot of data, which I sometimes find difficult. Whereas I come from the other way—sometimes I form a hypothesis and then look at data.