Flipkart last month announced that it has raised $1.4 billion in funding from Tencent, eBay, and Microsoft and that it will be buying eBay’s Indian business. It is also in talks with Snapdeal for a possible merger or acquisition. But would buying these broken businesses help Flipkart fight Amazon? This questions haunts the aficionados of the Indian startup movement. If Flipkart manages to somehow find success, the nation’s nascent startup momentum will continue. If it fails, it will fail in a very public way, and it will take down the entire industry’s momentum with it. Especially, it will dramatically dampen the Indian e-commerce sector’s hopes and dreams. This post is an attempt to look for a silver lining that may be able to turnaround the company.

Flipkart’s Financials

The recent $1.4-billion funding deal is led by China’s Tencent with an investment of $700 million. eBay will contribute $500 million and receive Flipkart stock worth $200 million for eBay India. Microsoft, which recently entered into an agreement with Flipkart to make Azure its exclusive public cloud platform, will put in $200 million. The round valued Flipkart at $11.6 billion, down from its earlier high of $15.2 billion. But it is still higher than the markdowns its valuation received that pushed them down to $5.58 billion.

Prior to this round, Flipkart had raised $3.15 billion in funding from investors including Tiger Global Management, DST Global, Qatar Investment Authority, T. Rowe Price, Steadview Capital, Greenoaks Capital Management, Baillie Gifford, Sofina, Singapore GIC, Morgan Stanley, Accel Partners, Naspers, Iconiq Capital, Dragoneer Investment Group, and Vulcan Capital.

Flipkart does not disclose the details of its financials. According to Economic Times, revenues shot up 50.3% INR 15,403 crore ($2.3 billion) in fiscal 2016 while losses jumped 75% to INR 5,223 crore ($780 million).

In contrast, Amazon India, on the other hand posted revenue of INR 2,275 crore ($341 million) and losses of INR 3,571 crore ($530 million) in fiscal 2016. Snapdeal’s revenues grew 56% to INR 1,457 crore (~$217 million) in fiscal 2016 but losses grew 150% to INR 1,328 crore (~$198 million). eBay India’s losses grew 52% to INR 262 crore (~$40 million) on sales of INR 392 crore (~$60 million) in 2016.

Flipkart’s Journey

Founded in 2007 by former Amazon employees Binny Bansal and Sachin Bansal, Flipkart originally began by selling books on their site, but it has now evolved into a full-scale online retailer with over 40 million products across over 80 categories.

Today, it has over 10 million daily page visits from over 100 million registered users, 100,000 sellers, 21 state-of-the-art warehouses, and the capability to ship over 8 million packages per month.

Flipkart Fashion, which includes Myntra and Jabong, claims to have 60,000 brands, 5 million styles, over 8 million listings, and over 100 million searches a month. It accounted for about 33% of Flipkart’s gross sales in the September quarter.

For its entire existence, Flipkart has tried to copy Amazon.

Flipkart’s Turnaround Strategy

Acquiring more marketplaces, that too loss-making ones, will not do Flipkart any good. They are most likely not going to help in adding more customers. In fact, it is quite possible that Snapdeal or eBay customers are already Flipkart customers scouting for better deals on these sites.

So, how can Flipkart woo customers without making losses? The answer does not lie in logistics or pricing but in unique products and user experience.

Flipkart has in the past profited from a unique product strategy. In the 2013-2014 timeframe, it wooed customers with high-quality smartphone models from top manufacturers such as Xiaomi and Motorola at low prices. These brands, which were exclusive to Flipkart, then shifted loyalties to Amazon, giving it the platform to mount an assault on Flipkart’s lead.

In December last year, Flipkart launched a private label business under an umbrella brand called Flipkart Smart Buy, as part of a push to improve margins. Flipkart Smart Buy will span 25-30 categories in electronics, electronic accessories and home plastics for starters.

Flipkart also has a private label strategy in place for its fashion business. Myntra has a total of 14 private label brands, including Moda Rapido, DressBerry, Yellow Kite, Kook N Keech, and Invictus among others. Private labels offer higher margins of about 60% to 65% compared to 35% to 45% on regular brands. Private labels are expected to contribute 21% of Myntra’s total revenue by 2017, 25% by 2018 and 30% by the end of 2019.

In August 2016, Myntra had acquired a majority stake in film actor Hrithik Roshan’s HRX brand to boost revenue from private labels.

In March this year, Myntra launched its first offline store for its most profitable private label brand Roadster in Bangalore. Launched in 2012, Roadster is Myntra’s most profitable brand. It has surpassed $77 million (Rs 500 crore) revenue in 2016. With currently over 7,500 products that include apparel, footwear, accessories, and even fashion jewellery for men and women, it expects to reach a run rate of $154 million (Rs 1000 crore) by FY19.

The 4,000 sq. ft. store is being been positioned more as an experience centre rather than a significant revenue generator. It is equipped with multiple touch screen displays that provide data on key looks and the Roadster catalogue. Removing standard operating processes like checkout counters, lines or excessive amounts of shopping bags, the “Scan & Go” purchase mechanism allows shoppers to add their favorites to their shopping cart on the Myntra App.

Amazon has also started focusing on Fashion in a big way and has hired a former Myntra executive as part of these efforts. In the US, Amazon Fashion introduced seven private apparel brands to Prime members, including Goodthreads, Amazon Essentials, Paris Sunday, Mae, Ella Moon, Buttoned Down, and Lark & Ro.

Amazon has also introduced Echo Look, which combines features of Alexa with a hands-free camera and built-in style assistant, which combines machine learning algorithms with advice from fashion specialists.

Amazon is giving Flipkart a tough fight on all fronts. Flipkart cannot really afford to defocus itself by acquiring broken companies. It needs to create a differentiated private label business that attracts customers and wallet share with unique products. There’s not a chance for them to win the logistics or pricing game. Exclusive products, however, is a reasonable bet where they CAN make their mark. Additionally, private label product businesses tend to be way more profitable than third-party retail and marketplaces.

A lot is riding on Flipkart’s destiny for India. Bogus maneuvers like the eBay India deal should have been avoided. I hope, we’re not about to see another bogus maneuver in form of a Snapdeal acquisition next.

On the other hand, the private label strategy is promising, and it needs 100% focus from the Flipkart management and investors.