Flipkart Finds Frugal Ways To Save Costs

As Flipkart struggles to cut down cost after a series of management reshuffle, the e-commerce firm is looking at reducing its real estate spending, signaling tough times ahead for the poster boy of Indian startups.

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The company, which in 2015 had agreed to take up two million sq-ft of office space, is negotiating to reduce it to just 900,000 sq-ft. That’s less than half, in just two years. While the real estate deal does not tell much about the health of Flipkart in particular but it does say that Flipkart won’t hire as many as it had planned to, earlier. Add to that, the cost it saves around Rs 50 per sq-ft maybe that it will need to fund it discount was against global heavyweight Amazon.

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Last year, Snapdeal also consolidated several of its offices in the National Capital Region into one central office spread over 4.5 lakh sq ft in the Udyog Vihar area of Gurgaon.

In less than two years, Flipkart’s market value is slashed to a third from its peak of $15 billion, marked down by its own investors. The rise of Amazon, to become a close second has only made things worse for the Indian grown startup. Increasing the ante, there are talks of Alibaba entering the Indian e-commerce market along with Paytm.

Steps taken by Flipkart to reduce costs

Unlike other etailers, Flipkart took some smart and aggressive steps to cut down on cash burn and improve Net Promoter Score (NPS).

Last year, Flipkart took the decision to merge departments, keeping hiring to minimum and centralizing purchases to save costs by as much as 30%. Flipkart is offering employees who have failed to meet professional expectations the choice to either resign or be sent off with severance pay; a decision that is likely to impact around 700-1000 employees and is seen as reflective of the challenging times that currently exist in the online retail industry, which is attempting to find a balance between saving costs and chasing a high rate of growth. It has begun curbing discounts, capping salary increments and reducing its monthly burn rate from in the first half of 2016 to $40 million in the latter half of the year.

The market leader has revised its return policy from a 30-day window to just 10 days for top-selling products. The 30-day return policy had led to a logistical nightmare and additional operational expenses for this marketplace’s sellers, who had to pay for the returned shipment from their own pockets.

Flipkart, taking a leaf out of American e-commerce startup Jet.com’s book to save on delivery charges, plans to offer discounts by

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encouraging consumers to pick up multiple items that can be shipped in one box.

Flipkart CEO Kalyan Krishnamurthy has ordered a freeze on some of the firm’s moon-shot projects and is not allocating any fresh budgets towards its F7 Labs in Silicon Valley, the people said. Flipkart’s logistics unit Ekart has also shut its customer-to-customer service and hyper-local delivery offering.

Gaining steam

Under Krishnamurthy, Flipkart is already showing signs of sustaining its turnaround. The company pulled in gross sales of more than Rs2,600 crore in both December and January. Amazon, on the other hand, generated gross sales of roughly Rs2,300 crore, on average, in these months. If sales at Flipkart’s fashion units Myntra and Jabong are included, the company is much ahead of Amazon.

Conclusion

There are a number of ways of reducing costs all the way down the process of your e-commerce business. Supply and shipping solutions need to be compared and weighed according to your business strategy. With care, there are many profitable opportunities still waiting to be found.

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