Sustainability of Loss Making Online Companies

How do you swallow this: Flipkart which was established in year 2007 has never earned profit till date. It has accumulated losses in hundreds of crores till now (e.g. it reported Rs 281 Crores in losses in FY 2013). But this year Flipkart founders Sachin and Binny Bansal have become India's 86th richest persons with wealth of $1.3 Billion each.

Compare this case with Kingfisher and Vijay Mallya. The company was making losses while Vijay Mallya was India's 84th richest man till year 2013. Perhaps not many would have raised brow even at him if he kept finding investors to keep his loss making company running. But ultimately his company went bankrupt and he also came out of India's 100 richest persons list. It was not only a personal loss for him but it meant disaster for thousands of his employees.

Can the story repeat itself with Flipkart? Most likely no - but it is only a guess. Flipkart has some 33,000 employees. What if the company fails? It would surely be tough for its employees and their family members. Same case with so many other online retail companies.

My point or concern is simple: what are our regulators doing about it? Is not some government regulator meant to keep track of such risky businesses - losses for 8 years straight with owners rising high on the Billionaires list? Of course I am not saying ban them; but owners should be held more responsible by regulators if their employees count goes > a threshold.

I think there is a strong case to bring out some sort of mechanism to protect workers and other stakeholders in case of such companies.

- Rahul

[Disclaimer: Views expressed are personal]

My Article Published: 'Wal-Mart in Banking?'

My Article titled “Walmart in Banking?” has been published today on MBASkool.com. You can read it here:

http://www.mbaskool.com/business-articles/finance/187-walmart-in-banking-and-financial-sector.html

The article analyses Wal-Mart’s interests in the banking and financial sector and tries to see the business rationale in those. It also analyses whether such a move is beneficial for the stakeholders.

Do read and if possible comment/discuss, like, or recommend.

- Rahul

Propaganda of Retail

A government ‘study’ has come up, proving that organised big retail is harming the unorganised small retail shops’ business. [Link] This survey (and they call it a study) was started on the directive of UPA chairperson. The survey involved around 1000 small retailers in four Indian cities, including 800 who were within a 2.5 km radius of new organised retailers. The methodology of the survey involved asking small unorganised retailers whether their sales have been affected by the emergence of big retailers or not. The result? 50% of small retailers reported lower sales, and 61% of surveyed retailers pointed to competition from organised retail for their declining financial health.

In my small town, my neighbourhood kirana store gave me some discount even over the maximum retail price (MRP), at lease for some items like Chyavanpras, Horlicks, and some local made products. Here in Mumbai, the neighbour mom-n-pop store takes not a penny less than whatever is printed over the packet, even if the item is an agarbatti. On the other hand, they will keep complaining of the Big Bazars and the big malls. The point is, in absence of an option, I will have to buy from the small shop, at higher price and some times bad service. But if I get an option and go to a Big Bazar or Hyper City, the small store wallahs would complain.

I don’t understand why either the government or the industry should take note of this survey. This is common psychology that a small shop owner would always complain of losses due to the presence of a big retail outlet. If we had to remain small, whole India would remain nothing but a Sabji Mandi! I believe organised retail is a thing whose time has come.

How many small unorganised retailers give you proper receipts and pay income taxes to government? How many of them cover their employees with insurance? How many of them give dignity to the employees they take help of? How many never employ child labour? It is sad that while the governments worldwide would like the unorganised sectors to migrate into organised ones, the politics of numbers would make the governments in India try to keep up the status quo. India should remain a nation of snake charmers, you know. Pappu paas kab hoga?