Snapdeal, once a rising star in India’s e-commerce galaxy, now stands as a cautionary tale of missed opportunities and strategic missteps. This gives rise to an obvious question- Why did Snapdeal fail? There aren’t just one or two but many reasons!
From fierce competition with giants like Amazon and Flipkart to internal conflicts and a shift in consumer preferences, we unravel the story behind Snapdeal’s demise. Understanding these crucial lessons can illuminate the path to success for budding entrepreneurs and business enthusiasts alike.
For an in-depth exploration of Snapdeal’s journey and the valuable insights it offers. Read the full article – a compelling narrative of ambition, challenges, and ultimate consequences!
(A) Synopsis: The Rocky Road for Snapdeal
In the not-so-distant past, Snapdeal, once a prominent online retailer held the coveted position as the second-best online shopping destination. And that too just trailing behind Flipkart. However, the landscape changed significantly in 2016 when Amazon entered the Indian market with a colossal $3 billion investment. This formidable competition posed insurmountable challenges for Snapdeal, causing them to struggle to keep pace.
Apart from the competition, its foremost struggle involved securing additional capital while grappling with internal conflicts. They discontinued certain previous practices, implementing cost-cutting measures, and regrettably, reducing their workforce to enhance fiscal stability.
Despite all these downfalls, Snapdeal somehow managed to embark on a transformational journey. Snapdeal also explored the possibility of merging with Flipkart, but the deal ultimately fell through, with Snapdeal being the one to decline the offer. Additionally, their plans to raise funds through a Rs.1,250 crore IPO were put on hold. All of these predicaments raise a pivotal question- Why did Snapdeal fail?
For answers, continue reading in the following sections.
(B) Why did Snapdeal fail?
Here comes the core part of this write-up. Let’s look at the reasons responsible for the failure of Snapdeal-
(B.1) Flaws in the Business Model
Snapdeal faced a critical flaw in its business approach.
Ineffective Working Strategy
|Conservative Investment Approach||Snapdeal’s conservative investment strategy, aiming to achieve more with fewer investments, led to a lack of inventory ownership until 2013.|
|Forced Inventory Ownership||Intense competition from Amazon and Flipkart forced Snapdeal to start maintaining inventory in 2013, altering their business model.|
|Quality Control Issues||Snapdeal faced customer complaints due to the absence of robust quality control measures, affecting the quality of products received.|
|Ineffective SD+ Warehouse Model||Despite introducing the SD+ warehouse model, Snapdeal struggled to integrate it effectively to ensure quality control and streamline operations.|
The Pitfalls in Snapdeal’s Business Strategy
|Steep Discounting and COD Services||Snapdeal heavily relied on steep discounting and offering Cash on Delivery (COD) services, mirroring competitors’ practices. Initially advantageous, this approach eventually led to their downfall.|
|Failure to anticipate change||Snapdeal’s failure to anticipate changing market dynamics played a critical role in its decline.|
The Financial Challenge
|Excessive Expenses||Snapdeal’s expenses, especially on advertising and discount offers, continued to rise due to its strategy of emulating competitors.|
|Stagnant Revenue Growth||Despite increased spending, Snapdeal’s revenue did not grow at a corresponding rate, creating a significant financial challenge.|
Snapdeal’s business model mirrored the steep discounting and Cash on Delivery (COD) service offered by other market players. Initially, this strategy gave them an edge, but it eventually contributed to their downfall. Snapdeal failed to anticipate the changes in the market dynamics. For a company to succeed and ultimately turn a profit, its sales and revenue must surpass its expenses.
In Snapdeal’s case, their spending on advertising and discount offers continued to rise due to their strategy of emulating competitors, while revenue failed to grow at the same rate. With Flipkart and Amazon boasting deeper pockets, they could sustain the competition, ultimately causing Snapdeal to face a slow and inevitable decline.
(B.2) Lack of Innovation
Why did Snapdeal fail? Because the company consistently embraced a strategy of emulating successful models from other companies. This approach involved identifying models that had thrived in foreign markets and attempting to duplicate their success in India. However, it’s crucial to recognize that this approach is inherently short-sighted. Firms lacking innovation find it challenging to meet their customers’ long-term expectations.
Consequently, they often invest substantial resources in these borrowed business models, only to falter during execution due to a limited understanding of the model’s intricacies. While this approach may find success in countries like China, with protected markets and a knack for crafting impeccable replicas, it faces formidable obstacles in open economies like India. Here, where industry titans like Amazon and eBay boast extensive experience and reputation, remaining competitive without a commitment to innovation becomes an almost insurmountable task.
(B.3) Poor Execution of Strategies
Inadequate strategy execution posed a significant hurdle for Snapdeal. Successful strategy planning and execution require a substantial amount of focus and expertise, especially from the outset. Additionally, Snapdeal’s extensive investor network created a situation akin to “too many cooks spoil the soup.”
Unfortunately, the company lacked a well-defined growth plan. Snapdeal experienced growth, but it often came at the expense of profitability. Fueled by substantial investments from prominent backers and mirroring Flipkart’s entry into the e-commerce arena, Snapdeal expanded rapidly without a clear path to sustainable profitability.
(B.4) Costly Decisions
The brand invested approximately Rs.200 crore in a rebranding effort, despite facing financial challenges at the time. Unfortunately, all these resources were expended in vain due to a lack of clear campaign direction.
Additionally, the company underwent numerous acquisitions, many of which failed to yield long-term benefits. One notable example was the sale of their digital payment platform, FreeCharge, to Axis Bank at a reduced value of 60%. This acquisition was a significant milestone in the Indian startup industry.
Snapdeal’s ambitious omnichannel strategy, designed to revolutionize customer experience by offering online product discovery and faster local delivery, ultimately faltered due to internal conflicts, inefficient execution, and strategic mismanagement. Regrettably, this endeavor also incurred a loss of 10 crore rupees for the company.
(B.5) Neck-less Recruitment
The approach to recruitment at this company was not simply about hiring; it primarily relied on referrals, bypassing any structured selection procedures. This led to a situation where deserving candidates were often overlooked in favor of less qualified individuals. Instead of focusing on improving the company’s profitability, they embarked on an extensive recruitment drive, predominantly targeting students from prestigious institutions like IITs and IIMs. Despite setting ambitious goals, there was a lack of accountability for achieving these targets.
Consequently, the company’s salary expenses ballooned while productivity declined. Observers, including experts who closely monitored their recruitment practices at top engineering and management institutes, were left perplexed by the substantial salaries being offered and questioned the company’s utilization of these hires. Eventually, the reasons behind this approach became evident.
(B.6) Absence of a Seller Arm
Snapdeal faced a significant setback due to the absence of a seller counterpart, similar to Flipkart’s WSR and Amazon’s Cloudtail. This missing component was crucial for Snapdeal’s sustainability in the market. WSR and Cloudtail played pivotal roles in establishing customer confidence.
Many of the top-tier sellers made the strategic shift to Amazon or Flipkart because they offered more favorable working conditions and promising prospects. These prominent sellers did not feel adequately appreciated within Snapdeal, and as a result, they actively sought opportunities elsewhere, which were readily available through Amazon and Flipkart.
(B.7) Directionless Acquisitions
During its six-year tenure, Snapdeal made acquisitions of 12 companies, including GoJavas, TargetingMantra, Reduce Data, Fashiate, MartMobi Technologies, RupeePower, Exclusively, Wishpicker, Doozton, Shopo, eSportsBuydotcom, and Grabbondotcom. Unfortunately, the company failed to harness the potential of any of these acquisitions. This was also a reason for why did Snapdeal fail.
Furthermore, their joint venture with DEN and Freecharge proved to be one of their most ill-fated investments, as they were unable to fully capitalize on the advantages offered by both entities.
(C) Why Flipkart and Snapdeal merger failed?
The merger between Flipkart and Snapdeal merger failed due to the following reasons-
(C.1) Disagreement Among Investors
One of the central issues that contributed to the collapse of the merger between Flipkart and Snapdeal was the inability of all investors to come to a mutual agreement on the merger terms. This was a requirement set forth by Flipkart, and the failure to achieve consensus became a significant obstacle.
(C.2) Founder Resistance
Another critical factor was the resistance of Snapdeal’s founders to the merger. Their reluctance to proceed with the merger added substantial complexity to the negotiation process.
(C.3) Stakeholder Discontent
Many stakeholders expressed their dissatisfaction with the special payout provision proposed for Snapdeal’s early investors, specifically Nexus Venture Partners and Kalaari Capital. This discontent among stakeholders further strained the merger discussions.
(C.4) Complex Financial Clauses
Flipkart introduced intricate indemnity clauses into Snapdeal’s financials, which did not receive a favorable response from the stakeholders. These clauses added complexity and uncertainty to the merger deal.
(C.5) Discord among Stakeholders
The primary reason for the merger’s failure can be attributed to the lack of agreement among stakeholders regarding the deal’s terms and valuation. The inability to reach a consensus on how to structure the merger ultimately proved fatal to the deal.
(C.6) Stringent Approval Requirements
Notably, Flipkart required unanimous approval from all of Snapdeal’s shareholders, a more stringent requirement than a simple majority approval. This raised the bar for consensus and made it challenging to move forward with the merger.
(C.7) Restrictive Non-Solicit Clause
A five-year non-solicit clause was introduced, preventing shareholders from engaging with Flipkart’s employees, buyers, or sellers during this period. This clause added another layer of complexity to the merger and may have deterred some stakeholders.
(C.8) Independent Business Decision
In response to the failed merger, Snapdeal’s co-founder, Kunal Bahl, emphasized the importance of continuing to build the business independently. This decision was pivotal and indicated that the merger’s failure led to a strategic shift for Snapdeal.
(C.9) Impact on Investors
The unsuccessful merger had implications for SoftBank Group, Snapdeal’s largest investor, which had actively sought to orchestrate the merger. This was also an indirect reason for- Why did Snapdeal fail? The outcome of the failed merger was a setback for SoftBank Group’s investment plans.
Note: SoftBank is one of the most famous and prolific investors in the Indian startup ecosystem. Have you wondered from where it gets all the money to invest? We have explained the topic “What does SoftBank do?” Check it out for detailed information.
(D) Is Snapdeal profitable?
In recent news headlines, it was reported that Snapdeal has made substantial progress in reducing its losses, aiming for profitability. Snapdeal, a prominent player in the fashion and lifestyle e-commerce industry, managed to cut its losses by approximately 93% to 94% during the 2023 fiscal year.
The company is optimistic about achieving overall profitability within the next two months. Snapdeal’s CEO, Himanshu Chakrawarti, attributed this transformation to changes in the business environment, including investor funding, and emphasized their commitment to accelerating the journey toward profitability.
In contrast, the 2022 fiscal year recorded significant losses amounting to Rs510 crore, a notable increase from the previous year, as reported by market intelligence platform Tofler. However, Snapdeal’s strategic focus on cost-cutting initiatives over the past year has resulted in a substantial reduction in yearly losses. The more detailed financial results for the 2023 fiscal year are set to be revealed upon their publication by Snapdeal.
(E) Future plans of Snapdeal
Snapdeal has unveiled its strategic roadmap for growth, outlining its intention to diversify into omnichannel distribution through offline retail outlets and collaborative partnerships. Furthermore, Snapdeal had initially aimed to introduce an initial public offering (IPO) by March 2022 to secure additional funding for expansion.
However, it’s worth noting that Snapdeal decided to postpone its IPO plans due to prevailing market conditions, with a possibility of revisiting the idea in the future, contingent upon growth capital requirements and market dynamics.
In July 2022, reports surfaced indicating that Snapdeal is set to make a pioneering move by joining the government-backed Open Network for Digital Commerce (ONDC). This development marks a significant milestone, as Snapdeal will become the inaugural e-commerce marketplace to participate in the ONDC initiative. Under this program, Snapdeal plans to launch offerings in three key categories: fashion, home, personal, and beauty care.
Note: We have thoroughly explained the concept of ONDC. If you are curious to know about this new tech revolution in India, then do check out the article!
Snapdeal’s downfall can be attributed to a combination of factors. Its excessive spending on rebranding, lack of a clear growth strategy, and unrealistic valuation expectations all played pivotal roles. Furthermore, intense competition in the e-commerce sector compounded these issues. By now you must have understood why did Snapdeal fail!
While Snapdeal aims to achieve profitability in the near future, its past financial struggles, including rising losses, pose significant challenges. However, the company persists in its commitment to profitability and harnessing its customer base for future growth, demonstrating resilience in the face of adversity.
The lessons learned from Snapdeal’s journey serve as valuable insights for the ever-evolving landscape of e-commerce!