 "We're witnessing month-on-month growth of 60 to 70 per cent: Ananth Narayanan")
For years, Ananth Narayanan has helped companies to focus and build growth on business fundamentals. Four months into his present job as chief executive officer at Myntra, the fashion e-store of Flipkart, he tells Anita Babu & Raghu Krishnan enough’s been spent in building scale for a look now at profitable growth. Excerpts:
In these four months, what have you learnt and unlearnt?
The pace of the business and the (e-commerce) industry is very high, more than I have seen in any business. Consumer dynamics are much more frequent. Fashion is one of the few verticals where one can be both large and profitable. We’re at an inflexion point. We have had quite a bit of progress towards unit economics and scale. We’re growing month on month between 60 and 70 per cent. Our customer repeat rate is between 80 to 85 per cent.
How long can you burn money?
We are fortunate to be owned by Flipkart. I think we will burn money till we actually think it is necessary. But, by the end of 2016, we want to get to profitability. The nuance is that I will push for Ebitda (earnings before interest, taxes, depreciation and amortisation) profitability because that is important for a sustainable business model. I also want to make sure we are investing for the next 10 years, as the business will be 10-fold. Currently, we are at $550 million gross merchandise value (GMV).
Next year, we will become $1 billion but we have to ensure we’re building the organisation for a $2-3 bn GMV.
What was the biggest task for you when you came in as CEO?
Three things. Creating strategic clarity over the next two years;in terms of revenue, what are the big bets, etc; and, to understand deeply what the whole business is all about. I have spent a lot of time with our product, technology and delivery teams, etc. Understanding the business, customers and our own people was important for me to get started and for execution rigour.
How is your partnership with international and private brands shaping?
About five per cent of our revenue comes from international brands. I think there is a lot more we could do. This can go up to 15 per cent over the next 18 months. For private brands, it can go up to 30 per cent from the existing 20 per cent. Roadster (their clothing and footwear line) is turning out to be significant. It is about Rs 300 crore in (annual) revenue already.
What happens when competition increases and each one burns money to attract customers?
It is a journey from 1.5 per cent to 15 per cent growth. There’s enough and more ways to grow. Indian consumers are becoming more and more nuanced. I can see that in my data. Over a period of time, the number of repeat customers, the number of card payments, the number of people looking for brands, etc, have all gone up. There will be a lot of offline players launching online. That will actually continue to get consumers to transact online. The actions of a market leader like Myntra will influence the rate of growth. We determine a lot of the market growth because how fast we grow determines roughly a chunk of the market growth.
Where is the traffic coming from?
Fifty-five per cent of our revenue and 60 per cent of our traffic comes from tier-2 towns and beyond. They’re all equally brand conscious and fashion conscious. They do not have malls. During one of my regular customer calls, a consumer in Udaipur was telling me he that has to go all the way to Bombay to buy his Antony Morato jeans. He was telling me if you have Armani, I will buy it. Clearly, there is money, an awareness of brands.
We see a funding crunch happening. Do you think it will impact new ideas?
My view is that funding for ideas that don’t have a clear business case will go down. It has already gone down. On ideas which can be built into big businesses, yes, there maybe more scrutiny, but, funding will continue. Some of it is luck and timing that we’re already ahead in the game in terms of making the business sustainable, before it actually becomes a problem. I really think businesses should be sustainable and making money. I think we are getting there; I don’t think it’s an easy journey, it will take us time. But, with every step of the journey, we are getting better.
In these four months, what have you learnt and unlearnt?
The pace of the business and the (e-commerce) industry is very high, more than I have seen in any business. Consumer dynamics are much more frequent. Fashion is one of the few verticals where one can be both large and profitable. We’re at an inflexion point. We have had quite a bit of progress towards unit economics and scale. We’re growing month on month between 60 and 70 per cent. Our customer repeat rate is between 80 to 85 per cent.
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The only difference I see in e-commerce is that one can invest a lot more on growth. I have seen the more stable businesses where we were fighting for market share. Online commerce has only 1.2 per cent penetration in India; in other major countries, it is around 12 per cent. We have 10-fold growth waiting right in front of us.
How long can you burn money?
We are fortunate to be owned by Flipkart. I think we will burn money till we actually think it is necessary. But, by the end of 2016, we want to get to profitability. The nuance is that I will push for Ebitda (earnings before interest, taxes, depreciation and amortisation) profitability because that is important for a sustainable business model. I also want to make sure we are investing for the next 10 years, as the business will be 10-fold. Currently, we are at $550 million gross merchandise value (GMV).
Next year, we will become $1 billion but we have to ensure we’re building the organisation for a $2-3 bn GMV.
What was the biggest task for you when you came in as CEO?
Three things. Creating strategic clarity over the next two years;in terms of revenue, what are the big bets, etc; and, to understand deeply what the whole business is all about. I have spent a lot of time with our product, technology and delivery teams, etc. Understanding the business, customers and our own people was important for me to get started and for execution rigour.
How is your partnership with international and private brands shaping?
About five per cent of our revenue comes from international brands. I think there is a lot more we could do. This can go up to 15 per cent over the next 18 months. For private brands, it can go up to 30 per cent from the existing 20 per cent. Roadster (their clothing and footwear line) is turning out to be significant. It is about Rs 300 crore in (annual) revenue already.
What happens when competition increases and each one burns money to attract customers?
It is a journey from 1.5 per cent to 15 per cent growth. There’s enough and more ways to grow. Indian consumers are becoming more and more nuanced. I can see that in my data. Over a period of time, the number of repeat customers, the number of card payments, the number of people looking for brands, etc, have all gone up. There will be a lot of offline players launching online. That will actually continue to get consumers to transact online. The actions of a market leader like Myntra will influence the rate of growth. We determine a lot of the market growth because how fast we grow determines roughly a chunk of the market growth.
Where is the traffic coming from?
Fifty-five per cent of our revenue and 60 per cent of our traffic comes from tier-2 towns and beyond. They’re all equally brand conscious and fashion conscious. They do not have malls. During one of my regular customer calls, a consumer in Udaipur was telling me he that has to go all the way to Bombay to buy his Antony Morato jeans. He was telling me if you have Armani, I will buy it. Clearly, there is money, an awareness of brands.
We see a funding crunch happening. Do you think it will impact new ideas?
My view is that funding for ideas that don’t have a clear business case will go down. It has already gone down. On ideas which can be built into big businesses, yes, there maybe more scrutiny, but, funding will continue. Some of it is luck and timing that we’re already ahead in the game in terms of making the business sustainable, before it actually becomes a problem. I really think businesses should be sustainable and making money. I think we are getting there; I don’t think it’s an easy journey, it will take us time. But, with every step of the journey, we are getting better.