What Attracted Letsbuy To Diversify Beyond Electronics E-tailing & Life After Selloff To Flipkart

21 Mar, 2012

When Letsbuy, (a part of eTree Marketing Pvt Ltd) was launched by Hitesh Dhingra and Amanpreet Bajaj in September 2009, its value proposition was clear – an exclusive electronics shop online. But six months ago, the firm diversified into other related categories like battery-operated toys and watches and more recently, into stationery, sports goods, kitchenware and more. Indeed, now that it is owned by Flipkart, a horizontal e-com portal, it may be well expected. But where does it leave Letsbuy?

When Techcircle.on bounced the question on the strategic move by Letsbuy to diversify beyond its core business, Dhingra said, "Electronics was really a tough category to break into and we managed it pretty well, by being one of the market leaders at some point. After a few months of our launch, we realised that 90 per cent of our buyers are male, and in order to retain them and gain some more, it was necessary to get into related categories."

Why The Chosen Categories?

Letsbuy managed to take a decent profit margin of about 10-12 per cent in electronics and 25-35 per cent in newer categories per transaction, which it believed to be a lot more than other lifestyle brands. It also found similar margins in the new categories it zeroed in. Moreover, unlike books and media, those categories did not require a different kind of supply chain.

"That's when the company realised that once you crack the supply chain and sourcing, you can get into any category, if you want to," pointed out Dhingra.

After introducing battery-operated toys and watches, Letsbuy witnessed repeat orders for the same and orders almost doubled, compared to that of electronics goods. That did it. According to Dhingra, "This excited us to get into more demographic profiles to acquire new buyers as these categories are easier to make live and don't need a separate supply chain. Moreover, be it for a horizontal or a vertical portal, these categories are still the least explored."

"Perhaps we are the only e-commerce company who are least capitalised (it raised) only a series A funding of $6 million) and managed to grow to a $30 million company," he noted.

Life After Buyout

Last month, Flipkart, the largest online retailer in India, acquired Letsbuy for an undisclosed amount, but the deal value was believed to be around $20-25 million. Talking about the rationale behind the deal, Dhingra said, "Perhaps Flipkart considered Letsbuy to be the strongest competitor. In fact, we had better relationships with brands and vendors than Flipkart had as it is still trying to crack this category."

"With Letsbuy in operation, Flipkart has better expertise in the 3Cs category. Now, it will have 70-80 per cent of the market share in electronics, which will help it become the market leader in both electronics and books segment," he added.

The integration process will take 6-12 months, though. According to Dhingra, "This was a pretty premature announcement as we are yet to sit with the Flipkart management – figuring out integration plans and strategising organisational changes."

"However, the common investors in Flipkart and Letsbuy helped us close the deal in just two months. Since they knew the companies, board approvals and the documentation process took very little time."

Flipkart's plans to have a dual-brand strategy like Amazon, which has a multi-brand portfolio of online properties while having a mother brand. But for now, Letsbuy will continue to operate as a separate entity and go ahead with its hiring plans to scale up its operations further. "We have managed to grow at a healthy rate of about 15-20 per cent month on month, even after the hard, turbulent days, and that too, when we haven't really spent any money on marketing for the last three months. We grew it from Rs 13-14 crore last year to Rs 150 crore this year," declared Dhingra.

However, each group will leverage the other's strengths in terms of sourcing, warehousing and logistics in order to improve customer satisfaction. Letsbuy gets the advantage to access Flipkart's technology platform and supply chain capabilities while Flipkart gets a 350-strong team of trained e-commerce personnel (another 100 are also there but on contract basis) besides domain expertise of the founders.

"We (Letsbuy founders) will stay on for some time, to help them with synergies and integration. And we will also wait to see how things play out, what individual roles we are given, to decide if we should stay on or move ahead, " signed off Dhingra.