I had recently written an article about why businesses like Flipkart cannot survive in the long term. Part one of this article is available below
Flipkart spent crores in setting up a new office. A multi-storeyed office which has a different theme for every floor. I don’t mind the idea of setting up a new office but why? Infosys set up its big campuses after years of hard labour and coming out with their only product Finacle which did really well.
In May 2015, Flipkart leased out 2 million square feet in office space paying a monthly rent of Rs. 50 for every square foot of the office for a lease term of 20 years. Here is how expensive this is. Rs. 1200000000 is the amount they need to pay in annual rental costs. This is just the rental cost. You can add the maintenance cost of their fancy new office which according to me is wasteful because maintaining such a posh office will not come cheap.
The buildings I have seen other big MNCs set up are simple yet elegant. They are smart enough to know that fancy furniture and fittings isn’t going to come cheap in the long term and will not contribute to any revenue generation. Sure it looks inexpensive now but later it will bleed out their reserves. Can you imagine a six-digit number in ‘maintenance costs’ as an entry in their profit and loss account? Explain that to your investors.
For years Flipkart spent its money on marketing its brand, its products and did not focus on the hard part which is convincing people to buy from their website because they offer genuine products. This has only been a recent trend, where they are showing advertisements (terrible ones made by IIM Marketing grads I assume) where they insist their products are genuine.
Where was this five years ago? People don’t always want a discount. People want assurance that Flipkart products are genuine. I still remember this incident in my former workplace. A Flipkart delivery executive gave me a package which had a memory card. My colleagues were asking me what is the guarantee it is genuine? I told I can’t really say that for any product if I start digging for information. I mean even a local retailer can always put a cellophane over the box and make it look genuine right? I just have some faith in the seller that it is genuine.
These days Flipkart has started to put a copy of the seller’s certificate that he is indeed an authorized dealer in a particular brand of products. I ask again, why wasn’t this done a few years ago? People boast of start-ups having IIT and IIM alumni who are apparently “geniuses”. Oh right! Real life situations like these aren’t in their textbooks so obviously they wouldn’t have known about how helpful the authorized dealership certificates would be for a first time buyer or in fact convincing the masses.
Recent CFO Appointment
Sachin Bansal recently took over as the Chief Financial Officer of the company. Here is why better late than never doesn’t really apply in all circumstances. If you take over as CFO after you have received over a billion dollars in funding, it doesn’t really make sense because by now after almost a decade, a big part of that billion dollars isn’t going to come back because of obvious wasteful expenses by the IIT alumni founders.
Why is the CFO so important? The job description states that a CFO must be in charge of all financial matters of the company. This is just an extremely short summary of a CFO’s job description. A CFO has complete control over where money can be spent and how to recover it. Did they realize this after spending most of their capital on foolish things like Big Billion Sale where about 5% of India or maybe less participated?
I am not singling out Flipkart here. A lot of start-ups in India are in a business where the sustainability isn’t so easy. Food delivery businesses are the first thing that come to my mind when I wonder about sustainability. Anyway, that is another article for another day.