It wasn’t a fun Friday at Jabong’s sprawling headquarters in Gurugram. The mood was sombre. It was nearly 11:30 am and a town hall had been called to share some strategic developments with the employees. The announcements confirmed what the employees had been hearing in whispers for a few days now: all of Jabong’s functions will now be integrated with Myntra and some employees of both Myntra and Jabong would be given pink slips. “Less than 10% of the employees” was what the company had said—nearly 200 employees at the two entities.
Though officials at the tightly-guarded town hall tried hard to convince that the job cuts and integration were planned several weeks ago and had nothing to do with the unexpected resignation of parent firm Flipkart co-founder and group chief executive officer Binny Bansal earlier this week, the employees were far from convinced and a sense of uncertainty loomed large.
“This is the second time in six months that we are unsure about what is going to happen,” said an employee, who did not wish to be named. For Myntra’s employees it’s hard to overlook the proceedings at its parent firm Flipkart, which is probably going through one of its toughest corporate changes. The resignation of Binny Bansal on Tuesday following an internal investigation into “an allegation of serious personal misconduct” has left many asking what is going to happen next. When Walmart’s acquisition of India’s largest e-commerce firm for $16 billion happened in May, a majority of the employees at Flipkart took comfort that at least one of the founders was around to take them through the transition; Sachin Bansal had left at the time of the acquisition. That hope has vanished now.
Experts say changes are bound to happen now as it is a huge fundamental shift for Flipkart. “The exit of the founders and very soon most of the senior management was inevitable as Walmart has [a big] enough retail professional pool of its own people to manage its largest acquisition ever. The changes in business model and organisation structure will be to align Flipkart with the Walmart way of doing business. And also to effectively fight with Amazon, who is their core rival in the U.S., with whom they have been fighting for 25 years. Walmart will change the way Flipkart merchandises, sources, serves customers, and allocates capital. It will become a completely different company and that I believe is good,” says Harminder Sahni, founder and managing director, Wazir Advisors, a retail consultancy.
“The completely different company” is probably already taking shape. The announcement at Myntra on Friday gives a glimpse of that. Furthermore, Myntra and Jabong will now fully integrate all the remaining functions, including technology, marketing, category, revenue, finance, and creative teams.
“The closer integration of Myntra and Jabong is a necessary step in our continuing development. To remain the leader in fashion e-commerce in India, we have to find ways to operate more effectively and innovate more quickly,” a company spokesperson told Fortune India after the town hall in response to a questionnaire, adding that Myntra-Jabong chief executive Ananth Narayanan will continue to lead the team. Also, the Myntra team will continue to operate independently and the Jabong brand will remain.
Last month, two top Myntra-Jabong senior executives—chief marketing officer of Myntra and head of Jabong Gunjan Soni, and Myntra’s chief strategy officer and head of categories Ananya Tripathi—decided to step down. While Soni is set to join the Singapore-based Global Fashion Group as chief executive of its online fashion brand Zalora, Tripathi will join global private equity (PE) firm KKR & Co’s unit KKR Capstone India as a director. While it is not clear why the two left, the strategic and corporate shift which is silently underway at Flipkart and its subsidiaries could be one of the reasons. “It is not Binny's exit but Walmart's entry that is impacting top management. None of this is sudden or unexpected,” says Sahni.
In a statement issued earlier this week, Walmart said Flipkart’s group CEO (Binny Bansal) resigned in the wake of an independent investigation done on behalf of Flipkart and Walmart into an allegation of serious personal misconduct, adding that Bansal has strongly denied the allegation. “Nevertheless, we had a responsibility to ensure the investigation was deliberate and thorough. While the investigation did not find evidence to corroborate the complainant’s assertions against Binny, it did reveal other lapses in judgement, particularly a lack of transparency, related to how Binny responded to the situation. Because of this, we have accepted his decision to resign,” the Walmart statement added.
Also Read: Myntra’s new bet on XXXXL
It is learnt that Binny had been contemplating a transition and had been working with Walmart on a succession plan. But Tuesday’s development was a bolt from the blue for the startup world in India. “This incident is giving a strong message to the startup community that transparency is very important for having an investor successfully on your side. Investors, globally, are extremely serious about conduct and founders need to be careful and transparent,” says Anil Joshi, founder and managing partner at Unicorn India Ventures, an early stage VC fund based in Mumbai.
According to Joshi, for a global listed firm like Walmart, it is important to take action against misconduct by a top executive as it could impact the company’s brand image and affect the stock price. “Walmart wanted a clean slate for the new calendar year. It is very serious about the Indian market and wants to have a hand on all functions of Flipkart. It will plug the gaps where it sees them. Also, there is an advantage of Kalyan (Krishnamurthy) continuing,” he says.
An ex-Tiger Global executive, Krishnamurthy started working with Flipkart as interim sales chief and finance head in 2013. A year later, he had a fallout with Sachin Bansal and he left the e-tailer abruptly. He came back in 2016 and replaced Binny Bansal as chief executive officer a year later. Credited for turning around the company and arranging the Walmart-Flipkart deal, he is said to be the power centre at Flipkart today.
The Indian startup ecosystem is watching carefully the developments at Flipkart. A Bengaluru-based entrepreneur says it’s common in the Silicon Valley for founders to exit their firms after they sign the merger or acquisition deals as it is very hard to predict how things will unfold when the ownership of the company changes. “Walmart didn’t want the founders for a longer time because founders typically tend to have a stronger weight within an organisation in general. There could be disagreement on different issues and in those cases the management would typically back the founders. Obviously founders have a stronger fan following when a change of guard happens in an organisation. But large corporate entities want to run it by professional management,” says the Bengaluru-based entrepreneur, who knows the Bansals well and is aware of the proceedings at Flipkart, requesting anonymity.
Binny Bansal continues to be on the board of the company and has a nearly 4% stake in the firm. But, according to a Delhi-based consultant, it’s just a matter of time before Walmart will try to buy his stake.