Flipkart In Talks With Kishore Biyani To Buy 8-10% Stake in Future Lifestyle Fashions

In a move that suggests how online retail and offline retail are merging to combat dwindling margins, Flipkart has begun exploratory discussions with Kishore Biyani to pick up an 8%-10% stake in Future Lifestyle Fashions Ltd (FLF). As per people aware of the development, top management from both sides met last week in Mumbai to discuss the matter and follow-up meetings are due post Diwali.

Future Lifestyle, the listed fashion arm of the Future Group, is one of the largest branded apparel retailers in India with total retail space of 5.4 million sq ft across 400 stores in 90 cities. It owns and markets 41 domestic and global fashion brands including Lee Cooper, Scullers, Indigo Nation, John Miller and Jealous 21. Additionally, it has large department store formats like Central and Brand Factory as well as specialist niche formats such as Planet Sports.

While the promoters own 60.6% of Future Lifestyle, of which around 49% is pledged as debt collateral. The remaining 39.4% is with the public and other institutional shareholders, which includes an 11.43% stake held by Wipro chairman Azim Premji’s investment arm Premji-Invest.

Taking into account the current market capitalisation of $1 Bn (INR 6,536.81 Cr) of Future Lifestyle, a 10% stake would translate into an investment of $100 Mn(INR 650 Cr). But Kishore Biyani is expected to ask for a significant premium to the current market price.

As per sources close to the development, the discussions are preliminary in nature and there is no guarantee a transaction will take place. However if it does, Kishore Biyani would likely use the proceeds to fund expansion plans.

An email sent to Flipkart spokesperson remained unanswered at the time of publication.

Flipkart And Future Lifestyle: Online Merging With Offline To Follow Omnichannel Strategy

If the development is true, it signifies yet another move on the part of online retailers to enter offline retail as part of an omnichannel strategy to fight shrinking retail margins. On the same lines, rival Amazon had picked up a 5% stake in Shoppers Stop last month for $27.8 Mn (INR 180 Cr) , marking its  first investment in an offline retailer in India. signalling it’s looking beyond online to expand its presence in the Indian market and that success in retail would not come merely from an online presence, given that ecommerce is still less than 5% of total retail sales in India. Amazon India also planned to open 12 offline stores in three Indian cities to facilitate its fashion sale event. The ecommerce major has made this move to facilitate its upcoming sale event.

Flipkart-owned Myntra, which is focussed on fashion is most likely the vehicle for the partnership with Future Lifestyle. Myntra itself has already started working on an offline strategy, having opened a store in Bengaluru for its private label brand Roadster earlier this year. It also got omni-channel distribution rights for international fashion brands like Mango and Esprit earlier this year. As part of this, Myntra will be setting up stores for them through a franchisee model. Earlier in August 2016, Inc42 reported Myntra was planning to launch its offline stores, following the omnichannel strategy with private brands-Roadster, HRX, and All About You.

Kishore Biyani And His Tryst With Ecommerce So Far

Interestingly, this year in June, Kishore Biyani had decided that he is not going to invest or operate in ecommerce space for at least the next two years.  At that time, Biyani had said, “It’s stupid to be in the online space. In lifestyle, the ecommerce industry revenue in India will be around $385 Mn (INR 2,500 Cr) and losses too will be of an equivalent amount. Mobile and electronics, too, do not make money online. Having burnt our fingers, we have decided to take a break of at least two years before even thinking anything remotely about online.”

As per reports, Future Group had witnessed a loss of around $38.5 Mn INR 250 Cr) on FutureBazaar.com, Big Bazaar Direct, and Fab Furnish. Biyani’s statement came two months after it decided to close the curtains on online furniture startup FabFurnish, which it acquired in April 2016 for $2.25 Mn to $3 Mn in all cash deal.

Biyani had teamed up with Amazon in October 2014 to sell Future Group’s portfolio of brands on Amazon’s marketplace in India, but that alliance did not make much progress. In April 2015, there were also reports of Biyani being in talks with Flipkart and Amazon, among others, to sell a 49% stake in his logistics and warehousing company Future Supply Chain Solutions.

As per Statista, in 2015, e-retail sales accounted for 1.7% of all retail sales in India, are expected to grow to 3.6% this year and this figure is expected to reach 4.4% in 2019. As margins in online retail are wafer thin, ecommerce players like Flipkart will be pushed to explore offline retail and partnerships with established offline retail brand players like Future Life Style. On the other hand, there will be causalities in the ecommerce space as well like the recent one of abof.com, an online fashion platform for apparel, footwear and accessories and a subsidiary of Fortune 500 company Aditya Birla Group shutting down.

Given that fashion ecommerce is ruled by biggies like homegrown Flipkart which has fashion and lifestyle platforms like Jabong and Myntra in its kitty and the foreign one Amazon, it is one tough battlefield. But the once said to be the naive startup founders are still in business, giving a tough edge to even the most rooted brands such as Kishore Biyani led Future Lifestyle and now delving into offline retail as well.

(The development was reported by ET)