Question & Answer: In teams of two to three people, search for a business that is currently failing or not…..

Snapdeal is an Indian e-commerce market place founded in 2010 by two friends. Thye started it as a deals and coupons site /later it transformed to a marketplace model in 2012.

Snapdeal offers services in more than 5,000 cities and towns in India. In February 2016, the company was valued at $6.5 billion valuations. But the company has been posting operating losses over the years culminating in a failed merger in the recent months

a.Symptoms Of the failure

Lay offs

Snapdeal employs around 1200 which it may trim down to nearly half within the next fiscal

Net income loss

Snapdeal registered a revenue growth to Rs 227 million $ (2015-16) from Rs 146 million$ but loss doubled to 517 million $ (2015-16)

Poor valuation and failed merger

Flipkart, rival firm, offered $ 900-950 million offer. but it was turned down by Snapdeal as the company considered this to be an undervaluation

b.Problem statement for this company

Operating margin loss and net income loss have been continuing for snap deal for the past few years due to

• Excessive labor expenses – with expenses tripling to 142 million $ (2015-16) from the previous year.
• Advertising expenses rose to 87 million $ (2015-16) from 66 million $. Discount driven sales led to poor gross revenue.
• Excessive investments in other reacted businesses before establishing   a strong business model and fundamentals have contributed to the loss

Snapdeal-owned digital payments firm FreeCharge – 42 loss, logistics firm Vulcan Express -3.12 , logistics firm Gojavas- 10.92 loss – (2015-16)

a.Potential solutions for the problem

• Trim the employee numbers to form a lean management organization
• Reduce advertising and promotional expenses including sales promotions like discounts
• Focus on business fundamentals and core business of market place

Focusing on its core business and concentrating on business fundamentals is the most important because like Snapdeal many Indian e-commerce companies are failing due to excessive investments in a market that are still poorly understood and still lacks the infrastructure like cashless transaction and poor logistics. The company failed to differentiate itself with a brand and was running on discount sales. Before even establishing a decent profit the company started to build excess capacity and invested in allied business

Focusing on core business will help Snapdeal to reduce bad debts and depreciation expenses. This will help the company to understand the consumer, establish itself in the market and make revenues without depending on discounts.