The Rise and Fall of Jabong: Lessons from a Startup’s Demise

Introduction

In the dynamic world of startups, success stories are often accompanied by tales of failure. Jabong, once a prominent player in the Indian e-commerce space, serves as a cautionary tale of a startup that rose to prominence but eventually met its demise. In this case study, we will delve into the story of Jabong, examining its unique selling proposition (USP) and working model, exploring its rise to success, dissecting the reasons behind its failure, and deriving key lessons from its downfall.

What was Jabong?

Jabong was an Indian online fashion and lifestyle retailer, founded in 2012 by Praveen Sinha, Arun Chandra Mohan, and Lakshmi Potluri. The platform aimed to provide a one-stop-shop for fashion enthusiasts, offering a wide range of clothing, accessories, footwear, and home decor items. Jabong quickly gained popularity and became a significant player in India’s burgeoning e-commerce market.

What was Jabong’s USP & working model?

Jabong started in 2012, when e-commerce was beginning to bloom in India.

At the time, people in India had limited access to popular international brands. Jabong aimed to solve this problem, by making clothing from international brands accessible to Indians. For instance, they launched Dorothy & Perkins, a UK-based high street brand, in India.

Jabong operated on an inventory-based as well as a marketplace model. Inventory based business meant Jabong owned the A-Z of inventory and selling of goods. While in the marketplace model, they acted as an interface between the sellers or brands and the consumers.

Over time, Jabong set foot into several categories including apparel, accessories, equipment, beauty products, etc.

The rise of Jabong

In just a few months since inception, Jabong had the second largest number of visitors in India, ~6.4 million[1]! Clearly, Jabong had an amazing brand recall very early on.

Within a year, they were shipping 14000 orders daily, out of which 60% were from small towns[2]. So, Jabong had great penetration even in the remote areas of India.

Second year into business, they made a whopping 50x revenue compared to their first[3]!

Jabong also spent a lot of time & effort on brand building. Within a few months of launch, Jabong became the 10th most searched term in India[4]. It had over 2 million fans on Facebook[5]. On Twitter, they had 299K+ active monthly users[6].

Jabong’s growth trajectory continued till they matched their rival Myntra in terms of revenue in early 2014.

So, what happened to Jabong?

Jabong was clearly doing very well in terms of users & revenue numbers, but its success was short-lived.

Online shopping platforms, as we know, are notorious for offering crazy discounts and almost unrealistic delivery timelines. Jabong was no exception.

For instance, Jabong ran upto 70% discount campaigns frequently, and started same day delivery in Delhi. Of course, this meant Jabong needed money to fund these expensive initiatives.

By 2016, the company was bleeding with huge losses. And, Rocket Internet, Jabong’s leading investor, wasn’t interested in funding the company anymore.

So, Jabong eventually decided to tap out. In July 2016, multiple Indian and International brands raced to buy Jabong.

But, Flipkart-owned Myntra ended up buying Jabong for $70 million, in an all-cash deal. Flipkart wanted Myntra to become the undisputed leader in online fashion & clothing, so this move aligned perfectly with their objective.

Interestingly, Amazon was in talks to buy Jabong for $1.2 billion in 2015. Unfortunately for Jabong, the deal was eventually called off.

But, why exactly did Jabong fail?

E-commerce is a tough industry, with thin margins & stiff competition. We can attribute Jabong’s failure to 3 key reasons.

1. No more money to run the business

Jabong’s revenue doubled from ~INR 500 Cr in FY14 to ~INR 1000 Cr in FY15, but their losses more than doubled from ~INR 17 Cr to ~INR 44 Cr[7].

They desperately needed money to survive, and their go-to source for money, Rocket Internet, backed out.

Now, at this point, it will help to understand how Rocket Internet functions.

Rocket Internet is a German company that takes successful internet-based business models and executes them in developing countries where such businesses have low competition.

Rocket Internet’s key goal is to scale the new business or startup, and eventually sell it off to the market leader, making money in the process.

Of course, they had the same goal in mind with Jabong and had always wanted a good exit. When they realized the fight was getting too tough, they decided to back out instead.

2. Senior leaders call it quits

Amid the turmoil at Jabong, many senior leaders left the company. In fact, all of the co-founders i.e. Praveen Sinha, Arun Chandra Mohan and Manu Kumar Jain had left before Jabong was acquired by Myntra.

Rocket Internet, with its laser focus on a successful exit, pushed everyone in the same direction. The founders & other leaders at Jabong didn’t quite like the external pressure and decided to move on.

The sudden change & instability in the top management at Jabong only added to the chaos.

3. Just another online shopping platform & nothing more!

Jabong started with the ambitious aim of bringing international brands to India, and making such brands accessible to everyone. But, the Indian market didn’t respond as positively to this as Jabong expected.

People shopped the same products on Jabong as say Myntra, Amazon, Flipkart etc. And, they did so on Jabong only for the attractive discounts & offers.

Customer loyalty & stickiness is almost an unrealistic expectation in e-commerce. It was especially true for India back in 2012 to 2016. So, people were happy to switch to any platform that offered them the best discounts.

In essence, Jabong was just another online shopping platform, playing the price war in a fiercely competitive space.

So, is Jabong still active?

Well, after the acquisition, Myntra did run Jabong for a few years. But there was a consistent decline in users, and consequently sales.

For instance, in December 2019, active users on the website dropped by ~11% and app downloads by ~13% compared to the previous month[8].

So, Flipkart decided to pull the plug on Jabong in July, 2020.

Myntra was itself losing money, so it didn’t make sense for Flipkart to run another loss-making business in the same space. When they shut down Jabong, Myntra still had access to the entire user base at Jabong.

In conclusion, Jabong made a name for itself in the e-commerce industry in India. But it couldn’t survive the stiff competition with deep pockets (that still exists).

Jabong with its huge losses was never a “good” business, and hardly had any differentiating factor. There was a constant external pressure to move fast & scale, which set them up for failure.

So, the key takeaway from Jabong’s grand failure for us is to keep things simple and focus on buildd-ing a profitable & sustainable business :)

Key lessons from Jabong’s failure story

1. Discovering competitors for your startup idea is a validation of the market, NOT a source of sadness.
2. Your startup doesn’t need to fail fast. It can succeed slow.
3. Startup battles are regularly won by people who can run longer than those who can run faster.

Conclusion: The rise and fall of Jabong serve as a valuable case study for aspiring startups. It highlights the importance of preserving a clear vision, fostering cultural integration, staying adaptable, and implementing sound financial strategies. By learning from Jabong’s mistakes, entrepreneurs can navigate the challenging terrain of the startup ecosystem with greater resilience and improve their chances of long-term success.