ANALYSIS. Did poor strategy push Snapdeal to the brink?

Over staffing, high salaries and poor strategy have forced Snapdeal to take one of the biggest cost cutting exercises in its short history.

The company’s founders Kunal Bahl and Rohit Bansal, in an official mail sent out to all employees, said the company has taken some “tough” decisions to turn it around. Bahl and Bansal have also decided to take a 100 per cent pay cut but did not mention the period.

According to sources, the company may also shut down its offices in Surat, Hyderabad, Ahmedabad, Kolkata, Indore and Bhopal, besides closing down a few warehouses. Some business divisions, including the brand team, could also be done away with.

Snapdeal did not respond to an e-mail from BusinessLine . But BusinessLine spoke to a number of existing and former employees, all of whom confirmed that the organisational shake-up has been in the making for the past 6-12 months.

Manoj Pandey (name changed), an employee at Snapdeal’s New Delhi office, told BusinessLine that the mail from the founders did not come as a shock to him.

He was anticipating the situation but was holding on to his job in fear of losing out on his gratuity — he is about to complete five years next month.

He is also among those who have been asked to go. “I joined the design and fashion division at a time when these companies (Snapdeal and Flipkart) were paying hefty salaries to freshers. I got a package of ₹18 lakh at a time when a few of my friends were starting their career at ₹4 lakh. There are many in the technology team who have been picked up from campuses at ₹30 lakh packages. That is insane,” Pandey, said adding that the employee strength in his office has been reduced to half.

An ex-employee, fired a few months back, blamed “over-hiring” and “hefty packages” for the current situation. “They would have managed well had they not hired about 10,000 people. You don’t need that many people to run an e-commerce company,” he observed.

The Snapdeal development is symptomatic of the challenges being faced by most e-commerce companies. Experts tracking the industry closely are of the view that the investors are to be blamed. They first went behind these companies for growth and now they want them to be profitable.

Also, most of the big players who are now in trouble wanted to build everything in-house, from technology to logistics. “This is not how you run the company. To manage costs, you need to outsource some of the operations,” said a market expert.

This comes against the backdrop of companies such as Snapdeal having to resort to huge cash burn to fight against giants such as Flipkart, Amazon and Paytm.

Softbank, which wrote off its investments in Snapdeal a few months back, had executed a similar cost cutting exercise in Mumbai-based Housing.com after appointing Jason Kothari as its CEO. Kothari had recently joined Snapdeal as a Chief Strategy Officer.

Satya D Sinha of recruitment and staffing firm Mancer Consulting said most of these companies got huge funding in the last few years on the back of inflated predictions.

“They hired people at humongous packages not based on competency but just for the sake of it. This was bound to happen,” he said. The wage cost of these companies has gone beyond 55 per cent, while it should ideally be pegged at 30-35 per cent, he added.

Snapdeal, owned by Jasper Infotech, was one of India’s first e-commerce companies. It started as a deals website but pivoted twice to become a marketplace. The company has grown its revenues from ₹76 crore in 2011 to ₹1,457 crore in 2016. However, the losses have grown multifold to ₹2,960 crore.

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