GMV concept makes no sense & is used by ecommerce players like Flipkart, Amazon to justify valuations: Jabong's CFO

NEW DELHI: The gross merchandise value (GMV) concept makes no sense and is used by ecommerce players to justify valuations, said the chief financial officer of the company that owns online fashion retailer Jabong, as he ridiculed the metric widely used by Flipkart, Amazon, Snapdeal, Myntra and others to present their financial position.

While India’s brick-and-mortar retailers have criticised the GMV methodology, this is the first time that an online peer has questioned the concept.

“GMV is complete nonsense and I think it has been used by certain players to justify (their) valuations,” said Nils Chrestin, the CFO of Global Fashion Group and the acting CEO of Jabong.




“It (GMV) is not a number anybody would focus on if you want to build a sustainable and profitable business. If you want to get a real sense on how they (ecommerce companies) are doing, ask them to give you the real revenue and not the GMV. If I were to focus in GMV, I could double my business immediately,” he said.

Ecommerce websites have seen a rapid rise in business in recent years largely because of attractive pricing and deep discounts. GMV is based on the maximum retail price (MRP) of products and does not factor in discounts, or even cancellation or return of products.

“Assume you manufacture a product for Rs 50 and sell it for Rs 100 that (Rs 100) would be the GMV,” said Chrestin.

“Then you need to deduct from this cancellations, returns and discounts. If you look at the Rs 100 after returns, cancellations and discounts, it (real revenue) becomes Rs 30 as an industry average.” Kishore Biyani, chairman of Future Group, India’s largest stores chain, had made a similar point in an interview with ET in June.

“At the end of the day, it should be about how much cash has been collected. The real revenues are always just 25% of the GMV,” Biyani had said.

Chrestin, who is currently officiating as Jabong’s CEO until a new CEO takes over, said the current strategy adopted by companies in India to build their market share based on spending money on discounts, marketing and customer-acquisition is not sustainable.

“That is a very dangerous path to be on if you want to build a sustainable, professionally managed company. I personally find very aggressive spending a very uncreative way of gaining market share,” he said. “(A) more creative way of gaining market share is to focus on having best selection and a great customer experience. That is what we are focused on, …a sustainable long-term business.”

He further said that he is not “distracted” by what he calls “short-term actions” by competition in India. “At some time, it has to stop as it is not the way to build a sustainable business,” he said, even as he admitted that Jabong also has to respond to competition. “We obviously are in cognisance of the dynamics of the Indian market and we are prepared to live with that as long as it takes,” he said, adding that the overall discounts have come down in ecommerce in recent months.

ET had reported in July that Jabong’s parent company was replacing the founder duo of CEO Arun Chandra Mohan and managing director Praveen Sinha with a new management team in a bid to lift performance.

Chrestin said a new management team – largely from outside the company – comprising a CEO, CFO, head of marketing and head of IT will be in place in the next two to three weeks. “We are going through a transition phase. Every company goes through different lifecycles….

We are in transition from a startup environment to a professional-run sustainable businesses for all our 28 markets,” Chrestin said, adding that he will continue to be stationed in New Delhi for months to oversee a smooth transition to the new team.

The company has already hired Saurabh Srivastava as the chief marketing officer (CMO). Srivastava comes from MobiKwik where he had held the same position. In addition, Sumit Jain from HT Media is joining the Gurgaon-based company as the chief technology officer (CTO).

Dismissing reports of a possible sale of Jabong, Chrestin said the company would continue to grow in India. “Our management at any point of time always evaluates all options to maximise value for the shareholders, employees and our customers,” he said.

Jabong is part of GFG, an emerging markets fashion ecommerce firm launched by Rocket Internet and Swedish investment firm Kinnevik last year. In addition to Jabong, GFG owns four other companies: Dafiti in Latin America; Lamoda in Russia and the CIS; Namshi in the Middle East; and Zalora in Southeast Asia and Australia.