News & Analysis

Is Meesho’s Loss, AJIO’s Gain?

Clothing on hanger at the modern shop boutique

The growth that Meesho achieved over the past couple of years was nothing short of stratospheric. Its revenues in FY22 stood at $400 million on a narrow customer and seller base, which could touch $750 million or beyond in the current calendar year. However, since they began conserving cash, the company appears to accept a slower growth rate. 

From burning over $40 million a month early in 2022, Meesho halved this for the rest of the calendar year and has reportedly brought it down to $5 million now. In fact, CEO and co-founder Vidit Aatrey is looking to reduce this number further by the second quarter of fiscal24 as saving cash took priority for the company which raised $570 million from Fidelity and others in 2021. 

On the right path, but there’s a roadblock

Considering the global economic shudders of the moment, one would say Meesho is on the right path as cash preserved now can be used for expansion when the markets improve. But, there’s a fly in the ointment – AJIO. The Reliance-led digital fashion platform is reportedly getting ready to launch its own marketplace for low-priced fashion products. 

What’s more, the cash-rich Reliance plans to use Meesho’s zero commission model and become a direct competitor for the Bengaluru-based startup that was incorporated in 2015. A report published in the ET says the new venture would be called Ajio Street where merchants onboarded could operate on a 15-day settlement period. 

This could prove to be a masterstroke from Reliance as the longtail products priced low in the fashion vertical aren’t easy to sell online unlike some other categories such as smartphones and their accessories. With this move, AJIO appears to be positioning itself as a platform for branded fashion goods – one with very deep pockets. 

Meesho has done well in the past

In fact, it is not as though Meesho hasn’t done well for itself. The company has grown in spite of reducing cash burn. Last year they doubled their revenues and this year the growth is likely to be about 50%. All of this has brought a 30% growth in GMV, which may not compare favorably with the much bigger Amazon and Flipkarts, but is quite robust nonetheless. 

However, some analysts felt that Meesho would require to burn cash to acquire customers as their profile is not that of a metro city spender who has surplus. They are more in the low and middle income bracket who may only shop a couple of times a year. Which is why getting new customers becomes critical. Moreover a good chunk of their sales came via aggressive promos. 

Early mover, but the others are catching up

They also point out that both Amazon and Flipkart were watching Meesho’s growth and have in the recent past created sub-brands for the same target audience. Flipkart launched Shopsy while Amazon India acquired Glowroad. Given these challenges, the entry of Reliance into the same space should be of some concern for Meesho.

The reports said AJIO Street could operate in a separate space within the platform and the mobile app, offering affordable products aimed at the non-metro customers across tier-2 to tier-4 cities.  The company is hoping that this zero-commission model would increase the customer base in newer markets who may not be shopping online. 

Since the model allows sellers to not pay any commission to the platform, AJIO is also hoping to get the artisanal products up and possibly use that as a bait to get customers in tier-1 cities seeking such items. The company reportedly clocked a GMV of $2 billion by end-2022 and is said to be lagging behind Myntra currently in the category. 

Given that the low-cost fashion and accessories have an average order value of around Rs.300 to Rs.350, platforms selling branded goods usually are priced between four to five times this. By straddling both the worlds, Reliance homes to once again monopolize the market, as it has done with multiple verticals before. 

As for the proposed IPO of Meesho, we can only wonder when that would come, given that growing competition in the very vertical that they’re in and that too from India’s biggest brand, is definitely not something that would make their scrip attractive. 

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