US e-commerce giant Amazon initiates talks to buy Jabong for $1.2 bn

US e-commerce giant Amazon is reportedly in early stage talks to acquire Jabong.com for around $1.2 billion – a move designed to ward off stiff competition from entrenched rivals Flipkart and eBay-backed Snapdeal, VCCircle today reported without citing any sources.

This would be the Seattle-based company's first acquisition in India after having entered the country through a partnership with local brand Junglee.com in February 2012, and venturing solo in June 2013.

Co-founded by Arun Chandra Mohan, Praveen Sinha, and Lakshmi Potluri in 2012, fashion and lifestyle e-commerce portal Jabong.com is backed by investors like German e-commerce focused venture capital firm Rocket Internet, Swedish venture capital firm Kinnevik and British development finance firm CDC.

Jabong has over 1,000 brands and sells over 90,000 products ranging shoes, apparel, accessories, home décor, furniture, jewellery, gold coins, beauty products, fragrances, home accessories and other fashion and lifestyle products through its website.

VCCircle said that like the Flipkart-Myntra deal, Amazon may also opt to keep Jabong as a separate unit if it closes the deal.

Flipkart had acquired online fashion retailer Myntra in May this year in a cash-and-stock deal worth an estimated Rs1,800-2,000 crore. (See: Flipkart buys Myntra for around Rs2,000 crore)

The Flipkart-Myntra deal could be seen as a response to Amazon's entry in the Indian market and reflects the expanding online sales of apparel and fashion accessories as companies try to tap the on-line retail market. Companies now have to cater to increased product needs of the consumer to grow and flourish in a competitive market.

Though Flipkart has had limited success with apparel and fashion accessories, the largest shopping categories in the online retail space, it could provide tough competition to Amazon.

Amazon is battling Flipkart for dominance in one of the world's fastest-growing markets where online retail is expected to reach Rs50,000 crore by 2016, according to consultancy firm Crisil and the electronics and fashion segment is expected to account for 30 per cent of online sales by 2019, according to a Technopak Advisory report.

The Indian e-conmmerce space is going through a phase of consolidation, which saw several e-commerce sites shutting shop, leaving only the top four - Flipkart, Snapdeal.com, Myntra and Jabong.com - in the fight for market share, along with Amazon.

Flipkart-Myntra is the dominant player with around 50 per cent market share, followed by Jabong with 25, while other online retailers hold the rest.

With annual revenues of $74.5 billion, Amazon, run by Jeff Bezos, has lobbied heavily to allow foreign direct investment in India's e-commerce space, and has already built one of the largest online product marketplace in the country.

Given Amazon's financial muscle and technology expertise, local firms would find it tough to compete with the online retailer.

During his visit to India in July this year, Bezos said that his company would invest $2 billion in its Indian operations (Amazon to outdo Flipkart with fresh $2-bn investment in India).

''India is a perfect example where we're taking free cash flow that we're generating in other businesses and we're investing,'' said Bezos in an interview during his visit. ''We wouldn't invest this much–we wouldn't invest $2 billion–if there wasn't evidence that it was working.''