Three years and $600 Mn later, is Paytm Mall back at the starting line?

Even by Paytm’s finely-honed standards (‘go big or go home’ is the line its founder is most remembered for), a recent statement by the now Bengaluru bound Paytm Mall’s newly-minted COO, Abhishek Rajan was a startling one. 

"We would like to think of Paytm’s e-commerce business as a Series A startup with $200 million cash in the bank, where key technology and operations components required for running a commerce business have already been built," media reports quoted Rajan as saying. “In the last three quarters, the team has done an incredible job of bringing down the cash burn to $2 Mn/quarter. There cannot be a better starting line for us, as we look ahead to scale the business in a profitable manner."

It’s like the firm is writing off its whole three-year-old NCR based existence, as it looks to start anew in Bengaluru. 

Three years of standalone operations and burning through nearly $600 million — is that all Paytm Mall is — “technology and operations components” to run an e-commerce business?

This might sound extreme, but in the age of SaaS, there are off-the-shelf solutions like Shopify that can be bought and customised for a relatively miniscule amount — with all the bells and whistles included.

But perhaps, as it may seem, the seeds of Paytm Mall’s inability to reach its projected goals were sown at its birth itself.

The weeks following demonetization in November 2016 were heady days for parent Paytm. Its wallet business was scaling new heights and investors were knocking at its door. Valuations were going upwards based on optimistic projections of India going digital — the future was now. Charismatic founder Vijay Shekhar Sharma could do no wrong, with his bold, broad brushstroke vision that seemed to leave nothing out. Investors were piling in, and at some stage, you could be confused for wondering if Sharma had money on tap. 

The announcement of Paytm Mall, and the inevitable flood of funds for it, was seen as the logical extension of Paytm’s move into e-commerce, the only sector that could absorb the sort of big money raised with the ambition Sharma liked to speak about. 

Except, as reports suggest, it hasn’t quite panned out like that.

As cash started coming back into the Indian system, the dizzy growth of wallets slowed. To pump up the growth, cashbacks were pressed in. There was a cashback on buying groceries and there was a cashback on paying your bills. There was a cashback when you bought a phone and there was one each time you recharged it.

But for a wallet to show growth and attract higher valuations, more use cases were needed. So, what better than to start a marketplace to support the wallet. That is how Paytm Mall was carved out from Paytm in February 2017. Many existing operations of Paytm wallet’s three-year-old e-commerce arm were demerged to form Paytm Mall. And with a generous $200 million capital infusion from Alibaba, Paytm Mall was all set to go places. In a market that was already witnessing two giants, Flipkart and Amazon slug it out, Paytm Mall seemed to be counting on cashback to muscle in, only to not have gone the way they had anticipated. 

Cashbacks led to a barrage of bargain-hunters flooding the platform, who went the other way when these cashbacks started to dry up. Leaving the firm back at the starting line today, by its own assessment apparently. So, was this poor planning or execution? 

Paytm Mall declined to comment for this story after Entrackr sent queries to the company.

No Clear Business Plan 

To begin with, Paytm Mall did not seem to have a clear business plan. What it had instead was a series of short-term manoeuvres as it tried to react to what its competitors were doing, according to e-commerce experts.

By its own admission, Paytm Mall wanted to be both a mall and a bazaar. It sold everything from diapers to Apple Phones, from TVs to toiletries. As discounts and cashback propelled volumes, this fuelled a chimera of growth and led Paytm Mall to believe that it could take on both Flipkart and Amazon.

But it did not have the deep pockets required for that. So, it spun out its own version of offline-to-online (O2O) of e-commerce. Continuing to sell high value branded products, it simply shifted the responsibility of stocking and delivering the products to the sellers and brands in an effort to reduce its operating cost. 

The resultant inconsistent and broken customer experience made this a non-starter. 

Another version of O2O saw it place QR codes in various retail outlets including shoe stores, mobile phone and electronic showrooms. Ostensibly, customers could walk into a store, scan the QR code and browse the store’s inventory on Paytm Mall and place an order. The order would then be delivered by the nearest brand-authorised local retailer. If this sounds complex, it likely was because consumers just did not get it. Like with many other Paytm Mall initiatives, this was abandoned halfway — gasping for breath and relevance as discounts were tapered off.

Yo-Yo of GMV claims mirror the lack of direction  

In its rush to emulate both Taobao and T-Mall with Alibaba money, Paytm glossed over a key business metric - revenue. Despite tinkering with various costs as part of an O2O strategy, there was simply no worthwhile revenue that the company was generating. The confusion reflected in its GMV claims - which did a wild yo-yo. 

Media reports pegged Paytm Mall’s GMV to be about $1 billion in 2017 and dropping to about $800 Mn in 2018. However, the company cheerfully claimed a GMV of $3 billion for 2018 and claimed that it would hit a GMV of $10 billion by FY 2019 based on its O2O strategy. But, when the FY19 results were announced the GMV claim was given a quiet burial because the company had just spent more than $300 million (Rs 2,140 crore) just to earn a revenue of $120 million (Rs 893 crore).

So get this: Paytm Mall spent more than $300 million on discounts and cash backs in FY19 and instead of its business growing it was, in fact, showing rapid deterioration. 

Discounts built a house of cards 

The shareholders were obviously not pleased. Alibaba was alarmed at what Paytm was doing and realised that Paytm’s volumes, driven largely by cashbacks, was not a sustainable business. In March 2018, it made only a small top-up investment of $45 million even as Softbank sunk in $400 million. In a hard-hitting story in April 2019, ET detailed what went wrong at Paytm Mall. 

“The vision was never to compete with Amazon or Flipkart. To fight the big e-commerce majors was a strategy drawn up by the company, not as much by the other shareholders,” the report said. 

Alibaba was clear it wasn’t going to pump billions of dollars into Paytm Mall because that was never the plan.

All Alibaba wanted Paytm to do was to “create a platform that enables Paytm’s core payments offering by facilitating a sticky merchant ecosystem.”

As a majority shareholder, Alibaba wasn’t amused with Paytm Mall’s profligate spending and it cracked the whip. As Paytm Mall pulled back the discounts, its business crumbled. Within a few weeks, its business in key categories like grocery, fashion, and electronics dropped by 80-90%. With cashback evaporating, the users deserted the platform in droves. In under five months, the traffic tanked by 90% - from 45.5 million visits in October 2018 to 5.5 million visits in February 2019. That some employees were ripping off the firm with frauds of their own did not help its reputation at all.

And even though Paytm boss Sharma tried to appear upbeat about the business, this rapid U-turn destroyed Paytm Mall’s credibility with the sellers. The sudden shutdown of discounts saddled small sellers with unsold inventory that they had stocked with Paytm Mall. In a massive downsizing, Paytm Mall shut down many of its fulfilment centres and moved towards exiting the B2C business, as it came to the conclusion that the B2C model was not sustainable, and it needs to scale down the business slowly and switch to a B2B model. 

A little bit of this and a little bit of that 

After running out of steam in the B2C sweepstakes, Paytm Mall has added a bit of many things in the hope this would amount to a cohesive business operation. B2B appears to be the space that it wants to go deeper into except that its O2O strategy hasn’t worked so far with either sellers or buyers. 

Looking at the wholesale businesses of both Flipkart and Amazon, Paytm Mall has also forayed into the wholesale business - both local and imported. However, because its B2C business has lost so much scale, the wholesale business no longer serves any meaningful purpose except bleeding more discounts. Ever the optimist, Sharma hopes that the wholesale business will account for 15% of Paytm Mall’s GMV calling it an add-on to the main business.

In recent months, it seems to have abandoned that plan as well and is now moving into hyperlocal, hoping that lower fulfilment costs will make that viable.

After an investment from eBay in July 2019, cross-border trade and exports had seemed to be the new mantra at Paytm Mall. But nearly a year after the eBay investment, it has nothing to show for this except media claims talking up the prospects.

Employee turnstile 

The lack of strategy has taken a high toll on the key personnel at Paytm Mall. Regular exits have ensured that no strategy gets pursued beyond a few quarters. Amit Sinha,  former COO of Paytm Mall exited after a decade with Paytm when he was allegedly being pushed to take responsibility for the poor performance of Paytm Mall.

Saurabh Vashishtha and Amit Bagria, both senior vice presidents at Paytm Mall and handling key functions such as marketing and customer acquisition had also quit last year. Srinivas Mothey, Senior Vice President and Paytm veteran who till recently was the face of Paytm Mall and was tasked with overseeing e-commerce operations seems to have been sidelined in the recent reshuffle. In the new scheme of things, he will now work on retail solutions for Paytm’s merchants.

Governance issues

While the company was struggling to find a business model that worked and was economically sustainable, at the same time there were governance and internal controls issues identified as well. When it comes to governance, it is hard to wash off the mud even after time passes. The fraud detected at Paytm Mall last year went at the heart of the weak foundations of the business, where-in it was detected by forensic auditor EY, that cash backs were being handed over by employees to themselves.  

Impact on the motherShip

From the financials of Paytm and Paytm Mall, one can see that a sizeable amount of revenues for Paytm come from Paytm Mall. As Paytm Mall cuts its burn, and/or gets sold for its cash and not much more possibly, it will be interesting to see the financial impact on Paytm’s financials. In FY19, Rs 1,072.49 crore was shown to be payments made by Paytm Mall to Paytm under the headers of customer access and royalty services fee. Now with the business back to the starting line or a possible consolidation, Paytm may need to find some new sources of revenue to fill a sizeable hole in its income statement. 

When the music stops

A sense of hubris was evident at Paytm Mall - fuelled by easy money and the chutzpah to keep spinning out media narratives about new projects even as the existing operations floundered. The everything-store positioning has been squarely claimed by Amazon, while Flipkart has settled for leading with high GMV branded goods in mobiles, electronics and fashion. Snapdeal has strengthened its own position in the value segment by focusing on the large unbranded space that mirrors the bazaars of India. 

Udaan has established large B2B operations straddling multiple categories. The grocery segment is the last big segment and that will witness a bruising battle between Jio, Amazon, Walmart and the likes of Big Basket and Grofers. 

As the music stops, Paytm Mall is realising that all chairs are occupied. All it is left with is the $150 million from eBay last year. And that is all it possibly will get to build a toehold in India’s e-commerce market.

Conclusion - time to call it a day

In an interview to Fortune in December last year, Sharma, founder and CEO of Paytm said, “I think this extra spending, which you could call cash burn in e-commerce parlance, or spending marketing or promotion money, it’s like a drug that just makes you feel high but the real revenue and growth, those still require you to work harder.” That pretty much sums Paytm’s Mall journey so far.

It is easy to presume that the statement made by the incoming COO insinuates that not much value got built in the game of snakes and ladders over the last 3 years after burning through $600 million.  With the recent announcements of the company wanting to now try its hand at investing in grocery businesses like Grofers and MilkBasket, we may finally be closer to an answer to Paytm Mall’s existential issues. 

Surely, there is one more big announcement due from Paytm Mall.