#Asia Yepme delays salaries, lays off staff. Is it going the AskMe way?

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Is the online fashion retailer Yepme heading towards an AskMe-like fiasco?

Last month, the Gurgaon-based Yepme quietly shutdown two of its units – warehousing and quality control – letting go of close to 30 employees. But founder Vivek Gaur insists that the move was towards the company’s growth, and not “because we have no cash.”

Apart from names that rhyme, Yepme and Askme seem to have a similar trajectory towards disaster.

Yepme had to trim its workforce after it started outsourcing warehousing and quality audits to third-party vendors in India and the US. “That rendered the teams unviable,” Vivek told Tech in Asia.

And yet, according to the five employees we spoke to, Yepme has not formally laid off the team members. “They were told by team leaders verbally. They have been asking for a termination letter, but that hasn’t happened,” one of the existing employees of Yepme said.

This is a situation starkly similar to the events that unfolded at AskMe. Its top management kept a lid on the business falling apart, for close to a year. It was never formally announced, but the company was disintegrating team by team. The management went incommunicado, leaving scores of employees without a job and months of salary.

Yepme employees say the company management is not responding to their requests of officially terminating their jobs. It is a scene straight out of AskMe’s drama. The online listings company, which is under investigation now for misappropriation of funds, suspended operations in August 2016, but employees are still officially on their payroll.

Why would a company do that? If a company terminates employees, they are obligated to pay a bulk sum of money as severance packages, as per employment contracts.

Moreover, at least five of the company’s employees we spoke to allege that Yepme management repeatedly delayed salaries, since October. The Yepme founder did not deny it, but said that salaries are delayed only for the month of January.

“Nov-Dec salaries were duly deposited. January salaries were delayed partly because of the full-and-final settlement for outgoing employees, and due to impact of demonetization,” Vivek said.

Interestingly, Yepme’s disproportionate expenses compared to turnover is something AskMe also struggled with. Expenses ate up the company’s resources and cash flow, eventually leading to a shutdown.

Yepme’s losses have been steadily mounting, despite the fact that Yepme earns higher margins of 40-60 percent selling private labels. Online marketplaces such as Flipkart and Amazon earn margins of about 30-40 percent.

In the financial year ending March 2016, Yepme posted a loss of US$27 million, a 73 percent increase over US$16 million the previous year. Its net sales in the whole year was just US$16 million in comparison.

The company spent close to US$3 million on discounts, a seven-fold increase from the previous year. Its expenditure on advertising was over US$17 million, an increase of 50 percent. In the calendar year 2016, the company spent close to US$20 million on marketing, Vivek said.

Much like AskMe, which was burning cash to the tune of US$10 million per month during festive sales. By March 2015, AskMe’s losses tripled to US$45 million, while revenue stood at US$6.4 million. This huge deficit of earnings was so absolute that the company wasn’t left any cash flow by 2016, defaulting on vendor payments and salaries.

Yepme’s choice to engage Shahrukh Khan, one of the top paid actors, to endorse the brand also draws a parallel to AskMe, who spent over US$1 million to rope in Bollywood heartthrob Ranbir Kapoor.

“In India, people are obsessed with Bollywood stars. We have to spend to create our place in the market. In the US and EU markets, one need not put all the weight behind advertising and marketing,” Vivek said.

To top the mounting expenses, Yepme was also thwarted by Prime Minister Narendra Modi’s demonetization move that made things worse. “It screwed us,” Vivek says. Yepme derives over 75 percent of its total sales on cash-on-delivery model. According to Vivek, Yepme was slated to break even in January, “but the demonetization move stalled it.”

Damage control

The Yepme management has acknowledged the alarm bells set off by mounting losses and costs. The company had to take tough decisions to optimize costs. Outsourcing was one of the solutions. “We also thought of salary cuts, but we didn’t want to hurt our employees in core teams.” The next option was to lay off employees and trimming down operations, which the company has done.

Vivek told Tech in Asia that Yepme is now also looking at cutting the advertising spend by half to cut its losses.

Yepme, started by Vivek Gaur and Sandeep Sharma in 2011, sells private labels in apparel under the brand name Yepme. It has its own shopping website, but gets a significant 30 percent of its sales from online marketplaces. Yepme retails its brands on Myntra, Snapdeal, and Amazon.

Yepme also forayed into the international market with Yepmeworld.com, in April 2014. It is live in the US and five countries in the EU. In India, the brand has expanded its presence from online to offline, aiming to open 400 stores by March 2017, most of which will be through franchises to bring down operational costs. Company-owned stores can entail huge maintenance and employee costs.

The company now expects to break even by April, the founder claimed.

Vivek maintains that cash crunch is a temporary issue, “and we are definitely not shutting shop. Why else will we launch new things, explore new markets?” However, the company is scouting for more funds for expansion, Vivek said.

But funds have been difficult to come by for Yepme, possibly because of losses and high expenditure on its balance sheet. The company was in talks with SoftBank to raise funds, in early 2016, but the deal did not reach discussion stage.

Yepme last raised funds in September 2015, when it bagged US$75 million in Series B funding from new investor Khazanah Nasional, Malaysia’s sovereign wealth fund. Askme’s biggest investor – Astro – is also a Malaysia-based investment group led by Malaysian billionaire T Ananda Krishnan. Yepme’s existing investors include Brand Capital, Capricorn Investment Group, Helion Venture Partners, and TC Capital.

Ecommerce has been in flux lately with a number of shutdowns in the sector. India’s unicorn Flipkart struggled to raise funds and saw its valuation slashed repeatedly. Bangalore-based Fashionara, which adopted a flash sales model, had to shut shop in 2016 after it ran out of cash.

Today, SoftBank-backed Snapdeal announced that the founders Kunal Bahl and Rohit Bansal will take a 100 percent salary cut and lay off employees, as part of an effort to chase profitability.

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