American online retail giant Amazon is reportedly planning to acquire Indian online fashion retailer Jabong.com. The move to take over Jabong is backed by Rocket Internet and the deal is believed to be worth as much as US $1.2 billion.

Swedish venture capital firm Kinnevik and British development finance firm CDC own stakes in Jabong as well, apart from Rocket Internet. According to VCCircle, an initial meeting has taken place in the last week about this potential deal.

Industry observers say that such a move by Amazon is possibly to counter rival Flipkart's acquisition of online fashion retailer Myntra in May, a deal in stock and cash which was worth Rs 1800 crores.

India's online retail sector has Flipkart as the dominant player, which, along with Myntra, controls 50% of the market. Jabong has a market share of approximately 25%. Other online retailers, including emerging players like Zovi and Fashionara, occupy the rest of the market.

VCCircle also adds that like the Flipkart-Myntra deal, Amazon may also choose to keep Jabong as a separate entity if the deal of acquisition is reached.

Technopak Advisors Chairman Arvind Singhal told Business Standard that online retailers are focusing on fashion as a category because there are very few players in that sector. He also adds that top retail lines have a huge potential in the coming years, which might explain the possible value of the Amazon-Jabong deal, or the fact that the online retail market in India can have a potential value of US $32 billion by 2020.

Jabong was founded in 2012 by three entrepreneurs- Lakshmi Potluri, Praveen Sinha, and Arun Chandra Mohan. More investors joined in over the next year, including Manu Jain and Mukul Bafana. The company has more than 1000 brands on its catalogue and its annual sales was about US $300 million in the last financial year, calculated by gross merchandise value (GMV).

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