MUMBAI | NEW DELHI: India’s ecommerce leader Flipkart will drastically scale down contribution of WS Retail, still the largest seller on its platform, to conform with new rules that stipulate no vendor can account for more than 25% of total sales on an online marketplace. This process will take place in the next 12-18 months, said people aware of the plan.
Flipkart will instead focus on bulking upmarket share of other sellers so that they dominate sales. Mobiles and consumer electronics, the two biggest segments, will increasingly be sold via new vendors, not through WS Retail.
“The contribution of WS Retail will reduce to lower single digits and eventually (be) negligible in the next six-eight quarters as there are legacy issues with its operating model that question Flipkart’s FDIcompliance,” said one of the persons cited above.
WS Retail, owned by Flipkart’s founders until 2012, currently dominates the platform and is said to have a share that well exceeds 25% of total sales. For instance, all Flipkart-exclusive brands such as Xiaomi, Motorola, LeEco, Sansui are sold through this vendor.
The company, set up nearly seven years ago by Flipkart founders Sachin Bansal and Binny Bansal, clocked sales of Rs 10,163 crore or nearly three-fourths of total turnover in FY15, trebling its business from Rs 3,135 crore in the previous financial year. Four years ago, the Bansals sold their stake to former OnMobile GlobalBSE -1.93 %BSE -1.93 % chief operating officer Rajeev Kuchhal and other investors.
Flipkart said it is looking to improve the shopping experience for customers. “At Flipkart, we believe in offering our customers the best possible shopping experience and a wide selection of quality products and the best brands,” said a company spokesperson. “As India’s leading marketplace, we have over 80,000 sellers for our base of 75 million customers.
We also started a programme in October 2015 to encourage high-quality sellers who can offer a more delightful and personalised experience to customers. The programme supports existing and new sellers on product quality, customer service, packaging, logistics and supply chain.”
The new rules, which stipulate no vendor can account for than 25% sales on an online marketplace, were part of a government clarification on the ‘marketplace’ model, which is used by the top three ecommerce companies — Flipkart, Amazon India and Snapdeal. The rules also don’t allow the marketplaces to offer discounts directly — these have to come from the vendors.
The ecommerce company has been looking to diminish WS Retail’s prominence as part of its shift from inventory-led model to marketplace one. Last year, Flipkart bought back its logistics business from the vendor, restricting it to acting as a sort of clearing house. It then began sourcing most merchandise from companies or brands and listing them as vendors.
“Flipkart, which over the years had routed the bulk of its products through WS Retail, has now asked several brands to sell it to other vendors or list themselves as sellers,” said the officials.
In October 2015, the etailer also started an initiative aimed at consolidating its sellers. Of the 1 lakh sellers listed, Flipkart wants to focus more on 100 vendors that contribute two-thirds of total sales.
Experts feel such a move may bring some clarity to the etailer’s relationship with WS Retail. But it may be easier to take more dramatic action, said Ruchi Sally, director at retail consultancy firm Elargir. “Reducing WS Retail to 25% or less business for Flipkart will be difficult to manage as they have to control and monitor its entire ecosystem regularly.
It makes sense to shut it completely and be a marketplace,” Sally said. The ecommerce company is also looking to diversify its portfolio by signing up international retailers to act as a launch pad for them in India. While talks are at initial stages with some of them, the idea is to focus on exclusive deals with brick-and-mortar retailers.
“Things like hiving off a particular segment or vertical of Flipkart where these global retailers can buy stake in were also discussed although nothing has been finalised yet,” said one of the persons quoted above.
Both sides could benefit, the person said: “Flipkart could raise funds by doing so while international retailers will find a readymade online business.”
With brands and companies creating separate channels for online sales, they would rather partner Flipkart directly rather than involving third-party vendors such as WS Retail. For instance, the etailer on Monday announced an exclusive tie-up with Godrej Interio that will list itself as a seller on the platform.
Overseas brands that already have an offline presence in India will also look to sell to Flipkart customers directly. “Over time, we will list our brands directly with Flipkart similar to what we do with other marketplaces,” said J Suresh, MD of Arvind Lifestyle Brands, which sells brands such as Gap, US Polo, Arrow and Calvin Klein.
Experts said Amazon India may similarly need to reduce the share of vendor Cloudtail, partly owned by its parent, to be line with the 25% rule. Amazon India has said that it conforms to laws.