Will Flipkart Wind Down Its Wholesale Unit?

Walmart-owned Flipkart is reportedly said to be examining whether it should completely fold Flipkart India, its wholesale entity, or scale it down to service only small online sellers or brick-and-mortar channels. The situation has come as a result of the changes in foreign direct investment rules for ecommerce, which came into effect in February.

The changes, notified in December 2018, prohibit large online marketplaces to exercise ownership or control over the inventory of their sellers.

The new rules also state that an ecommerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only. Beyond exclusivity, the notification also prohibited marketplaces from making more than 25% of purchases of a vendor.

As a result, Amazon and Flipkart suffered major disruption for a few weeks as they looked for loopholes. Now, Flipkart is building a layer of B2B entities code-named Alpha Sellers, who will act as intermediaries between its wholesale arm, Flipkart India and its prominent online sellers in order to comply with the norms.

However, an ET report has now claimed that Flipkart has started curtailing or altogether stopped buying products directly from companies. This is being seen as a precursor to reducing, and eventually winding up of its wholesale operations.

The company is reportedly asking suppliers to route their products directly to the preferred sellers on its platform i.e. Alpha Sellers. It is also asking them to direct products to wholesale ‘Beta’ sellers, which are the intermediaries between Flipkart and the Alpha Sellers.

The report said that Flipkart will have to close the wholesale business and the process has started. It was further reported that companies ranging from fashion houses to consumer electronics manufacturers say they now supply products directly to the Alpha and Beta sellers on Flipkart.

“Flipkart is curtailing supply of products from its wholesale entity to top sellers such as RetailNet and OmniTechRetail and instead wants these sellers to source directly from the brands to ensure the marketplace has an arm’s length distance for compliance,” the report cited executives as saying.

This change in sourcing strategy started in April-May, the report said.

The development comes at a time when India’s new ecommerce policy is expected to require ecommerce marketplaces such as Amazon, and Flipkart, to give proof that the product discounts are being offered by the online seller and not the ecommerce platform.

As a result, the companies are now reportedly signing agreements with online sellers to fix a market operating price for each product. Ecommerce players are asking brands to give in writing negotiated, predetermined prices for products to marketplaces and certify that any discounts beyond this will be borne by them and marketplaces and sellers will have nothing to do with it.