SUMMARY
FDI ecommerce rules prohibits marketplaces accounting for more than 25% of single seller's purchase
Major sellers are slashing their wholesale purchases to comply with the new rules
Purchases from Flipkart wholesale to eventually drop below 10%
To comply with foreign direct investment (FDI) ecommerce rules, major Flipkart sellers such as SuperComNet, OmniTech Retail and RetailNet have reportedly planned to cut direct purchases from Flipkart India (wholesale arm of Flipkart) to around 10% or less in the next few months, ETtech reported.
SuperComNet, which is owned by Shreyash Retail has been selling smartphones on Flipkart, including exclusives from Motorola, Apple, Xiaomi. Consulting Rooms-owned OmniTech Retail has sold large appliances like televisions and washing machines on the ecommerce platform. While, RetailNet is a seller of women and girls ethnic wear.
Sellers have reportedly restricted their purchases from Flipkart wholesale to about 25% and are now buying the bulk of their products from consumer goods companies instead of manufacturers. Consumer goods are goods bought and used by consumers, rather than by manufacturers for producing other goods.
According to the latest FDI ecommerce rules, ecommerce marketplaces are prohibited from making more than 25% of purchases of a seller. Further, the rule stated that ecommerce companies can enter into transactions with sellers only on B2B basis. They will not exercise ownership or control over the inventory.
“Right now, whatever they source from Flipkart will be under 25% cap and then they will stop sourcing from Flipkart wholesale once it hits the 25% threshold,” a source told ETtech.
In a bid to comply with the FDI ruling, Flipkart is reportedly building a layer of B2B entities code-named Alpha Sellers, who will act as intermediaries between its wholesale arm and its prominent online sellers in order to comply with the norms. Post the introduction of these intermediaries, the prominent sellers plan to further slash the direct purchases. “The share of purchases from Flipkart wholesale will eventually drop to less than 10%,” source added.
The new FDI ecommerce guidelines which came into effect from February, 2019 has been causing troubles for both global ecommerce players – Amazon and Walmart-owned Flipkart. In the first week of the new rules coming into play, Amazon and Walmart’s have together lost $50 Bn in market capitalisation.
Walmart CEO Doug McMillon expressed his disappointment over the revised FDI guidelines during an investor call adding that he had hoped for a “more collaborative regulatory process” going forward. The company’s gross profit rate for its international business fell 116 basis points primarily due to Flipkart.
Meanwhile, Amazon has lowered its commission charges by 35% for famous fashion sellers and by over 50% on specific FMCG categories in order to attract independent sellers and establish itself as a friendly marketplace.
[This development was first reported by ETtech]
