For close to a decade now, India’s e-commerce space has been the stage for an intricate dance—one meant to sidestep government regulations regarding how the sector functions. It’s an endless, breathless performance. And the more the government tries to plug the loopholes that the industry’s incumbents find and exploit, the more choreographed the dance becomes.
The latest example of this deft manoeuvering came scarcely a month ago. Reports surfaced that Flipkart India Pvt Ltd—the wholesale arm of e-commerce giant Flipkart—was beginning a massive revamp. The business, which serves as a supplier to Flipkart’s preferred sellers, would be winding down its sales. Instead, it would now provide “ services services The Economic Times Flipkart’s wholesale unit readies itself for potential change in FDI rules Read more ” to these clients, which it terms as “alpha sellers”.
In its new avatar, Flipkart’s wholesale business will serve as a bridge between sellers and suppliers or brands. It will handle everything, from identifying inventory, to negotiating prices, and finalising agreements on behalf of sellers. The Ken has accessed an internal document drawn up by one of Flipkart India’s suppliers which confirms that this move is indeed in the offing.
The change was on two counts. In January, it was reported that the Indian government is sharpening its regulatory knives. India’s rules on foreign direct investment in e-commerce are set for a rejig, which could potentially overturn Flipkart’s apple cart. In addition, American retail giant Walmart-owned Flipkart stands on the precipice of a public listing public listing The Ken Walmart’s cost focus versus Flipkart’s US$50 billion IPO dreams Read more , and the regulatory and investor scrutiny that comes with it.
Essentially, Flipkart is changing the way it does business, to ensure its business doesn’t really have to change.
None of this is new to Flipkart. Indeed, the homegrown e-commerce giant pioneered this art form. While still in its nascency, Flipkart ran into its first troubles with India’s e-commerce regulations after having secured millions in funding from overseas investors such as Accel India and Tiger Global. Since companies with foreign investment aren’t allowed to own, sell, and price goods in multi-brand retail, the company orchestrated a workaround. It incorporated a new entity, WS Retail—initially owned by Flipkart founders Sachin and Binny Bansal, and then sold on—which could handle inventory legally.
Over the years, as regulation grew more elaborate, so too did Flipkart’s functioning.
Flipkart's new plan
Flipkart’s winding path back on the straight and narrow
Ahead of a $10 billion IPO, Flipkart’s changing how it does business. Its wholesale arm—which earned over Rs 31,000 crore in FY20—is planning to no longer sell to vendors on its platform. Instead, it will merely connect them to brands. Industry insiders, though, aren’t convinced much will change, while brands are uncomfortable with the new arrangement
With fresh regulations looming large and an IPO on the horizon, Flipkart is quietly changing the way it does business
The traditional revenue sources- commissions and margins- are at risk of being curtailed
Hence, Flipkart is planning to transform itself into a consultant or service provider to both brands and sellers
But the transition won't be easy as brands have apprehensions about Flipkart's new model