New Delhi | Kolkata: Flipkart has started curtailing or altogether stopped buying products directly from companies as a precursor to shrinking — if not winding up — its wholesale operations, which have become tougher after rules for ecommerce entities were tightened.
The Walmart-owned company is asking suppliers to route their products directly to the preferred sellers on its platform, codenamed Alpha sellers, and to wholesale ‘Beta’ sellers — a layer of intermediaries that Flipkart had created to comply with India’s revised foreign investment rules for online marketplaces.
“Ultimately, they will have to close the wholesale business… it is not a permanent solution,” said one person with direct knowledge of the plans. “The process has started.”
Flipkart did not immediately comment on the matter. Companies ranging from fashion houses to consumer electronics manufacturers say they now supply products directly to the so-called Alpha and Beta sellers on Flipkart. Alpha entities sell to end-consumers on the marketplace, while the Beta group acts as intermediaries between Flipkart’s wholesale unit and the Alpha sellers.
According to two executives of companies that sell products to Flipkart, the Walmart-owned company is yet to decide whether to completely fold Flipkart India, the wholesale entity, or scale it down to service only small online sellers or brick-and-mortar channels. One executive said Flipkart is encouraging preferred sellers to buy merchandise directly from manufacturers.
“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 executives said. This change in sourcing strategy started in April-May, they said.
The change in sourcing follows a revision of foreign direct investmentrules for online marketplaces in December, which caught both Flipkart and rival Amazon off-guard, with their then business structures running afoul of the norms.
One prominent amendment was the introduction of a cap on the amount of goods that an affiliate of the marketplace could supply to any independent seller on the platform. The notification said a seller on an ecommerce platform would be considered “controlled” by the marketplace operator if it sourced more than 25% of its merchandise from an entity related to the online marketplace.