Tuesday 18 August 2015

Flipkart to say no to commission and yes to paid ads

Flipkart is firming plans to phase out the commissions it charges merchants for selling on its online marketplace, hoping to enlist more of them, according to four people aware of the matter. It will instead urge sellers to advertise on its platform, for a fee.

"The focus will be to push sellers to advertise on the platform and not compete on commissions," a top Flipkart executive directly aware of the plan told ET. "The selling commission will become zero now," a Flipkart executive in its seller management team said.

Flipkart charges a marketplace fee a percentage of the selling price of a product inclusive of a selling commission, a closing fee and shipping charges, which it will continue to levy. The selling commission, however, can be as low as 4% for a coat to as much as 25% for a home decor set. By giving this up to instead recruit more merchants, Flipkart will be hoping the sellers will have to rely on its advertising platform to be visible to buyers.

While all leading online marketplaces, including Snapdeal and Amazon, are rushing to add merchants, Flipkart is also focused on growing its new advertising unit, a high-margin, fee-based business that it expects could shore up its bottomline. Cofounder and CEO Sachin Bansal directly oversees this unit. The firm aims to have 1-lakh merchants by the end of the year, up from 30,000 now.

Flipkart did not answer ET's email query if it planned to revise its marketplace commissions to zero. Instead, a company spokesperson replied: "Our seller policies are created as per industry standards ensuring sellers a seamless experience. Commission for sellers vary across categories, and this is determined based on channel margins and other category specific costs. The commission structure has been designed to benefit every seller whilst offering them the best online selling experience."

A few merchants responded favourably to Flipkart's zero-commissions plan. "When sellers are pumping in more money to bring visibility to their products with ads, Flipkart might become more sustainable and it's good in the long run for sellers like us," said Mohamed Arif, a merchant who sells more than 15,000 Zwart branded bags on Flipkart every month.

Flipkart, founded in 2007, recorded Rs 2,937.7 crore in revenue in 2013-14 on selling goods worth about $1 billion, and a loss of Rs 916 crore, according to regulatory filings and statements by the company. In June, Flipkart said it was aiming to sell a total $10 billion worth of goods on its marketplace.

The company started its advertising business earlier this year as part of its diversification into high margin businesses that could accelerate it to profitability ahead of a potential public listing.

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