Tuesday 19 February 2019

Flipkart bets on alpha-beta tango to sync with FDI norms

Flipkart bets on alpha-beta tango to sync with FDI normsNEW DELHI: Flipkart is creating a layer of B2B (business-to-business) entities that will act as intermediaries between its wholesale arm and prominent sellers on its platform to comply with foreign investment rules for ecommerce marketplaces, people familiar with the development said.

Flipkart, which Walmart. acquired for $16 billion in May, has appointed eight-nine such independent entities, code-named alpha sellers, which will buy goods from Flipkart India, the wholesale arm of the Flipkart Group, according to the people.

The alpha sellers will supply merchandise to beta sellers, which will offer them on the Flipkart marketplace. The introduction of the intermediary alpha sellers will help Flipkart meet a cap of 25% on vendors purchasing goods from entities related to marketplace operators, the people said.

Flipkart bets on alpha-beta tango to sync with FDI norms 

“Inventory of a vendor will be deemed to be controlled by ecommerce marketplace entity if more than 25% of purchases of such a vendor are from the marketplace entity or its group companies,” the government said in a note on December 26, prescribing norms that came into effect on February 1.

Previously, some “preferred sellers” of Flipkart including Super-ComNet, OmniTech Retail and RetailNet used to purchase products directly from Flipkart’s wholesale unit and sell them to consumers on the online marketplace.

These preferred sellers will now source most of their supplies from the B2B alpha distributors. Flipkart is enrolling more alpha intermediaries as well as consumer-facing beta sellers as part of its business restructuring, they said.

“Flipkart wholesale will invoice to alpha and then alpha sells it to beta,” said a person familiar with the plans. Flipkart said it is in compliance with the latest FDI rules. “At Flipkart marketplace, we are delighted to be serving as a platform for connecting lakhs of sellers and customers and committed to ensure sellers on our marketplace continue to access the consumers across the country efficiently and in a cost-effective way,” a Flipkart spokesperson said.

The top executive of a company that was approached to act as an intermediary said he was offered a “fixed” income for becoming an alpha seller. Another person familiar with the plans said Flipkart was offering “assured returns” or small percentages of commissions to intermediaries.

The December FDI announcements mandated both Flipkart and Amazon to overhaul their business models to stay compliant with norms that bar such marketplace operators from owing sellers on their platforms.

ET had reported on February 7 that Flipkart is in talks with retailers and distributors of Samsung, Xiaomi and FMCG products to enrol them on its platform to push sales while conforming to regulations for foreign-owned online marketplaces.

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