Marketplaces bar sellers non-compliant with GST; a sales dip likely to occur?

To ensure the smooth roll-out of the Goods and Services Tax (GST), the government deferred TDS and TCS under the tax. This meant that persons selling through ecommerce operators liable to collect TCS would not be required to obtain registration immediately. As a result, merchants had more time to register under the tax avoiding seller depletion.

But, it looks like the impact of GST is causing marketplaces to bar non-GST compliant sellers temporarily.

Why is this happening?

Marketplaces Amazon India and Flipkart made it mandatory for sellers to register under the new tax to keep selling on their platforms. Sellers were requested to obtain GST Identification Numbers (GSTIN) by July 1. Unfortunately, many sellers haven’t been able to meet this requirement due to various reasons. Others have tapped out of the ecommerce ring as they see very little business prospects under the new tax regime.

Will marketplace sales drop?

With the reduction in their seller bases, marketplaces will be falling short of products in certain departments. But, marketplaces claim that this will not disrupt sales.

Flipkart mentioned, “We don’t foresee any impact on sales. Some of the selection may get lost… (but) due to tax being lowered in many categories like fashion, we expect the sellers to pass the benefits to our customers.”

At the same time, the etailer is confident that those not compliant with the tax will be back soon on the platform.

The company said, “Close to 95 percent of our sellers who contribute to our sales have become GST-compliant. The rest are in the process of obtaining GSTINs from the government as in certain states there is a delay in getting the same.”

Compliant list

• Flipkart – 95% out of 100,000 sellers
• Paytm Mall – 80% of seller submitted GSTINs
• Snapdeal – 92% of top sellers sent in GSTINs

Amazon, however, did not disclose its GST ready seller proportion. But, based on a previous report, the etailer had only 1/3rd of sellers prepared for the tax. The foreign ecommerce firm only stated,

“We believe GST is good for the ecommerce industry as it would eliminate hurdles in inter-state delivery and subsume the entry tax introduced on ecommerce shipments by some states.”

What do sellers think?

According to assessments by the All India Online Vendors Association, many online sellers want to continue selling under this tax.

A spokesperson for the group of 2,000 online sellers said, “Some of the categories will have to be marked up on price due to GST. Those sellers have chosen not to go ahead (and register). However, the GST rollout has been smooth.”

What about you, are you on the same page as GST? If not, here’s how you can be.

Flipkart top-brass to meet customers to gain insight; Amazon to form Cloudtail-like seller entity

Ecommerce biggies Flipkart and Amazon are busy talking these days; the former with buyers and the latter with Indian MNC families. Different approaches but same goal – expand their ecommerce business’s revenue and reach.

Flipkart’s executive to meet customers from small towns & cities

The home-grown etailer is soon going to launch a program, wherein Flipkart’s top executives including the CEO would interact with customers. In the month-long program, the company’s managers would reach out to buyers from tier 2, 3 and 4 towns in order to gain insight into new customer buying behaviours.

The feedback from these customers would help Flipkart to design its next phase of growth. Small towns and cities would be at the centre of this plan.

While speaking about this program, Flipkart’s CEO Kalyan Krishnamurthy said,

“Customers are at the heart of everything we do, which is why all our work in the past decade was done to simplify and bring value to our customer’s life. As we dedicate this month to our customers, we would like to get to know them better by personally interacting with them.”

During the 2015 Big Billion edition, Flipkart’s co-founder Sachin Bansal had turned into a delivery boy for a day with an intention to interact with buyers and get their direct feedback.

Amazon looking to create a seller entity like Cloudtail

Rival Amazon isn’t far behind as far as drafting strategies to increase business reach is concerned.

It is common knowledge that Amazon India’s biggest seller Cloudtail is a joint enterprise of Amazon Inc. and Infosys co-founder NR Narayana Murthy’s Catamaran Ventures.

The US-based online marketplace is planning to enter a similar partnership with other Indian MNCs. According to sources, Amazon is in talks with Burman Family Holdings that operates Dabur and Kris Gopalakrishnan, executive vice-chairman of Infosys.

An insider revealed,

“Talks are continuing with the Burman family and a deal could get hammered out in the next couple of months. Discussions with the other groups have reached an impasse.”

After the ‘FDI 25% cap on sales from one seller rule’ was implemented, Amazon had introduced a new batch of sellers to handle their best-selling brands to reduce reliance on Cloudtail.

But a joint venture like Cloudtail would allow the marketplace to have more control over the inventory and quality of service. In addition, it is good for the business; Cloudtail’s growth is a proof of it. Even the business houses benefit from this arrangement, as the ecommerce industry is growing at a jet speed.

Satish Meena, an analyst at Forrester Research stated,

“Cloudtail has been doing well. These ventures help Amazon comply with the DIPP norms and exercise greater control over inventory, manage customer experience and comply with the regulations of GST for tax collection at source.”

But wouldn’t a new in-house seller like Cloudtail affect other sellers listed on Amazon India? In the past, various seller associations have accused Amazon of under-cutting sellers. The etailer’s seller count is increasing but where’s the level-playing field?

Etailers required to declare MRP, Expiry details on product pages soon

With the recently rolled out Good and Services Tax (GST), online sellers are busy making changes to listings. But this isn’t the only change they will need to implement. A notification on June 23 from the Ministry of Consumer Affairs stated that it has changed the Legal Metrology (Packaged Commodities) Rules, 2011. This amendment will now include ecommerce companies and online marketplaces under the purview of these rules.

The rules require etailers to make provisions for the declaration of online product –

• Expiry dates
• Maximum retail prices
• Country of origin

All of this information must be disclosed on online product pages for the basic purpose of protecting customers by keeping them informed.

When will this change affect ecommerce?

The above-mentioned details will be mandatory from January 1 of next year (2018).

Legal Metrology (Packaged Commodities) Amendment Rules, 2017 says, “An ecommerce entity shall ensure that the mandatory declarations as specified, except the month and year in which the commodity is manufactured or packed, shall be displayed on the digital and electronic network used for ecommerce transactions.”

According to the amendment, the term ecommerce entities will comprise of platforms like BigBasket and Grofers that stock inventory will be subject to these rules directly.

But, in case of platforms like Amazon and Flipkart, which do not own inventory, the rule mentions that: the responsibility of the correctness of the declarations will depend on the manufacturer, seller, dealer or importer.

Making sure that sellers on their platforms follow these rules, however, will be the responsibility of online marketplaces.

Customer complaints

IOS reported last month that the Central Government planned to amend the Legal Metrology (Packaged Commodities) Rules, 2011, so online customer complaints reduce. This amendment was introduced after the Food Safety and Standards Authority of India and LocalCircles, a citizen engagement platform, discussed that people were pointing out that products sold online were close too expiration dates.

LocalCircles’ chief strategy officer, Yatish Rajawat said, “How do marketplaces manage to sell expensive and imported olive oil at a discount? These are all products bought by a dealer close to the expiry date and who is trying to sell it through this channel.”

Based on the new guidelines, food products will be subject to specifications set by the Food Safety and Standards Act, 2006.

What do marketplaces think?

Amazon

With regard to this amendment, online marketplace Amazon India mentioned, “We work with our sellers to ensure that our customers receive safe food products well within their indicated shelf lives. We train employees to check best-before dates while storing and packing food products at our fulfilment centres.”

Grofers

The co-founder of online grocery platform Grofers, Albinder Dhindsa said, “Typically, a product will ship to a customer only if it is within a reasonable window of usage. In case a customer complains about the expiry date within 48 hours of delivery, we offer a replacement. Expiry related complaints are fewer than two in 1,000 (products) for us.”

Sellers, etailers spell out the impact of GST on Indian ecommerce

India embraced Goods and Services Tax (GST) on 1st July amidst much fanfare. The transition from multiple taxes to single, unified tax regime was celebrated across the country.

Now that GST is a reality, how would it affect the Indian ecommerce industry? Sellers and etailers explained the impact of this new tax.

We would pass GST benefits to customers, say online & offline firms

Many offline and online retailers offered huge discounts to customers during their pre-GST sales. While customers are happy about the festive-like discounts in the middle of the year, etailers too are happy about the boost in sales.

With GST coming into existence, few etailers are offering post-GST discounts as well. Unlike pre-GST sales which were hosted to clear old stock, the post-GST ones are being held to display the benefits of this ‘one tax’ period.

Online fashion player Voylla Fashion is one such player. The etailer has started offering discounts to its customers from July 1st under GST Bonanza Discount sale.

Vishwas Shringi, founder of Voylla Fashions shared,

“Earlier, we were not able to take tax credit for many things. Now when we are able to take these, there is definitely some saving from the cost side also. If we have more margin, then we should pass it on to the consumer and we are definitely doing that.”

As the overall cost of manufacturing might reduce, product prices would go down as well. Thanks to reasonable pricing, sellers’ sales would increase, which would benefit both, buyer and vendor. Also, surge pricing would be in check due to ‘anti-profiteering law’.

Food & drink company Nestle, online fashion player Limeroad and MNC Hindustan Unilevertoo have agreed to pass on the benefits to consumers.

Customer experience would remain unaffected

As per etailers and sellers, there’s won’t be a major difference as far as shopping in the post-GST period is concerned. Some suggest that things might get cheaper for buyers, except luxury items.

Utkarsh Biradar, Senior VP at Shopclues asserted,

“In general, essentials seem to be getting cheaper, while luxuries are getting taxed higher. However, costs offline and online will not be any different as the percentage of taxation is fixed for almost all categories irrespective of online or offline sales.”

Days of confusing multiple taxes over

Be it online ecommerce players or vendors, the different entry taxes for different Indian states complicated the online selling process. GST would put a stop to all this and the ease of doing business would get enhanced. The tax rates won’t be heavily dependent on the source of goods or sales channel.

Rajeev Dimri, founding partner at BMR rightly stated,

“In a few states, there are entry taxes applicable on inward movement of goods. This leads to higher tax costs and additional compliances with respect to goods destined for such states. In some cases, even the customers need to generate a bill and other documentation to receive the products bought online. These hassles relating to entry tax will get relaxed with onset of GST.”

For now it seems that increased compliance would be the most immediate ‘negative’ impact of GST. Etailers have a huge task at their hand to make its sellers’ business GST compliant. But companies believe that it is for the greater good and a much needed tax reform.

Ecommerce investments: Snapdeal due diligence by Flipkart completed; Investors pour money into fintech firms

Last week IOS reported how the due diligence process is obstructing Snapdeal-Flipkart merger and not the minor stakeholders. The process was underway to determine Snapdeal’sfinancial worth and also scan its documents & investments.

Snapdeal to merge with Flipkart by next week?

As per latest news reports, ecommerce leader Flipkart has finally completed Snapdeal’s due diligence. And the results came out clean. This means that the final offer would be soon presented in front of the Kunal Bahl-led company. A person close to the development revealed that the deal might get closed by next week.

The exclusivity deal that Snapdeal has signed with Flipkart ends in a week. If an offer is not made by that period, then other parties could also join the race of acquiring Snapdeal.

“We are hoping that the deal gets closed by next week… The exclusivity clause ends next week. If they do not come back with an offer (before that), SoftBank, as well as other investors, can either extend the timeline or it can be open season,” a source disclosed.

In their unofficial offer, Flipkart had valued Snapdeal at $1 billion. The number could go up or down as per the findings of due diligence report.

Meanwhile, Indian ecommerce industry is cash-rich again

If and when the Snapdeal-Flipkart merger happens, it would be one of the biggest consolidations in the history of Indian ecommerce industry. It would also bring in a lot of cash and changes along with it.

This brings us to the fact that the ecommerce funding scene has gotten off to a great start in 2017. The funding gate opened after a long hiatus, soon after Flipkart grabbed $1.4 billion and eBay India. Many start-ups were happy that investments would come back as a result of Flipkart’s funding.

The expectations turned out to be true as the Indian ecommerce industry has received approximately $4 billion in the first six months of 2017. In the 2016 for the same period, the figure was a mere $1.6 billion.

A major chunk (70%) of this investment went into fin-tech companies’ pockets. Investors generously poured money into taxi-aggregator Ola and digital payments firm Paytm. Amazon Pay and Freecharge too received a sizeable amount from their respective parent companies. So the investments are coming in, but not necessarily in the direction of online retail and marketplaces. The money is flowing towards financial technology companies as it has great potential.

As far as etailers are concerned, money would come along with mergers. Besides Flipkart-Snapdeal, another big deal waiting on the horizon is ecommerce biggie Amazon and online grocery player Big Basket’s merger.