Amazon to onboard more mobile only vendors before festive sales; Seller app enhancement underway

Along with its plan to boost its logistics network, the Jeff Bezos lead company Amazon Indiais also aiming to boost its seller base. In 2016, the etailer saw 160% growth in its seller base. This time the online marketplace is looking to push its seller quantity to increase festive sales.

Mobile registration for online sellers

Before the festive season is in full swing, Amazon decided to launch an application to allow online sellers to register via mobile to sell on their platform. Amazon India is the first to initiate this facility among all the Amazon franchises in the world.

• Over 70% of Indian online sellers process orders and update inventory via mobile (That’s higher than US and European online sellers).

The ecommerce company will be enhancing the long tail needs to multiply its product offerings before Dussehra and Diwali sales set in, which are the biggest sales periods of the year accounting for 1/3rd of annual sales for Amazon.

“The first six months and the first 10-50 sales are crucial for the sellers to gain confidence about the effectiveness of the marketplace. The long tail needs to believe in the model and hence we extend the same support to all sellers irrespective of their scale. Even our rewards are geared towards the sellers inputs to the markeplace rather than the sales they generate on our platform,” Gopal Pillai states, the general manager for Amazon India seller services.

• 70% of sellers belong to tier II and III cities, claims

Amazon has round two lakh sellers registered. From these only 1,600 generate crores of rupees annually. The rest are much smaller.

The response to push notifications on the Amazon seller app is much faster and frequent compared to email updates. The etailer’s application is also used regularly by sellers to respond to customer queries, which is much faster than desktop.

To ensure its seller engagement initiatives are successful in tier II and II cities Amazon India has introduced seller helplines in local languages like Telugu, Tamil and Kannada this year, as more than half the calls from online sellers happen in these languages.

Discounts are capital spends, not marketing expenses, says tax department to ecommerce firms

The income tax department has thrown a curveball at Indian ecommerce companies, which has increased their worries. Read ahead to know why.

Usually, sales discounts are not treated as an expense. It is deducted from gross sales along with returns and other sales allowances. However, the tax department has ordered etailersthat discounts should be considered as capital spends and not as marketing expenses.

In an assessment order of last year sent by the tax officials to ecommerce companies, they have asked to re-categorize marketing costs as capital spending. Their argument is that it is not revenue expenditure and is creating intangibles.

A source close to the development said,

“In the ongoing assessment, we felt the tax officers still think that since marketing and advertising expense is a major expense for us, this is creating intangibles. And this is not a revenue expense.”

What would this result in?

Once the marketing costs are reclassified as capitals expenses, ecommerce companies like Flipkart and Amazon’s profits would increase. They would no longer be able to deduct discounts from their revenue. While it would make them profitable on paper, etailers would also become tax liable.

The tax liability is the main cause of concern for online marketplaces. And hence, they have appealed the department to reconsider this order. In August this year, ecommerce companies reached out to the Commissioner of Income Tax (Appeals), Bengaluru. No decision has been taken yet.

Start-ups would have to pack up if this order is implemented, say legal experts

India ranks low in terms of ease of doing business. The environment is especially not conducive for start-ups. Indian government has launched initiatives like Start-up India and Make in India, which aims at promoting entrepreneurship. But if the expenses and tax burden is not reduced then how would entrepreneurs sustain their business?

The order to treat discounts as capital expenses would increase the tax burden of online firms. As a result, start-ups with limited funds might have to exit.

“Several startups have to incur heavy expenses to promote products or services and stir up demand for their products. If such tax demands are made, then several startups including ecommerce companies and FMCG companies who are in the B2C space will start facing the heat from the tax department and would end up being embroiled in litigation. The taxpayers may have to argue that these expenses are incurred every year and are necessary to run the business and create demand for their services, and without such expenses these startups may just fold up,” reasoned Amit Maheshwari, partner at Ashok Maheshwary & Associates.

Legal experts also believe that the tax department can’t give out such orders and has got no business to dictate terms to etailers.  

Sanjay Sanghvi of law firm Khaitan & Co firmly stated,

“What business expenditure to incur and what quantum is the prerogative of the business concerned to decide. The Assessing Officer (of income tax) has no say in dictating terms of business to a taxpayer, as to how to run his business. There are enough judicial decisions supporting this proposition.”

Amazon launches 5th FC in Haryana, to launch another in Hyderabad soon

After the set up of its second fulfilment centre (FC) in Uttar Pradesh, Amazon announced it will be setting up 4 more FCs in the country to extend its logistics network. This month, it launched its fifth FC in Haryana. The US-based etailer has also set aside $63 million for this very purpose.

Adding more fulfilment centres to its network is expected to boost customer experience during the festive season.

What’s different about this FC?

Amazon India Customer Fulfilment vice president, Akhil Saxena said, “In line with our vision to transform the way India buys and sells, we have been consistently investing in our infrastructure and delivery network, so we can increase our speed of delivery and provide a superior experience to both – customers and sellers.

With the launch of our 5th Fulfilment Centre in Haryana, we strongly believe that we will be able to better serve our customers with one-day & two-day delivery. The FC will enable sellers use local infrastructure, save capital and help them grow.”

The new FC in Jamalpur, Haryana is huge with:

• 250,000 square feet storage space (close to 1.2 million cubic feet)
• 4 floors accommodating 150 aisles

With this new facility in the state, Amazon has a total storage space of almost 3.3 million cubic feet in Haryana. And, in the whole country, it has a total of 41 fulfilment centres expanding in 13 cities.

Saxena also said, “With more than 11,000 sellers in Haryana, the selection offered by sellers in the state for immediate delivery has grown more than 600% this year as compared to last year.”

The next fulfilment centre can be expected in October 2017 in the state of Hyderabad. As the festive season nears, the foreign ecommerce company will be letting go of commissions and profit margins. Its installation services will also be extended for more products under its large appliance category.

Myntra’s private label business achieves profitability; secures Rs 199 crore loan for B2B unit

Profitability evades most of the Indian ecommerce companies. But Myntra got an opportunity to taste it, courtesy its private label business.

The Flipkart-owned company reported operating profits two months in a row and turned EBITDA (earnings before interest, taxes, depreciation, and amortization) positive in June 2017.

Success of Myntra’s private labels

The fashion etailer’s CEO Ananth Narayanan shared that his company is right on track in terms of year-on-year (YoY) growth, profitability and controlling costs. Their in-house labels like Roadster, Dressberry, Anouk, HRX and few others are doing well. And they would achieve the internal revenue targets set for this year and the next.

The CEO revealed:

• Myntra Fashion Brands registered 100% YoY growth
• Private labels would register a double-digit operating profit margin in the next two years
• Myntra would reach $300 million in revenues by the end of 2017 and profitability by March 2018
• 9 of the 20 top brands sold on Myntra are its private labels

Machine learning, artificial intelligence, wide range of high-quality fashion products, strengthening supply chain and forecasting demand helped the etailer to grow at this pace.

“It’s easy to get to profitability without growth. We’re trying to get to profitability and are continuing to grow and that’s important. We’ve been very rational about controlling costs… The biggest (area of cost optimization) has been supply chain and predicting where inventory needs to be placed, so that the actual package travels less… We’ve also been optimizing overall product selection, so figuring out what the right products are, so that we can get the sell-through rates optimized,” said Narayanan.

Myntra’s B2B seller entity secures Rs 199 crore loan

In July this year, Myntra rechristened its seller entity to become a B2B seller. For this unit, the fashion etailer has raised funds through loan. It secured Rs. 199 crore ($3.1 million) debt funding from Yes Bank by keeping its assets as collateral. Assets include Myntra’s consumable stores, raw material stocks, semi-finished & finished goods and receivables.

Debt financing is one of the expensive ways of raising funds and is time-bound. But it acts as a great source of money to meet working capital needs. With this debt loan, Myntra and its entities would have access to Rs 300 crore credit facility.

This money would help the fashion etailer to scale up its private labels business and develop supporting departments such as supply chain, marketing and customer acquisition.

“Even as we have hit this milestone, there is more happening in other brands as well. We continue to optimise supply chain costs resulting in overall scale benefits, which translates into a rise in revenues but not in fixed costs. We are also optimising our marketing, customer, and acquisition costs to reach this goal… The goal is to eventually make our private labels account for 35%-40% (not beyond that) of our total revenues, which we hope to achieve in 18 months. Being a multi-brand platform will continue to remain the crux of our business,” said Narayanan.

In August 2017, ROC filing revealed that Myntra’s parent company Flipkart borrowed Rs. 375 crore debt loan from Axis Bank to maintain steady cash-flow. The marketplace also borrowed money from HDFC Bank and Kotak Mahindra Bank.

Flipkart gives GSP licence a second go, raises Rs.2.18 cr. paid-up capital to secure it

Flipkart is hell bent on acquiring a GST Suvidha Provider (GSP) licence. The etailer applied for it in May 2017 to provide its sellers with special GST benefits. The GST Network, a nodal agency handling the technological infrastructure of the goods and services tax, however, denied Flipkart the licence. This was because the ecommerce company failed to maintain minimum paid-up capital of Rs. 2 crore.

The online retail platform is applying again and for its second attempt, it increased its paid-up capital to match the set requirement. Filings with the Registrar of Companies (RoC) show that on August 24 Flipkart passed a resolution to issue bonus share to increase its paid-up share capital from Rs. 48.43 lakh to Rs. 2.18 crore.

Why is Flipkart after a GSP licence?

With a GSP licence, Flipkart can help sellers become GST compliant and offer them tax filing services too. The etail firm will be able to transfer invoices under GST directly to the central database as well.

“The company intends to facilitate the GST compliance of sellers by offering them the service being a GSP. This would not only ensure that sellers are compliant with GST requirements, but is also expected to result in huge savings to them since the cost of service that the company (Flipkart) would provide them by being a GSP would only be a fraction of the cost that they would otherwise end up paying to an unrelated GSP,” the etailer mentioned in its resolution.

Flipkart’s not the only one, 160 companies applied for the licence and only 69 were selected for the receipt of GSP status. Among these were PwC and KPMG. Flipkart, on the other hand, was on the list of 38 applicants who were rejected. The GSTN is yet to announce when it will be accepting new applications for the licence.