Etailers need a year to comply with FDI norms- Financial Experts

The government might have passed the FDI rule, but it may not be possible for ecommerce companies to immediately implement them. It was a moment of open celebration for brick and mortar retailers when the government passed a rule clarifying the terms of Foreign Direct Investment (FDI) in late March 2016. The new rules clearly stated that online marketplaces cannot have a direct interest in the selling. It stated that no single seller could have more than 25% of the salesin a particular marketplace.

Experts in the financial and legal fields have stated that it will be unrealistic to expect the ecommerce companies to make the changes in the current financial year. An expert in the field elaborates the reason for this,

“The 25 per cent data can be given over a period of time and not immediately.”

One step at a time

Flipkart has begun preparations to scale down the involvement of WS Retail, the largest seller on the marketplace. This process is expected to take roughly a year or more. Amazon also has reason to worry, as the company has direct interest in Cloudtail, its largest seller. Amazon had tried to appeal to the government through the Internet and Mobile Association of India (IAMAI) to get an extension in the date. However, the movement did not gain much momentum due to the intense rivalry that exists among ecommerce companies like Flipkart, Amazon and Snapdeal.

Snapdeal has stated that it is does not have any issue, as none of its sellers has monopoly. A company spokesperson says,

“Given the span and depth of our seller base, even the bigger ones account for much less than the 25 per cent threshold mandated for any single seller.”

Flipkart unintentionally making way for Amazon to rule Indian ecommerce?

Flipkart is in the middle of a crisis. One it can only blame itself for, believes Haresh Chawla, a partner at one of India’s most respected and experienced private equity firm, India Value Fund Advisors (IVFA). He claims everyone is looking the wrong way. The online marketplace’s snail pace growth is alarming. Flipkart has been at the center of Indian ecommerce but its innovation well seems to be drying up, which explains why its revenue or sales numbers are stagnant.

Over the last three years market leader Flipkart managed to grow its GMV by over 200%. Now the ecommerce giant seems to be tripping over its own feet and Amazon is ready to go in for the kill.

The Cause of Flipkart’s Undoing

Haresh Chawla says, the cause of Flipkart’s stumbling is its ignorance of everything other than the sale of the smartphones. The exclusive sale of Motorola phones amounts to at least half a billion dollars. The smartphone category represents more than half of the etailer’s GMV and now the ecommerce market is about to experience a drastic change.

Lavish spending by the marketplace has only brought its rival Amazon closer to the top position and has pushed investors to look for more suitable solutions.

1. An unconventional approach

Remember when Flipkart said it would go app only in a year? Intense debates within the company lead to the plan being called off. Going through with this plan would have been the most customer unfriendly decision the marketplace every made. To add to it neither the company nor the market was ready for Flipkart’s app only strategy. Mobile phones may contribute to a significant growth in online consumers, however most online shoppers close the deal through desktop access at work and mobile phone browsers.

They discontinued their mobile payment strategy with Payzippy and invested in ngpay in 2014. But no results were reaped. Since then they have struggled in designing a wallet and even a simple loyalty program. Even their Ping chat feature failed to gain much attention.

2. More app inefficiency

Compared to the Amazon mobile app Flipkart is far behind said Haresh Chawla in his article. He pointed out these faults with the app:

• The search feature is poor and the app experience and mobile site are non-intuitive
• The personalization and recommendation deliver a suboptimal experience
• Unconventional products are hard to find
• The Amazon reviews and Q&A section was way ahead of Flipkart

He also stated “I am sure everyone at Flipkart knows that this gap exists but the firm ignored it and was solely focused on pushing deals. Why?”

3. Lack of logistical sophistication

Haresh Chawla wrote, eKart can show immediate profitability and overlaying third party businesses allows it to bare costs over large volumes, giving Flipkart and eKart more room and leverage to improve operations. It also serves as a hedge for investors.

With Indian logistics becoming sophisticated, more long term improvements in automation, technology and resources are in order. And spinning off on itself will guarantee no success, stated Chawla. Should eKart compete in the market and raise resources independently, the moment new shareholders come along and the contract with Flipkart becomes one of arm’s length, one of the businesses will suffer margin contractions. As Flipkart’s business leverages eKart’s biggest gain! Flipkart’s shareholders will demand the value be captures by them as preferred or equity.

4. GMV is the focus

Flipkart was shortsighted by its growing GMV. It tried pushing this metric by concentrating more on selling smartphones as smartphones are worth more than the average ecommerce transaction size. Now add deep discounts to the equation and the GMV will soar even faster because it’s not only the end customer buying, mobile shop owners also buy in bulk from online marketplaces. The main focus on this category and as a result the other categories suffered along with the product experience.

5. Did you really need this?

Flipkart keeps spending on the unnecessary. Amazon on the other hand believes in frugality. According to their principles they only spend on what is important to the customer. Flipkart on the other hand threw caution to the wind and replaced frugality with free lunches and trend-setting paternity leave. To be a successful retailer you need to watch every penny and not paying attention to the details will definitely come back to haunt you.

6. Who’s leading the team?

The internal tug of war between the managers and top level managers has led to leadership issues. According to the article, Flipkart has hired the wrong people for the task now that its management is shaky.

7. Myntra is the issue?

Flipkart has shelled out 1,150 crores to Myntra since 2014, when it acsquired the online fashion portal. Myntra sustained a loss of Rs. 740 crores in FY15, compared to the loss of Rs. 173 the bear before. The logical reason for this monumental loss is the additional expenses of advertising and undercutting product costs. But Myntra says it is trying to increase its app users, in light of Reliance’s entry into online fashion.

Flipkart has left itself wide open and Amazon is more than ready to take a hit. Amazon has been in the business for 20 years now and any missteps by Flipkart are a huge advantage to the foreign marketplace. What Flipkart needs to turn the tables around is a group of seasoned professionals to plan, execute and cut costs

Sellers ask: Ask Me Bazaar, why is your service below par?

What are the options for Indian sellers who want to sell on online marketplaces?

There’s eBay. It still gives maximum revenue but seller support is questionable. Hence, this first entrant is losing its charm.

Then we have homegrown etailers Flipkart and Snapdeal. But their wrong shipping charges and unfair returns policy is burning a huge hole in sellers’ pocket.

Amazon India is performing well and they have kept the service standard high. Although, according to few sellers the sales volume is less compared to other marketplaces.

Therefore, merchants had high expectations from new platforms such as Paytm and Askmebazaar. Unfortunately, sellers are not happy with Askmebazaar (AMB) too.

Let’s find out why.

Signing up process

A seller (name withheld on request) who is also part of the All India Online Vendors Association (AIOVA) calls Askmebazaar the ‘worst marketplace ever seen’. The mobile accessories seller says,

“I used to sell on Ask Me but after too many problems, I closed my account in just 10 months.”

Here’s how it all started.

A local representative had approached the seller to sign up for Ask Me. The documents required were basic: Pan card, VAT & CST number, cancelled cheque, and address proof. There was no minimum SKU and stock requirement.

The marketplace didn’t offer assistance in clicking & uploading product images and listing products. It took approximately 45 days to complete the registration process and for the listings to go live.

“My monthly orders were 10000 when I used to sell there,” shares the seller.

However, bad service forced him to delist from the portal.

Poor seller panel & support

Indian Online Seller asked what kind of problems he faced. The seller shared that right from seller panel to support and everything in between was troubling him.

“Customer ordered 1 product but I would get multiple orders from the customer. No support from Ask Me’s employees, seller support team,” he says.

Elaborating further he adds,

“There is no system in for payment and reconciliation. They can’t do payment on time and put excess courier charges. Payments and returns are handled manually, not online. After persistently doing follow up with the entire team and top management, did they realized my problem. Many sellers were facing the same issue but no valid answer was given ever.”

Clueless support desk

An amazing list of celebrities including Kangana Ranaut, Ranbir Kapoor and Farhan Akhtar are brand ambassadors of Ask Me. But buyers don’t have many nice things to say about the shopping site. There are various social media pages dedicated to the portal with words such as ‘fraud’ and ‘fake’ sprinkled liberally.

Customers are miffed, so are merchants. The etailer’s ‘grow with us’ and ‘AskMeFin’ initiatives are aimed at empowering Indian sellers. However, looking at the quality of service, isn’t it hard to accept that the firm is serious about supporting sellers?

Take for instance Askmebazaar Seller App. Several sellers have complained about the unresponsive support team and difficulty in signing-in.

Vinod Dubey wrote in his app review (above image),

“I am registered seller with askme bazaar but I am unable to login. Very bad. I am a registered seller with askme but still I am unable to login.”

To this the AMB team replied,

“Currently this app is for existing sellers of Ask Me Bazaar.”

What?? Didn’t the merchant say he is a ‘registered seller’, which means an ‘existing seller’? If the support staff can’t read a three lines review properly, can we be sure they actually read sellers’ grievance mails?

Below are some more app reviews that reflect that AMB’s seller support team is too slow:

Can Askmebazaar afford to be indifferent?

No!

We all are aware of the intense ecommerce battle being fought on the Indian turf. There’s Amazon, Snapdeal, and Flipkart that are already fighting fiercely. eBay is trying to make a strong comeback. Paytm is trying to sneak in. Shopclues is going strong in tier 2 & 3 cities. China’s Alibaba and Japan’s Rakuten are all geared up too!

In such an environment, AMB should have tried to make the most of this situation and win the sellers by creating a friendly platform. Merchants would have been more than happy to leave the ecommerce trinity and make the switch. But the AMB didn’t.

Here are few things they can start with:

• Work on designing a superior seller panel

• Automate the returns & payment process

• Hire competent account managers and seller support team

• Offer assistance while product uploading process

• Get more transparent and organized

Moreover, sellers are getting strong and won’t shy away from taking the legal route if etailers continue to cheat them. A customer has already registered FIR against AMB. It can’t afford sellers doing the same against it.

Askmebazaar didn’t reply to Indian Online Seller’s email seeking comment on these issues.

We hope AMB listens carefully and realizes what a great opportunity lies ahead in front of them to poach Flipkart, Snapdeal and eBay’s sellers. Especially, when there is no dearth of orders. Askmebazaar, are you listening?

Ecommerce in India: HC seeks Centre’s response on RBI’s circular on e-retail, FDI linkage

Delhi High Court today sought the Centre’s response on a petition challenging a circular by the Reserve Bank of India (RBI), as per which retail trading in any form through ecommerce would not be permissible for companies which receive foreign direct investment (FDI).

A bench of Chief Justice G Rohini and Justice Jayant Nath issued notice to the Centre and asked it to file its response within four weeks. The court has fixed the matter for May 24.

During the hearing, the counsel appearing for RBI told the bench, which had earlier sought its reply on the plea, that they would file their response soon.

The public interest litigation has contended that as per the July 1, 2015 master circular of the RBI, while FDI is allowed in business-to-business (B2B) e-commerce, companies that get FDI cannot undertake single and multi-brand retail trading through e-commerce.

It has sought an inquiry into the affairs and transactions of all FDI recipient companies and stop operation of those found to be directly or indirectly carrying out e- commerce in retail sector.

The petitioner also said that “100 per cent FDI is permissible through automatic route for buying and selling by a company through the e-commerce platform but this is subject to the condition that such companies would engage only in B2B e-commerce as against business to consumer (B2C) pattern and not in retail trading”.

The plea had alleged that “in order to mislead and confuse the competent authorities, the said e-commerce companies are creating a conundrum of group websites/companies amongst the closely held/managed sister companies/business concerns and thereby causing tremendous loss to the government exchequer.”

The petition has further claimed that “to circumvent the law, these entities have created a web of connected entities” which carry out different functions, like logistics, handling payments, providing software and technology support and so on.

It had sought that “required legal action be initiated” against the companies or e-commerce sites or entities who have violated provisions of FEMA and the rules framed there under.

Myntra plans to diversify; faster approach to profitability?

Fashion etailer Myntra will soon add more verticals to its repertoire. The Flipkart-owned app-based company is looking at adding precious jewellery, furniture, and personal care products to its product range. The company seems to be following in the footsteps of parent Flipkart, which has recently added furniture as an important segment.

Come July, and Myntra will open its personal care and jewellery stores.

Furniture – ecom’s newest blue eyed baby

Experts are all in agreement that furniture is a hot cake right now. The industry is worth about Rs. 3,000 crore and is shooting ahead at a 70% growth rate per annum. Similarly in jewellery, online commerce has sold a total of $ 150 million (fashion and fine jewellery) in 2015.

Myntra had been mulling over broadening its product range two years back, but it did not have the infrastructure (live chat for jewellery selling) to launch it. CEO Ananth Narayanan says that the company is taking well thought out measures to attain profitability by 2017. Myntra has already held discussions with around 40 brands in home furnishings.

It is also about the economics, says Narayanan,

“In all these categories, we will be looking at mass premium segment where the margins are high, so it works for unit-economics.”

He also added that the company is targeting sales worth Rs. 500 crores in the next two years from furniture.

However, an ex-employee of the company felt that it might not be a wise move. On condition of anonymity, the person said,

“Since, the margins look tough in the home furnishing category, it does not make sense for a controlled marketplace to diversify into this.”

The recent change in legislations in ecommerce might well be a blessing in disguise, as everyone is now focussing reaching the profitability milestone.