Flipkart speeds up shift back to retail model

Flipkart’s return to the retail model results in better customer experience in product quality and delivery speed, but sales growth remains a concern


At a townhall meeting on Friday, former Flipkart CEO Sachin Bansal said that even he had paid the price for the company’s under-performance in 2015. Photo: Hemant Mishra/Mint
At a townhall meeting on Friday, former Flipkart CEO Sachin Bansal said that even he had paid the price for the company’s under-performance in 2015. Photo: Hemant Mishra/Mint

Bengaluru: Online marketplace Flipkart is accelerating its shift back to a largely inventory-based model, resulting in an improvement in its customer experience metrics such as product quality and delivery speed, three people familiar with the matter said. Sales growth, though, is still elusive, the people said.

After Flipkart co-founder Binny Bansal took over from Sachin Bansal as chief executive in January, Flipkart has gone back to its roots and shifted toward the retail model. Last year, Flipkart attempted to become a marketplace, which hurt its product quality, product delivery times and overall brand image with customers. (Under the inventory or retail model, a majority of a site’s sales come from a few select sellers)

Binny Bansal has made net promoter score (NPS), a key metric of customer satisfaction, among his top priorities. Mint reported on 9 August that Flipkart had set out to achieve three key goals, among others, by September. One, generate monthly gross sales of Rs.3,700-3,800 crore by expanding sales of smartphones, large appliances and fashion; two, achieve an NPS of 55 partly by improving the speed and consistency of product deliveries and improving its product returns management; and three, break even at the gross profit level by cutting staff costs, discounts and other expenses.

Binny Bansal said the company’s NPS inched upward to the early 30s and will increase further in August, the three people cited above said. He also said the company’s delivery speed had increased significantly, too, added the people.

The three people cited above said the improvement in NPS was being driven partly by Flipkart’s retail push, which is led by Kalyan Krishnamurthy, who returned to Flipkart from Tiger Global Management as de-facto business head in June. Tiger Global is Flipkart’s largest investor.

Now, a majority of Flipkart’s sales in two key product categories of smartphones and fashion come from a few sellers, primarily WS Retail Services Pvt Ltd and Tech Connect Retail Pvt. Ltd, said the people cited above. Flipkart has close ties with both these sellers.

“By working with only a few sellers, you get more control over what you’re selling. So automatically, the quality will improve. Additionally, Flipkart gets control over the shipping, so that is really important in making deliveries faster and also in meeting delivery times,” said one of the three people cited above.

Apart from so-called alpha sellers, Flipkart has tens of thousands of smaller, third-party sellers.

For these sellers, Flipkart changed its policies in June, charging higher commission rates in key categories, passing on costs of product returns to sellers and encouraging them to use its logistics service, as part of the effort to improve its customer service and brand. By putting the onus of returns on sellers, penalizing delinquent sellers and rewarding good performers, Flipkart is pushing them to improve their service standards.

Additionally, Flipkart is also working on a project to improve its delivery time and reduce logistics costs by shipping products from warehouses that are near to the place where the order was placed. For instance, if an order is placed in Bengaluru, the company is trying to ensure it can predict demand well enough to have stored the product in its warehouse in Bengaluru, rather than say, in Delhi, said the three people cited above. While this sounds obvious, logistics costs had run out of control over the past six-nine months at Flipkart because it didn’t have strong enough demand prediction capabilities.

Together, all these measures are helping Flipkart improve its NPS and reclaim its customer service standards of old.

What’s still missing is sales growth.

Flipkart’s monthly sales have declined below Rs.2,000 crore, some 15-20% lower than its sales at the end of last year.

To get sales growth back, Flipkart brought in Tiger Global’s Krishnamurthy.

Flipkart has started holding sales events this month but it is saving its ammunition for the company’s Big Billion Day in October.

“We continue to have a significant lead over the competition on all important customer parameters including sales. We are also the market leader in the biggest categories of e-commerce including mobiles, fashion, home, electronics and appliances. Our sales are witnessing a steady growth..,” a Flipkart spokesperson said in an email.

In January, when Flipkart named Binny as its CEO, Sachin Bansal moved to the role of executive chairman. He’s now responsible for external activities such as government relations and fund raising.

Since January, three of Flipkart’s senior-most executives, commerce platform head Mukesh Bansal, chief business officer Ankit Nagori and product head Punit Soni, have left. Struggling to raise funds at its preferred valuation, the company even cut some 500-700 jobs last month, saying they were simply letting go of underperforming employees.

At the townhall meeting on Friday, Sachin Bansal said that even he had paid the price for the company’s under-performance in 2015, according to a person who attended the meeting. Bansal promised Flipkart staff that the company will not fire people to save costs.

“Our top management is completely different now than one year back. I’m not there too. It’s all because of performance. We missed targets and people had to go,” Bansal told employees, according to the person cited above.

The technology news website FactorDaily first reported Sachin Bansal’s admission on Monday.

More From Livemint