Since late last year, Flipkart has been working closely with some of existing sellers on its platform to equip them with the skills to manage a large number of orders, the people cited above said, speaking on condition of anonymity. The online retailer plans to accumulate up to 100 such merchants, including new ones, over time. The company wants these sellers along with WS Retail Services Pvt. Ltd, Flipkart’s largest supplier, to generate anywhere between 60-80% of its sales over time, the people said.
Currently WS Retail contributes 35-40% of Flipkart’s business, the people said.
The large third-party merchants, referred to as “alpha sellers" or “gold sellers" internally at Flipkart, will sell the best-selling and high-value products on the site including the top smartphone, apparel and home appliance brands; the rest of the sellers, called “the long tail" in e-commerce jargon, will sell niche products such as handicrafts, the three people said. Flipkart currently has 100,000 third-party sellers.
The large sellers shortlisted by the company will use the firm’s Flipkart Advantage service, under which products are stocked in Flipkart’s warehouses and shipped directly to consumers once the order is placed. This helps the company have tighter control over the inventory and delivery times.
One of the main reasons behind this move is that Flipkart’s customer service levels, including order delivery time and product quality, declined after it tried moving to a larger marketplace model last year. Flipkart is engaged in a close market share war with Amazon India (Amazon Seller Services Pvt. Ltd) and Snapdeal (Jasper Infotech Pvt. Ltd). Amazon India has been gaining market share at the expense of Flipkart and Snapdeal, partly because of the superior service levels it offers.
Since Flipkart started out in 2007, the company has had almost complete control over the goods sold on its platform through WS Retail, which is run by business associates of Flipkart co-founders Sachin Bansal and Binny Bansal. Its close relationship with WS Retail allowed Flipkart to build a strong brand by delivering original, quality products at low prices in record time to customers.
However, last year, the online retailer decided to accelerate its shift to a marketplace model, which it launched in early 2013. A marketplace, in theory, requires less cash to run and the seller ecosystem in India had evolved sufficiently for Flipkart to switch to a marketplace model without hurting customer experience, or so top executives at the company thought.
Flipkart took inspiration from China’s Alibaba Group, which listed its shares in the US at a record valuation of more than $230 billion in September 2014, to make this shift to a marketplace.
But third-party sellers weren’t able to deliver the same customer experience as WS Retail and Flipkart’s brand was getting hit in the process, with some shoppers complaining about second-hand products and late order deliveries, the three people cited above said.
Given that arch-rival Amazon India has been wowing customers with fast order deliveries, Flipkart has now decided to move to more of a managed marketplace in order to have more control over product quality and order deliveries, among other things.
“At Flipkart, we believe in offering our customers the best possible shopping experience. This programme which we started in October 2015 is aimed at encouraging high quality sellers who can serve our customers better. The programme will support existing and new sellers on product quality, customer service, packaging, logistics and supply chain," a Flipkart spokesperson said by email.
It remains to be seen if Flipkart’s advertising business will be affected by this change in strategy. The company has been building its ads business, which depends partly on sellers competing for premium positioning on Flipkart’s app and website.
To be sure, Flipkart has other major levers in its ads business. Apart from seller ads, the company generates ad revenue in two other ways: by serving content on its platform paid for by brands; and by connecting advertisers with its so-called Flipkart shoppers audience, which comprises an external network of news, gaming and other apps.
Flipkart is generating nearly $1 million in monthly advertisement sales, making the company one of the largest digital ads platforms in India, Mint reported on 3 March.
Last Tuesday, the government allowed 100% foreign direct investment (FDI) in online retail of goods and services under the so-called “marketplace model" through the automatic route, seeking to legitimize existing businesses of e-commerce companies operating in India.
However, the government said marketplaces cannot influence pricing of products and services on their platforms, directly or indirectly. The new regulations also prohibit any one seller from contributing more than 25% of the sales of any marketplace.
Potentially, this affects Flipkart-WS Retail. Flipkart hasn’t commented on the new FDI rules.