Myntra adds new third-party sellers to comply with FDI norms
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Bengaluru: Flipkart-owned fashion retailer Myntra has changed its legal structure in order to comply with foreign direct investment (FDI) laws that cap a third-party seller’s contribution to 25% of its sales.
Myntra, which earlier had just one retail partner called Vector E-commerce Pvt. Ltd, has now added three new sellers on its platform, according to two people familiar with the matter and documents with the Registrar of Companies (RoC).
The three new sellers on its platform are Shreyash Retail Pvt. Ltd, Health and Happiness Pvt. Ltd and Tech Connect Retail Pvt. Ltd. Myntra is likely to add at least one more seller by the end of this fiscal year, said the people cited above.
Myntra didn’t respond to emails seeking comment.
Shreyash Retail was incorporated in May 2016 with an initial paid-up capital of Rs1 crore, according to RoC documents. Two executives, Sudarshan Kumar Mittal and Urmil Mittal, are listed as directors of the entity, according to the documents.
Health & Happiness was set up in February last year by Dinesh Verma, a lawyer, and Sabina Dinesh Verma. Its other shareholders include Sanjeev Kumar Khurana, Arun Kumar Vajpayee and Suvrat Khiwani, RoC documents show.
Mint reported on 8 August that Myntra had started working with a new seller called Tech Connect Retail Pvt. Ltd, owned by former Bharti Airtel Ltd chief executive Sanjay Kapoor.
Since India has barred direct online retail, e-commerce firms have complex structures that involve separating their businesses into purportedly independent entities. In this case, Myntra’s holding company, Myntra Designs Pvt. Ltd, sources products and sells them to its sellers, which in turn sell them to customers on Myntra.
The firm was forced to change its legal structure because of FDI laws announced in last March by India that allowed FDI in online marketplaces but capped the contribution of a single seller to 25% of the marketplace’s overall business. Alternatively, Myntra could have chosen to become a genuine marketplace but it has chosen the current structure as it allows it to control customer experience. In a marketplace, the quality of Myntra’s products and service would largely depend on third-party sellers.
Many of India’s top e-commerce companies including Myntra’s parent, Flipkart, and Amazon India have changed their legal structures after the new laws. Flipkart has reduced its dependence on WS Retail Services Pvt. Ltd, its biggest seller, by working with several large new sellers, including Health & Happiness and Tech Connect. Amazon has similarly diversified its seller base by moving its smartphones business away from Cloudtail India Pvt. Ltd, which is a joint venture between Amazon and N.R. Narayana Murthy’s Catamaran Ventures. Another online retailer, Jabong, which was bought by Myntra in July, also changed its legal structure and added at least three new sellers on its platform last year.
Separately, Myntra’s largest seller, Vector E-Commerce reported revenue of Rs1,747 crore for the year ended March 2016, an increase of about 40% from the year-ago period, show documents sourced from data platform Tofler. Vector swung to a loss during the period, showing a loss of Rs8.7 crore, compared with a marginal profit of Rs6.5 lakh a year earlier.
Mint reported in December that Myntra Designs posted a sharp slowdown in sales growth for the year ended March 2016, as its move to become an app-only platform alienated customers. For the fiscal year 2015-16, Myntra Designs reported revenue of Rs1,069 crore, compared with Rs773 crore a year earlier. Losses widened to Rs816 crore from Rs741 crore. The 38% increase in sales in the last fiscal year reflected a slowdown in growth for Myntra from the past two years, when its sales expanded by at least 75%.
In December, Myntra, which had acquired smaller rival Jabong earlier in 2016, had said that it would aim to hit $2 billion in annual revenue run rate and also turn profitable by the end of the 2017-18 fiscal year, driven mainly by a rapidly growing user base. A $2 billion annual revenue run rate implies monthly revenues of roughly $165 million.