Flipkart cuts commission fees for its sellers in a bid to boost discounts
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Bengaluru: Online marketplace Flipkart has cut commission fees for the 100,000-plus sellers that sell everything from books to televisions to smartphones on its marketplace, as India’s most valuable internet start-up looks to pass on cost benefits from reduced monthly burn rates to its business partners and sellers.
The latest move also gives sellers the incentive to increase discounts on the online marketplace and thereby attract customers, at a time when Flipkart is fighting hard to maintain its slender lead over arch-rival Amazon India in a potentially defining market-share battle for India’s start-up ecosystem.
India’s foreign direct investment (FDI) regulations currently prevent online retailers from offering discounts, but leading e-commerce firms have exploited loopholes in regulations and found ways to keep discounting alive.
Last year in April, Mint reported that some companies mask discounts as cashbacks, while others have found complex ways of funding sellers in order to avoid running afoul of FDI regulations.
In an interview on Thursday, Flipkart vice-president and head of marketplace Anil Goteti said the move to cut fees for sellers would not impact margins in a big way, since the online retailer has already cut costs across the board and is in a position to pass on some of those benefits to sellers.
“We’ve taken multiple measures on our supply chain side to reduce costs and streamline operations—in the sense, wherever there are leakages, we have fixed them. Given the efficiencies we’ve realized and the active growth we’ve gotten last year... we want to pass it back to our sellers, who in turn will work on passing those back to our consumers,” said Goteti.
Flipkart said that from 15 March, all sellers across all verticals will be charged lower commission fees. Flipkart currently has three tiers of sellers—gold, silver and bronze— and all of them will enjoy these cost benefits, it said. Flipkart said fixed fees would be “80-90% cheaper” across all product verticals, while also reducing collection fees by about 40% for all cash on delivery orders. Flipkart is also cutting shipping fees across the board, as part of this move.
Last week, Mint reported that Flipkart chief executive officer Kalyan Krishnamurthy has set three broad targets for the company this year, one of which is cutting expenses in a big way. As part of this drive, Krishnamurthy has ordered a freeze on some of the firm’s moonshot projects, while Flipkart’s logistics unit Ekart has also shut its customer-to-customer service and hyperlocal delivery offering.
According to at least two people familiar with Flipkart’s monthly numbers, the online marketplace’s current monthly burn rates are close to $50 million. This is a significant reduction from a year ago, when Flipkart’s monthly burn stood at around $80-90 million.
The latest move to revise commission rates comes months after Flipkart raised fees for sellers in certain categories. In November, Mint reported that Flipkart had increased fees in some categories, while reducing rates in other categories such as microwave ovens and washing machines. Flipkart, at the time, had also launched a new loyalty programme to reward top sellers.
Last year, Flipkart told more than 90,000 of its sellers that it would charge higher commissions in categories such as fashion, and that sellers will have to bear the full cost of product returns.
In November, arch-rival Amazon India also raised commission rates for sellers in certain categories such as consumer electronic devices, while reducing fees in others such as large appliances, after a bruising Diwali season showdown with Flipkart. Amazon raised the fees for sellers on its marketplace platform in categories such as automotive accessories, mobile phone covers and cases, desktop computers and laptop batteries, and reduced the commission rates in categories such as furniture and kitchen appliances.