There has been an ongoing battle between sellers and e-commerce platforms over violation of foreign direct investment (FDI) norms for months now. While sellers and traders claim that e-commerce majors such as Flipkart and Amazon have a control over inventory and do not act merely as a marketplace, e-tailers have maintained that they have been following the law.
However, an Entrackr report has now revealed that Flipkart is more of a retailer than an online marketplace.
A marketplace acts merely as a platform where goods and services are sold and bought and does not have any control over the inventory.
As per the report, financials of Flipkart’s Singapore parent Flipkart Private Limited show that in FY19, the company bought goods worth Rs 39,514 crore on its own to be further sold. This is up 44.34% from the Rs 27,375.50 crore it spent in FY18.
This is almost as much as the goods bought by India’s top retailers D’Mart, the Future Group, Aditya Birla Fashion & Retail, Shoppers Stop and Trent, who together bought goods worth Rs 43,374 crore.
Further, the financials also show that 81.75% of Flipkart’s operational revenue was generated through sales of goods on Flipkart.com.
What this indicates is that Walmart-owned Flipkart, instead of being a pure marketplace, has been acting like a retailer by buying and then selling goods on its platform.
As per the Entrackr report, some of the sellers related to or controlled by Flipkart are SuperCom Net, OmniTech Retail and Retail Net. It reportedly first sells products bought by it to these sellers, who then sell them on Flipkart.
Flipkart has reportedly also recently set up some intermediary companies such as Sports Lifestyle Private Limited; Premium Lifestyle and Fashion India Pvt Ltd; and Wishberry Online Services Pvt Ltd, who, the report claims, buy from Flipkart’s B2B entity and then sell to sellers controlled by Flipkart.
Flipkart has also reportedly been discounting more as it buys more goods.
In FY18, the figure for the cost of goods sold was Rs 26,876.50 crore, while these goods were sold for Rs 25,234 crore during the fiscal year that ended in March 2018. A simple calculation shows that these goods were discounted by as much as Rs 1,643 crore.
But as Flipkart was buying more, it was also discounting more. Losses due to discounting increased by a massive 107% year-on-year during FY19, the Entrackr report states.
Several trader unions, especially the Confederation of All India Traders (CAIT) and Association of All India Online Vendors, have been fighting against Flipkart and Amazon for years now claiming that these e-commerce players flout FDI norms, indulge in predatory pricing, deep discounting and favour their own sellers, thus causing major losses to other sellers.
In India, marketplaces who have been funded through FDI are allowed to only make available their platform to third-party sellers. It bars these entities from holding any inventory or stock or selling their own goods to customers.
As per norms, if an online marketplace sources more than 25% of merchandise from any entity or seller related to it, that seller will be considered controlled by the marketplace. Marketplace operators are also barred from selling products of any of their group companies.
Flipkart is majorly owned by Walmart (77%) and also counts other foreign entities such as Japan-based SoftBank Group, China’s Tencent Holdings, New York-based Tiger Global, US private equity firm Accel Partners and US-based tech giants such as eBay, Microsoft as investors.
As per an Economic Times report, right before the new FDI norms kicked in, in February 2019, Flipkart created a layer of B2B entities to act as intermediaries between its wholesale arm and many prominent sellers on its platform. These intermediaries bought goods from Flipkart’s wholesale arm and sold them to the preferred sellers, who in turn retailed to consumers.
However, Flipkart has always maintained that it is in full compliance with India’s FDI norms.
In July, Flipkart CEO Kalyan Krishnamurthy reiterated the same and reportedly said that the company is ready to face any audit as per law.
Following the Entrackr report, CAIT also sent a communication to Commerce and Industry Minister Piyush Goyal urging the government to order for the closure of Flipkart’s e-commerce business and constitute a high level committee of tax experts, chartered accountants and senior officials of the government to do an in-depth study of the balance sheet, income and expenditure accounts of Flipkart, its parent company and other associate or related companies in a time-bound manner.
“A shocking revelation of true facts about Flipkart in a section of media which has analysed Balance sheet of Flipkart amply corroborate our charge that it’s not a marketplace but in real terms is largest retailing company of the Country which is a gross violation of FDI policy… It is a matter of grave concern that on the one hand, such e-commerce companies are brutally violating the FDI policy of the government and on the other hand, causing huge revenue losses to the government by way of large scale manipulations, bypassing the law and not following the policy in its letter and spirit. How can the small retailers of the country compete with them, who do not have enough resources and following the law and discharging due tax liability,” CAIT wrote in its communication to the minister.
TNM has reached out to Flipkart for a comment and will update the story as and when the company responds.