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Flipkart's sales worth $100 million, who will foot the bill for discounts?
(Flipkart, the country’s…)
NEW DELHI|BANGALORE|KOLKATA: Flipkart, the merchants on its platform and manufacturers are sharing the tab for the biggest sale-day yet in Indian online retail.
The Bangalore-based company sold goods worth $100 million on Monday and the deep discounts will mean that its margins are going to be negative, but it is counting on some help from its partners while it stays focussed on boosting its topline.
Flipkart, the country's largest online retailer, has been offering deep discounts across categories, stretching up to 80%, as it looks to widen its lead over rivals Snapdeal and Amazon.
The company has raised a total of $1.2 billion this year, equipping it with a cash hoard that it is using to further its goal of increasing market share and growing the size of the market.
Sachin Bansal, the cofounder and CEO, said Flipkart had been working on the offers with brands and sellers for the past few months. The deals it strikes vary across categories and merchants, with no standard formula. In some cases, sellers have picked up the full tab.
For example, Pepper Closet, a merchant with Flipkart for about a month, had differential discounts depending on the product. For apparel, Pepper Closet was keen on clearing its surplus inventory and therefore picked up the bill for a 50% discount, business head Kanwar Singh said. On the other hand, for kitchen and bar utility items, Flipkart is bearing the cost of the 20-40% discount.
Not all sellers have come on board to share the tab with the online retailer. A senior executive of a leading consumer electronics retail chain said the discounts are driven entirely by the marketplaces. "We as a seller did not even know that few of our listed products would get discounted for these flash sales," he said, requesting anonymity.
Another seller said the company had listed its models at the existing market price in the offline trade. "But we were shocked to see that the product has been sold at a discount which is actually lower than our buying price. But we have been assured we will get the full amount at which we have listed it," he said.
Since online retail is a nascent industry, companies are not too perturbed by negative margins, and investors are backing the game plan of acquiring customers at the expense of the bottomline.
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