In March 2016, the government allowed 100 per cent FDI in online retail under the ‘marketplace model’ through the automatic route. With this, it also toughened its stand towards discounting and introduced rules that prohibited marketplaces from offering discounts and capped total sales originating from a group company or one vendor at 25 per cent.
A year later, the impact of fresh guidelines trickled in with a sharp fall in revenues of WS Retail Services, the largest seller on Flipkart’s marketplace. The revenue of WS Retail Services witnessed a fall of 66 per cent to Rs 4,628.1 crore in FY17, compared to Rs 13,921.2 crore in FY16.
WS Retail also reported a net loss of Rs 24.3 crore for FY17, in contrast to the profit of Rs 5.2 crore it clocked in the preceding fiscal. Importantly, Flipkart’s rival Amazon alike unit Cloudtail did a revenue of Rs 5,706.2 crore and had posted a net profit (before tax) of Rs 1.59 crore in FY17.
After enforcement of rule in 2016, the online retailer shifted a majority of its sales to some third-party sellers referred to as alpha seller. Importantly, at one point in time (during 2015), WS Retail alone was contributing 35-40 per cent of Flipkart’s overall business.
Flipkart has tied up with various new sellers such as Shreyas Retail, Health and Happiness and Tech Connect Retail to comply with the FDI guidelines.
WS Retail, however, has also been able to reduce overall transportation and freight costs by 89 per cent in FY17 to Rs 37.6 crore, compared to transportation costs of Rs 371.6 crore in the previous fiscal.
Driven by a sharp reduction in volume, it also cut down on employee costs by 81 per cent to Rs 11.3 crore in FY17 as compared to Rs 60.6 crore in FY16.
Meanwhile, Cloutail had reduced losses to zero and recorded marginal profit against a net loss (before tax) of Rs 30.25 crore in the preceding fiscal, reveals regulatory filings.
Amazon’s selling arm, a joint venture between Amazon Inc. and Infosys co-founder N.R. Narayana Murthy’s Catamaran Ventures, had witnessed its revenue jumped by 24 per cent, clocking a revenue of Rs 5,706.2 crore in FY17 compared to Rs 4,591.2 crore in the previous year.
The WS Retail figures were first reported by Mint via Tofler.