Why has Flipkart parted ways from once a $2 Bn worth vendor - WS Retail?

Last week, Flipkart had cut all ties with its largest (once upon a time) and oldest in-house vendor - WS Retail. The history of WS Retail goes back to 2009 when Flipkart was an early stage startup. Founded by Sachin and Binny Bansal, it used to be the only vendor for the Bengaluru-based e-commerce company till 2013.

Both founders along with its backers were the owners of WS Retail till 2012. However, it was legally separated from the aforementioned individuals and entities. During the same year, veteran IT professional and Partner of Exfinity Venture Partners Rajeev Kuchhal and a few employees of  Flipkart became the new owner of WS Retail.

At the end of FY14, Flipkart realised that it required to pivot from inventory led play to well- tested marketplace model (like Alibaba and Amazon). In April 2013, Flipkart had embraced marketplace model.

Even aftermath change in DNA (from etailer to marketplace), WS Retail remained a major volume churner (aka GMV) for Flipkart. Besides providing exclusive Motorola and Xiaomi phones to Flipkart, it was the primary (probably, the first) vendor covered under Flipkart’s then loyalty subscription membership - Flipkart Plus.

WS Retail used to process about half of Flipkart’s revenue in FY15 as well as in FY16. Its turnover tripled to Rs 10,163 crore during FY15 (as compared to FY14) while it stood at Rs 13,921 crore for the year that ended March 2016.

Following the government regulation in March 2016 that barred any particular seller on an online marketplace from contributing more than 25 per cent volume, Flipkart was scaling down WS Retail.

WS Retail witnessed a 66 per cent erosion in overall revenues in FY17, Its revenue reduced to Rs 4,628.1 crore during the 12 months financial period.

Why has FK cut all ties with WS Retail?

While WS Retail could have continued contributing 25 per cent of Flipkart’s overall volume, it chose to cut all ties with Flipkart. But, why? “Simply, because Walmart wants Flipkart to be in a complete accordance with regulations in India,” said two senior employees of Flipkart on condition of anonymity.

“Since Walmart is slated to complete Flipkart’s acquisition over the next three months, it has asked Kalyan Krishnamurthy-led company to sort out several legal inconsistencies that include WS Retail,” they added

Over the past couple of years, many sellers have been alleging nepotism practiced by Flipkart towards WS Retail. In March 2017, a group of online sellers including AIOVA had approached Competition Commission of India (CCI) that WS Retail and Amazon’s Cloudtail were engaged in predatory pricing and discounts.  

Meanwhile, Seller and traders bodies such as AIOVO and CAIT have continued their tirade against Flipkart-Walmart deal ever since it announced. Currently, CCI has been examining concerns of such institutions. “WS Retail is likely to be a matter of concern for third-party sellers, and that’s why Walmart wants to be quarantined from WS Retail,” adds one of the above sources.

The sources also hint that Flipkart has found a slew of sellers (with similar structure akin to WS Retail). “These vendors would include top-selling categories such as smartphones, electronics, fashion and home furnishings amongst others.

With Flipkart decision to stop listing WS Retail on its marketplace, the story of one of the largest e-commerce vendor seems to have come to an end.