Custom crackdown rocks Club Factory India biz; customer complaints grow multi-fold

Chinese e-commerce platform Club Factory’s attempt to start Indian operations has got off to a rocky start. Till 2018, Club Factory was selling Chinese imported products in India, and a large part of these shipments was being labelled as gifts to avoid payment of custom duty. In April this year, the government-mandated all Chinese e-commerce platforms like Club Factory, Shein, Ali Express to register in India. 

The government’s move was to prevent the rampant violation of Indian taxation laws and theft of customs duties as well as GST.

As a consequence of this crackdown, these e-commerce platforms were forced to register in India and start domestic operations. However, Club Factory has faced major hurdles trying to adapt its import-centric operations to Indian market’s e-commerce realities.

Previously, the e-tailer was shipping individual orders into India, labelled mostly as gifts. With that route being made unviable, Club Factory has now started bulk imports from China under the name of its Indian entity named Globemax Technology Private Limited. It sells imported products to a few domestic sellers, who are mainly controlled or managed by the platform itself.

Besides facing regulatory heat, the long delays in fulfilling the orders and low-quality products have angered customers. They are leaving negative reviews for the platform on Google Play Store and its social media pages. The customers are complaining about deliveries taking up to three months, shipping of incorrect products and the sheer inability to either contact the platform or return the product easily. 

Poor customer service can also be gauged from Club Factory’s Facebook page where the buyers have been complaining about up to 50 days delay in fulfilment, damaged product and complex return process et al.

According to multiple Entrackr sources, including sellers, Club Factory has a nearly 50% return rate, which is way above the industry average. This means that every second-order that Club Factory ships to India is returned to the seller.

 “Given that these sellers are just an extension of Club Factory, it has registered another entity in India called Globemax Commerce Private Limited, which buys back all these returns from these sellers and stores them until new orders for the returned goods are received,” added sources on condition of anonymity

At that point, it sells these products again to the sellers, who then ship it to the new buyer. Thus, a customer unknowingly is buying customer rejects, which explains the high level of customer dissatisfaction.

Also, these sellers are finding it impossible to match the discounts being offered by Club Factory, which as per them “believes in buying cheap and selling still cheaper”. Most of its products include low-value fashion accessories, beauty products like hair removal creams and aggressively priced headphones.

The problem of under-invoicing imports remains acute. In the recent past, customs authorities have detained consignments suspecting large scale underreporting of value. 

This has also forced Club Factory to keep changing the airports where it receives its consignments. It first started with Mumbai, then moved to Delhi followed by Bengaluru, as the consignments ran foul of Indian customs authorities. 

Sources say that the company is trying to import via Ahmedabad airport now. Some of its shipments are stuck at various airports, causing great turbulence in domestic operations. A previous disruption was on account of GST raids, which the platform appears to have resolved for the moment.

Responding to our detailed questionnaire, Club Factory’s spokesperson said, “Club Factory is witnessing very healthy growth in India and is growing consistently. With our strategy to charge zero commission fee from sellers, Club Factory is helping the e-commerce industry grow by empowering local sellers and benefiting consumers by offering the best possible price. The allegations are completely baseless and a figment of someone's imagination. We do not comment on speculations.”

In its attempt to get its operations off-the-ground, Club Factory is focusing a lot on increasing its app downloads, including paying its customers signup credits just to download the app and then more money through its group referral programmes. The company spends heavily on highly targeted ads on social media platforms such as TikTok, Instagram and Facebook. 

Given the zero commission for sellers, cheap products being sold at a discount, high returns and the large burn to drive app installs, it looks like Club Factory is the newest Chinese import trying to find a foothold in the highly competitive Indian e-commerce market.