In a race to the annual festival sale of the year, Walmart-owned Flipkart received $225 million from its Singapore based parent entity, Flipkart Private Ltd, according to a report by ET. According to filings made with The Ministry of Corporate Affairs, Flipkart India has allotted 4,64,403 equity shares to its holding entity for a price of Rs 34,800 per share.
The funding comes as a second fund infusion this year after Flipkart received $200 million from Flipkart Private Limited. Additionally, the parent company has invested $307.5 million, $486 million and $686 million in its India’s arm in December, September and March 2018, respectively.
The advancement comes at a point when the e-commerce platforms are gearing up for the festive season sales. The infusion may be an essential resort as the firm is expecting to let go off a portion of its margins to make sure consumers’ demand for lower costs is met. Nevertheless, online marketplaces are hoping to register sales growth of about 25-27% during the crucial festive season, lower than the previous year, owing to sluggish consumer sentiments, and a slowing economy, in accordance to analysts and logistics companies.
Amazon and Flipkart had lately reached out to handpicked top sellers, offering to slash commissions across categories to bring prices down. The companies will reportedly be offering significant waivers across categories like fashion, accessories, and consumer electronics.
Why the unanticipated infusion?
The wholesale arm’s infusion comes at a point when a report was claiming that Flipkart was considering to fold Flipkart India was rife. The report also claimed that the firm was planning to scale down its wholesale unit to service only small online sellers or brick-and-mortar channels.
The situation comes as a result of changes in rules for FDI (Foreign Direct Investment) which were announced in February. Under the new regulations, the changes prohibit e-commerce giants to exercise ownership or control over the seller’s inventory. They also state that such companies cannot command any seller to sell its product exclusively on the platform. Additionally, the entities also are prohibited from making more than 25% of purchases of a vendor.
As a consequence, Flipkart and Amazon suffered a significant disruption for a couple of weeks as they looked for loopholes. Currently, Flipkart is building a layer of Business to Business entities code-named as Alpha Sellers. These entities will be acting as middlemen between Flipkart India and its prominent online sellers to comply with the new set of rules.
Flipkart has started with the process of closing down its wholesale business. The companies, from fashion houses to consumer electronics manufacturers, will be supplying products directly to Alpha and Beta sellers of Flipkart.
ET stated in its article that the vendors said that the e-commerce platform gives preferential treatment to individual sellers because of which the preferred sellers are given high search ranking. The others are compelled to participate in discounts because of this reason, as noted by the Competition Commission of India. Moreover, The new policy expects these online platforms such as Flipkart and Amazon, to provide proof that the product rebates are being offered by the seller and not the online marketplace.