Flipkart restructures operational model, adds intermediaries to comply with FDI norms
today Mar 8, 2019
Flipkart has restructured its operational model and added around six intermediary companies to act as a go-between from its wholesale business to its preferred sellers in order to comply with the new foreign direct investment norms.
In order to work around the new FDI regulation that prevents businesses making over 25 percent of purchases from a market-related entity, Flipkart has introduced a number of intermediary businesses to allow it to continue its business. Two sources told ET Bureau that businesses including Sports Lifestyle, Premium Lifestyle & Fashion India, and Wishberry Online Services will now purchase products from Flipkart’s wholesale business and then sell them on to the platform’s preferred sellers which include SuperComNet, Omni-Tech Retail, and RetailNet. The preferred sellers will then offer on the products to Flipkart itself.
This new restructuring was necessitated by the new FDI regulations pertaining to e-commerce put into effect by the Department of Industrial Policy and Promotion at the beginning of February. In an attempt to break up the hegemony of US-owned online businesses in the Indian market and to create a more level playing field for sellers, the regulations state that FDI is only permitted in marketplaces that do not influence prices and do not hold inventory.
As US-business Walmart-owned Flipkart runs a number of private label fashion brands across its Flipkart, Myntra, and Jabong platforms, the new FDI regulations meant that it had to change its business model to comply. By using intermediary businesses, Flipkart aims to continue these businesses but profit margins will be lower as another player is added to the supply chain.
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