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Flipkart pitches its manufacturing prowess to major electronic brands

Business Standard:  May 15, 2019

Bengaluru: Flipkart, India’s largest e-commerce firm, has long yearned to replicate the success of Amazon Basics, the private label brand of arch rival Amazon.com Inc, in India.

Under a new strategy, Flipkart is wooing international original equipment manufacturers (OEMs) to create new product models in high-selling categories like electronics for sale on its platform.

The e-commerce major is pitching its manufacturing capacity — a network of contract manufacturers instituted for in-house brands MarQ and SmartBuy — to major brands to co-develop stock keeping units (SKUs) in a special partnership where Flipkart will build, stock, sell and service the new items.

The effort is being spearheaded by Flipkart’s private label team headed by vice-president Adarsh Menon. Menon is also the head of electronics and furniture categories.

According to sources familiar with the plan, negotiations have been going on for six-eight months with consumer electronics-makers Sansui and Nokia, Motorola, among others. Talks are at an advanced stage with Nokia and Motorola that plan to introduce television (TV) models in the Indian market by the next year. Sansui, on the other hand, is exploring getting into the small appliances category with a range of mixer grinders and other kitchen appliances.

Nokia and Motorola did not respond to a request for comment. Flipkart also did not offer comment. According to RedSeer Consulting, an e-commerce focused market intelligence firm, electronics as a category accounted for 18 per cent of the total overall e-commerce sales in 2018.

“For brands, this allows them to test the market for a new product without having to spend on building capacity,” said one of the sources. Electronic makers typically employ a mix of self-owned and third-party vendors to manufacture goods. For Flipkart, which has data on what products and price points work with Indian customers, it is an opportunity to put “desired” items on offer from reputed brands, as it creates a differentiated offering from Amazon. “Amazon does this in a few mature markets,” said a senior executive at one of the top consultancy firms.

Contours of the partnerships are being worked out on a case-to-case basis, sources said. They added that Flipkart will produce and market the products end to end and pay a cut per item on actual sales. The final product prices, as well as product specifications, will be decided by the two parties based on the sales promised by Flipkart.

Despite a striking similarity to brand licensing deals that are seen as internal, the actual contracts will be signed among OEMs, third-party contract manufacturers and Flipkart affiliate sellers, in compliance with local rules.

The commerce ministry’s norms for e-commerce companies that have majority foreign stake bar them from “exercising ownership of inventory” and “directly or indirectly influencing sales price of goods and services.” Rules also prohibit exclusive contracts between e-commerce firms and brands.

Flipkart is eyeing higher margins from product sales under these new partnerships – something that was the goal for private labels itself. According to the sources, private label sales at Flipkart were approximately ~500 crore in the financial year ended March 2019. Sachin Bansal, Flipkart’s co-founder, had launched the first in-house brand ‘Billion’ for smartphones in June 2017, but after his departure in mid-2018, Billion was scaled down and transitioned to focus on personal care items.

 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.