The new FDI regulations will for yet another reason. Both Amazon India and the Walmart-owned Flipkart are sitting on inventories worth Rs 2,000-2,500 crore each. While initial reactions to the revised FDI policy for e-commerce were primarily about how it bleeds players in this sector, the immediate concern is dealing with the massive stockpile since the new regime takes effect on February 1. As reported by TOI this week, among other things, the recent government note on the new policy had said that a seller having equity participation by the e-commerce marketplace entity or its group companies will not be permitted to sell its products on the platform run by such a marketplace entity. These large volumes of inventory that are secured in advance are pushed by these seller entities (like Cloudtail, RetailNet, etc) that work closely with the e-commerce platforms.
E-commerce companies stock up three months' inventory for products in fashion, accessories and other soft-line categories from brands they have tie-ups with. E-tailers buy inventory from small to large brands and sell them online. A back-of the-envelope calculation suggests each big player has inventories of more than Rs 2,000 crore, said the CEO of a large fashion brand on condition of anonymity. Fashion and soft-line categories are among the top three businesses for Flipkart and Amazon. In the recently concluded festive season, the segment clocked a gross sale of Rs 2,500-2,800 crore, which forms a sizeable share for Flipkart, followed by Myntra and Amazon, said industry sources.
The top executive of the fashion brand quoted earlier said deals were always inked with companies like Flipkart and Myntra for supplying stocks for up to three months. "We don't sell to these platforms unless they promise us a three-month stock purchase. They have monthly targets and we provide a certain rate based on the promise of that high volume," the executive said. An Amazon India spokeswoman said the company, with 4 lakh small and medium businesses, has always complied with the law of the land. "We're evaluating the guidelines to gain clarity so that we remain true to our commitment," she added.