Doug McMillon, CEO of Walmart, the world’s largest retailer, on Tuesday said though it was “disappointed with the recent amendments in the FDI policy for the e-commerce sector, it was confident of the long-term prospects of its India unit, Flipkart. The change in e-commerce policy came into effect from February 1. It bars e-commerce companies from selling products through firms in which they have an equity stake. The company announced its 2018-19 (Walmart follows the February-January financial year) results on Tuesday. Its operating income and profitability took a hit due to continued investment in its Indian subsidiary.
Education technology startup, Byju’s, plans to double its workforce this year by recruiting 3,000-3,500 employees. While 2,000 people will be hired for its sales and operations team, the rest will be added to its content-creation team. Backed by Naspers and Tencent, Byju’s claims to have registered 100% growth in revenues for the last three years and is on course to touch Rs 1,400-crore this fiscal. It claims to have around 2 million annual paid subscribers. Byju’s recently raised $540-million at a valuation of $3.6 billion, making it the fifth-most valued company in the country behind Flipkart, Paytm, Ola and Oyo.
Over a dozen small sellers have suspended their accounts at Amazon India, after the new FDI norms kicked in, since they are unable to manage logistics and order deliveries on their own. This move, however, is unlikely to affect the e-commerce giant’s revenue. Most of these entities sold products through Amazon-owned Cloudtail and Appario before the new rules rolled out. Amazon however on its part said that they have introduced several initiatives and services such as Easy Ship and Service Provider Network to ensure a robust marketplace for sellers of all sizes to sell and grow.
Flipkart on Tuesday strongly denied the claim of a Morgan Stanley report which said that Walmart may exit its investment in Flipkart and the Indian e-commerce market due to the negative impact of new FDI rules that came into force on February 1. Flipkart CEO Kalyan Krishnamurthy in his email to company employees said that Walmart remains extremely confident about the potential of the Indian market and in Flipkart’s ability to lead the e-commerce space. Morgan Stanley in its report had speculated that Walmart may look to exit Flipkart if it does not see a long term path to profitability.
US brokerage firm, Morgan Stanley, said Walmart may exit Flipkart if the retail giant can’t see a long-term path to profitability. The brokerage in its report dated February 4 said that “an exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated”. The report comes after the Indian government implemented the new FDI norms in the e-commerce sector on February 1. The new norms prohibit online marketplaces like Flipkart and Amazon from holding any equity stake in vendor firms and controlling their inventory. It also bars them from exclusive marketing arrangements with vendors.
Binny Bansal, who quit Flipkart after Walmart Inc. investigated alleged personal misconduct charges against him, is now focused on xto10x Technologies, a startup he co-founded with former colleague Saikiran Krishnamurthy. It’s aimed at helping entrepreneurs navigate the often-tricky Indian start-up scene. Bansal has already put together an early team and set up an office at a co-working space. “Person to person, I can help 10 startups but the ambition is to help 10,000 early and mid-stage entrepreneurs, not 10,” he said. Bansal still holds a 4% stake in Flipkart and a board seat.
The upcoming e-commerce policy is unlikely to appoint a regulator for the sector but will incorporate the recently updated foreign direct investment (FDI) norms. The Department for Promotion of Industry and Internal Trade (DPIIT) will hold a meeting with stakeholders, including those companies that were opposed to the tighter FDI guidelines, before finalizing the policy. The government had turned down demands for an extension of the deadline which became effective from February 1. In September last year, DPIIT was made the nodal department for the government’s e-commerce initiatives.
Sales volume at online marketplaces Amazon and Flipkart have fallen by as much as 33% since the new foreign investment rules in ecommerce came into effect on February 1, sources told ET. Since Friday, Amazon’s private labels like Symbol, Myx, Solimo and Basics are unavailable as they are sold exclusively by Cloudtail and Appario, both partly owned by Amazon. New FDI rules restrict online marketplaces to sell goods from entities in which they hold an equity stake. The ecommerce giant also delisted products sold by Shoppers Stop, in which it had acquired a 5% stake in September 2017.
Amazon.com Inc said that the new FDI policy will affect price selection and convenience for customers and sellers. Amazon India brought swift changes to its platform overnight on Thursday to comply under the new rules. Its seller entities, Cloudtail and Appario, virtually disappeared from the platform, and several of its private label products also went missing. In the December quarter, Amazon's international business, driven mainly by India, had seen a growth in sales of about 15% to $20.8 billion.
The revised FDI norms in the e-commerce sector are likely to impact upto 50% of the business of Amazon and Flipkart. As per the new rules, which prohibit marketplaces to sell goods from entities in which they have an equity interest, entities like Cloudtail and Appario Retail, will not be allowed to sell on these platforms. The new guidelines classify sellers as controlled entities, who drive more than 25% of their revenues through a single platform. A number of sellers, who source their goods directly from the wholesale arms of Amazon and Flipkart, are likely to go off the platforms.
Walmart-backed Flipkart and Amazon are still making last-ditch efforts to convince the government to extend the February 1, deadline for implementing the new FDI rules. According to multiple industry executives, these two companies continue to engage, directly as well as through associations and trade bodies, with government officials seeking to push the deadline. In December, the government had announced new regulations that would bar online marketplaces with foreign investments from selling products of the companies where they hold equity stakes and ban exclusive marketing arrangements. These changes are expected to hit Amazon and Flipkart the hardest.
Walmart Inc's backed online retailer Flipkart has warned the government of "significant customer disruption" that the company would face, if the implementation of new FDI rules for e-commerce is not delayed by six months, a source told Reuters. India's new FDI norms, which will kick-in from February 1, bar e-commerce companies from selling products from firms in which they have an equity interest and also ban them from making exclusive deals with sellers to only sell on their platform. Indian officials have said the government is unlikely to change the policy's implementation date.
Amazon and Walmart-owned Flipkart have told mobile phones, electronics and other companies, with whom they have exclusive sale arrangements, that they will be able to continue their business like they do now, with some modification and rephrasing in the existing agreements. The new FDI rules, effective from February 1, bar online marketplaces to enter into exclusive marketing arrangements with their vendors. As part of this, Flipkart has already replaced the phrase “#Only on Flipkart” for the exclusive brands or products prominently displayed on its marketplace with “#Just Here”. Amazon, too, has started to downplay the “Amazon Exclusive” tag
The National Company Law Appellate Tribunal (NCLAT) has reserved its judgement over the petition filed by traders' body CAIT against fair trade regulator CCI's nod to Walmart's $16-billion acquisition of Flipkart. NLCAT’s two-member bench concluded its hearing on Thursday (January 25) after taking note of submissions made by both sides. Previously, On August 29, 2018; Confederation of All India Traders (CAIT) had filed a petition against CCI in the NCLAT asking for the reversal of the Walmart-Flipkart agreement. Meanwhile, Flipkart is working on getting in order for its operational model under the new changes of FDI policy in e-commerce.
The US government has raised concerns about India's revised e-commerce policy that can potentially impact the Indian investment plans of Amazon.com and Walmart Inc, sources said. The US has repeatedly protested against the Indian government’s trade policies which have affected US companies. In 2017, the US lodged a written protest against India's decision to cap medical device prices, which upset American companies. India's new e-commerce policy, which kicks in from February 1, bans companies from selling products via firms in which they have an equity interest and also bar them from making exclusive deals with sellers.