For profitability, Flipkart plans to bring back high margin private labels

On Tuesday, it was reported that e-commerce marketplace Flipkart was planning to make a comeback with its own brand of products, making a few tweaks to its earlier private label business model.

The marketplace was preparing to launch its in-house brands in jewellery, mobile, fashion accessories, and other categories, reported The Economic Times.

Likely to be launched this August, sources claim that Flipkart will create brands which will be licensed to various other sellers, based on specifications directed by the company. While the ownership will be with Flipkart, the e-commerce major doesn’t plan to own any of its private label inventory. The firm is also looking at affordability as the key factor to sale.

In line to power this strategy, Mausam Bhatt, the Senior Director of mobile commerce and online marketing at Flipkart, has been elevated to the position of Vice President, in charge of the private-label initiative.

Three years back, Flipkart had first launched its private label, including its tablet computers Digiflip, home appliances Citron and apparel collection Flippd, which faced setbacks. This caused the company to stop selling its line of tablet computers altogether.

Typically, online brands launch in-house brands to either fill gaps in product categories or increase profit margins. Based on industry estimates, margins are higher on private label electronic products than other similar branded products. Amazon also sells its own brands, mobile accessories, and other products through its private label AmazonBasics.

Effort to make profits

The past few months has seen Flipkart make multiple changes internally to move towards profitability. Among other measures, the firm had decided to increase sales commissions it levies on merchants by up to five percent in some categories.

Further, the online marketplace was also reported to charge sellers a shipping fee, a reverse shipping fee and a collection fee for every product returned. This caused a small uproar among the sellers, with media reports emerging that many sellers were pulling their products back. It was reported that sellers had already taken out one million stock keeping units (SKUs) from Flipkart. However, Flipkart denied the statements.

The firm’s Chief Executive Binny Bansal (appointed in January this year) is also seen making some changes internally, while revamping the entire technology team and making efforts to bring back old executives.

According to a report by Kotak Institutional Equities, Flipkart slipped from its numero uno position in terms of overall reach, losing to incumbent Amazon. The data showed that Amazon generated between 33 percent and 62 percent more monthly traffic than Flipkart during aforementioned period.

Further, Amazon India has also been committed an additional $3 billion of funding to surge its growth, while homegrown companies like Flipkart and Snapdeal are finding it difficult to raise funds on their current valuation.