Two Biggest-sellers On Amazon India To Seek Higher Margins

The two largest sellers on Amazon.in Cloudtail and Appario are pushing their brands and distributors for higher margins. The move is supposed to follow Amazon’s decision to reduce its ownership proportion in both firms, resulting in the stock dilution. That has impelled the sellers to seek profitability and viability, according to executives.

Back in 2014, Cloudtail started operating as a joint venture between Amazon and venture capital fund of Infosys founder Narayana Murthy. In several years, it has become the largest seller on Amazon India, contributing at least 40% of the platform total sales. However, US-based retailer recently must lower its stake in Cloudtail due to some changes concerning newly established FDI policy. More or less, it will absolutely have negative impacts on the business strategy of Cloudtail.

The Demand For Higher Margins

It is reported that Cloudtail and Appario have renegotiated the deals for the last three months. Following that, they required brands and distributors to pay for 18-20% more of the existing margin base. For example, if they previously charged 10% the value of a particular product, now they are asking for a 12% margin.

Market experts believe that the companies are moving their focus onto profitability and viability. As compared to the previous time, they spent all the resources on increasing market share and sales revenue. When Amazon withdraws their money, the two sellers must encounter issues related to working capital. The sudden change in working capital, coupled with logistics cost and commissions to Amazon takes them to the idea of margins re-negotiation.

Currently, the two companies are requiring a 20-21% margin per audio device and 10-11% on television. The rates were recorded at 17% and 9% earlier, respectively.

FDI Policy For E-Commerce

In December 2018, the Indian government implemented the new FDI e-commerce policy, which appends several rules to the previous one.

First, the government debars online marketplaces from manipulating the price of products or offer deep discounts, which strictly targets inventory-led models. Inventory-led marketplaces, different from e-commerce models, describe shopping websites that take charge of the whole purchasing process from warehousing to product dispatch. However, Amazon and its rival Flipkart have made use of the law adequacy, keep running on the inventory-led model by selling products through Appario and Cloudtail.

Second, the Indian government disallows e-commerce platforms from exclusively selling a product. In other words, Amazon is unable to bring goods from any of their “group companies” to sell on the platform. As a result, Amazon needs to reduce its stake in both Appario and Cloudtail to small minority shares, now owning 24% total stake of Cloudtail. The action also leads to Cloudtail operating as a separated entity from the “group companies” of Amazon.