Daybreak - Flipkart wants top fashion brands to dance to its new tunes. Do brands have a choice?

Episode Date: July 15, 2024

Flipkart, the Walmart owned e commerce giant, is on an overdrive to achieve profitability to realise its dreams of going public.To do this, it has tasked its category managers in fashion and lifestyle with squeezing more business out of brand partners. In fact, Flipkart is also using its own Myntra to get better leverage with these brands. The list of brands Flipkart is negotiating with includes Nike, Adidas and Puma, Woodland, Casio, and the Indian fashion retail giant Aditya Birla Fashion Retail Limited (ABFRL).Brands are resisting but they can only do so much because the kind of reach Flipkart gives them is unmatched. It has a registered customer base of more than 400 million.Does this mean that these brands have to give in to Flipkart’s demands? Tune in.

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please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. You know, when you're living in a rented apartment, the landlord increases the rent by a certain percentage every year. Flipcott seems to be doing something like this to some of the major lifestyle brands on its platform.

You see, the Walmart-owned e-commerce giant is on an overdrive to achieve profitability, because without it, it cannot realize its dreams of going public. To do this, it has tasked its category managers in fashion and lifestyle with squeezing more business out of its brand partners. In fact, Flipkart is also using its own mantra to get better leverage with these brands. The list of brands that Flipkot is negotiating with includes Nike, Adidas, Puma, Woodland, Cascio, and the Indian fashion retail giant Aditya Birla fashion. And like all tenants, these brands are resisting.

But they can only do so much because the kind of reach that Flipkart gives them is unmatched. It has a registered customer base of more than 400 million users. So, does that mean that these brands have to give in to Flipkart's demands? Welcome to Debray, a business podcast from the Ken. I'm your host, Nick Daesh. and I don't chase the new cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 15th of July.

Out of all the categories on Flipkart, fashion is the one that is currently the main focus. It is the second largest vertical after electronics and a manager at Flipkart told us that it is the one struggling to grow. And it is also where Flipkart faces the most. most competition. But then that begs the question, why then would fashion lifestyle brands that have more than enough funding and many other options consider Flipkart's new demands? There are three reasons that my colleague, the Ken reporter Noha Bubray, listed out. One, the customer base of other fashion-first platforms like Mindra and Agio is concentrated in Metro and Tier 1 cities. Flip-Cart, on the other hand, taps into Tier 2 and Tier 3 and other smaller cities.

Two, despite Mishu and Amazon being its contenders in these areas, brands have no option but to turn to Flipkart. Because while Mishu deals with 95% of the unbranded sellers, Amazon is not really considered a major player in fashion e-commerce. And number three, it has Mintra, which is known for its brand recall in fashionware. Flipkart acquired Mintra 10 years ago and now it has started using Mintra as bait to maintain its 27th. percent market share lead in fashion. Now, let us understand the difference in scale between Mintra and Flipcott. Flipcott generated monthly website traffic of nearly 170 million in March 2024. And Mintra, just one fifth of that.

So Flipcott wants to achieve profitability in its fashion category without consolidating its assets. Which is why, instead of competing with Mintra, Flipcott is using its name for cutting out better deals with brands. So while strategizing growth plans for the coming year, Flipkart will convince brands to choose its platform while also being on Mintra. Flipkart also plans to copy Mindra's inside a program to build better relationships with its customers. It is basically a no-fee membership plan that allows customers to shop with more offers and more discounts. And all of this might just work out quite well.

Flipcott and Mindra combined have a 45 to 50% market share in fashion e-commerce in India. So, Flipkart is in a position to use its sheer volume and presence to ask brands for better margins and discounts. But this overdrive might turn out to be an overkill for brands. Stay tuned to find out why. To become profitable, Flipkart needs to buy more of high margin products than before. And here is where brands and Flipcott are not seeing eye to eye. It all has to do with the cut that Flipkart takes from a product's MRP.

For example, if Flipkart sells a product for $1,000, it pockets $640, leaving the rest for the brand. In April, Puma agreed to boost Flipkart's margin by 3 to 5 percentage points from around 65%. But the former Flipkart manager that spoke to us, told us that Flipkart is renegotiating with the brand to increase it to 71%. Even Reeboks franchisee owner, which is Aditya Billa fashion, was approached to raise the intake margin by 10 percentage points, but then the two settle for a 2 percentage point increase. So you see, a brand's bargaining chip depends on how big it is and whether it needs the e-commerce platform more than the platform needs it. For Flipkart, smaller apparel brands do not contribute much in terms of sales. But,

Bigger brands come with a certain level of entitlement. So, Flipkart focused on brands that contributed to over 90% of the overall sales within the fashion and lifestyle category. The ex-flipcart manager told us, for example, that international sports shoe brands like Ultra Running does not want to come to the platform to avoid paying high margins, or Hoka, which thinks that discounts dilute its brand value. So, brands have their own checklist and just because Flipkart wants more, margins, they cannot change everything.

That is probably why some brands go against Flipcott's grain. Like Nike, for example, does not list its premium products like Air Force on Flipcott, and neither does it offer discounts on Jordans. In fact, a former Nike e-commerce manager told us that Minra and Agio get more sales for the brand than Flipcott does. This also becomes a deciding factor while listing on a platform. But again, it all comes back to. the sheer reach that Flipcott offers compared to its competitors in fashion. It has a registered

customer base of 400 million. A Flipcott lifestyle manager explained it to us saying that no matter how big a brand grows, it needs the backing of the platform as well. He gave the example of how brands like Spiker and Tokyo Tokies now have a revenue that is growing faster than any other established brands. And this is only because of the visibility and the scale that Flipcott has to offer. Without the marketplace backing them in terms of advertising, that kind of growth will not be possible. So naturally, Flipcott will continue to make the most of its position to hit profitability.

And as for brands, they can negotiate and renegotiate, but the price of saying a complete no to Flipkart is too high. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-undi offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Siyah.