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Flipkart's Changing Strategy

Indian eCommerce giant Flipkart is preparing to shift its business to an Alibaba-like marketplace model, unnamed Flipkart suppliers have told the Times of India's Economic Times.

That move would help untangle Flipkart's messy business structure in advance of the company's expected IPO on a U.S. stock market in 2016, and also encourage other retailers to sell on the site.

Flipkart is India's largest eCommerce site, and has raised about $2.5 billion from investors -- more than twice as much as its biggest competitor, Snapdeal, which has raised $1.1 billion. Amazon has also committed at least $1 billion to its Indian operations, and Alibaba was reportedly considering a major investment in Snapdeal to get a foothold in the country, too.

But it's Flipkart that's the candidate for a U.S. IPO, and that will require straightening out its business model. Currently, more than 80 percent of the sales on Flipkart are made by WS Retail, which was set up by Flipkart founders Sachin Bansal and Binny Bansal in 2009 specifically so the company would have a marketplace structure -- a necessity because Flipkart has foreign investors and Indian law doesn't allow foreign investment in eCommerce companies that sell directly to customers.

But the co-founders sold off their stake in WS Retail in 2012, and that company said in January that it plans to spin off its logistics arm as a subsidiary -- all of which is a problem for Flipkart, since it's effectively a captive marketplace for WS Retail.

"They are changing their strategy completely," the head of a fashion brand that currently sells its products through WS Retail told Economic Times. "These guys have realized that they have to keep increasing the number of warehouses and team members to follow this model. Why take that headache?"

Other large vendors told the Economic Times that Flipkart has said they should switch their sales to sell directly on the Flipkart marketplace instead of through WS Retail. Under the new approach, sellers will be responsible for delivering the goods they sell to consumers.

For its part, Flipkart has dodged questions about whether it is trying to reduce its dependence on WS Retail. "WSR is just one of the large sellers on Flipkart," a Flipkart spokesman told the Economic Times by email. "We are always encouraging brands/sellers to increase their selection directly and indirectly on our platform -- and the brands/sellers are free to make their business decisions based on commercial prudence."

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