[Editorial notes: Theoretically speaking, the ecommerce marketplace model is changing the game – for buyers as well as sellers. But ground reality isn’t that rosy. Hear it out from Gurudatt B Nadiger, Founder & CEO of a home appliance company, Smarthomez. Gurudatt has been actively selling on all the ecommerce marketplaces and has some serious feedback to ecommerce companies.]

We sell Home appliance products of all major brands like Milton, Cello, Nayasa, Signoraware, Prestige, Tupperware, etc.

As you are aware, all the above mentioned companies have moved from “Inventory based” model to “Marketplace” model. “Marketplace” model means the eCommerce companies do not own any inventory, they enable sellers and buyers to connect with each other and transact.

We know that the eCommerce companies have changed the way we do commerce in India. They offer discounts, wide product selection across all categories, faster delivery, customer care support, user friendly return policies, cancellation options, product exchanges and thus made our lives easy. We can sit in our home or office and order anything we want and pay easily with credit cards, debit cards or cash on delivery.

showrooming-ecommerce

So half a billion people are excited about eCommerce in India and this number is growing.

I will explain the other part of it – from a seller’s perspective. I will explain the hassles we face to keep you happy.

I was excited when I decided that I would sell home appliance products online through eCommerce portals. I made the list of products I wanted to sell and uploaded my catalog on the websites. On day 1, I got 11 orders. Who could stop me now? I was on a journey of infinite miles.

The initial days were good as I was just focusing on number of orders I got per day. I reached 10, 15, 30, 50 orders per day and I started dreaming of becoming a millionaire soon. Dreams are great but I was not keeping the accounts of the sales properly. One day, my charted accountant called to ask all sales and purchase details to file monthly returns, then I looked at all my bills, bank account statements, invoices, pending payments from eCommerce websites and could not find a logic or proper cashflow in my accounts. I started digging my invoices and got to know that I was losing more money on product cancellations, returns, logistics, and marketplace commissions than I expected.

On an average the marketplaces charge:

Marketplace commission – 15%
Domestic shipping per Kg – Rs 30
National shipping per Kg – Rs 45.
Fixed commission per order – Rs 10 ( for orders above Rs 250 )

Along with these, I incurred huge losses in

  • Customers using products for a week and sending them back.
  • Product damages (they tell us we can claim for damages, but they never do).
  • Product returns (they come in a condition, where we cannot resend to other new orders. Most of the covers/corrugated boxes of brands are damaged.)
  • Reverse logistics charges (When you cancel, the seller pays the return logistics charges)
  • Marketplace commissions (When you cancel, we the sellers are still charged the commission).
  • Product Cancellation : Paytm charges a commission of 15% + logistics fee of Rs 45, when you order and cancel in minutes.

See the logic, the customer cancelled it by choice and order not yet shipped. But still, seller has to pay commissions.

Please note that the average return rate for ecommerce in India is 30 %.

ecommerce-sellers

Our operational cost:

  • Office Rent.
  • Admin costs (I have 1 person for packing apart from me )
  • Packing material costs (on avg Rs 15 per order package ).
  • Transportation cost incurred for product purchases.

I do not have a retail shop, so my costs are minimum. But can you imagine the above expenses if I was paying Rs 1 lakh rent for my shop?

Logistics Issues:

[1] The pickup guys do not come regularly. If they skip pickups for 1 day, 30 % of our customers cancel the orders. And no company takes the responsibility. They tell you, “vehicle was not available”.

[2] We have to call the pickup guys every day and tell them the number of orders and whether they should send a van or bike. Amazon and Flipkart does a good job here by making the process automated. But Ecom, Bluedart, Delhivery teams are way behind in communications.

Payments:

[1]  Shopclues takes 30 days to settle the payments (so we quit selling there).
[2] Flipkart -15 days for settlements after the product reaches customer.
[3] Amazon – 10 days for settlements after the product reaches customer.
[4] Paytm – 8 days for settlements after the product reaches customer.

Sellers are made to compete for pricing. I have seen sellers playing the number game rather than serving the customer. Sellers are left with very little or nothing at the end. You will ask, why are sellers not complaining? I do not know. But most retailers who started selling online but gave up after 2 to 3 months, couldn’t communicate with anybody. They either get satisfied with offline sales or think it’s not for them.

Every day thousands of sellers are added with no knowledge of the rules of the game. The companies talk big numbers and sign them up. But the companies never call and ask you how you are doing or what problems are you facing with business or how they can help to grow our business…?

Taxation:

I bet 99.999% of charted accountants do not know how eCommerce taxation works. Not to blame them, but every company generates invoices in different formats and and when we sit for filing our returns. It is a headache for all of us.

Marketplace?

The eCommerce companies have total control on our inventory. They can block us anytime, make our listings inactive anytime, can damage our orders in transit, delay our payments, cut huge commissions, cut buyer claimed refunds without giving any notification.

Dear Online Buyers:

Who is paying for your offers or discounts? Please note, that to change your online purchasing behaviour, habits or addictions, eCommerce companies are just racing to capture the marketshare to get more online buyers, increase their buying trends, capture all your shopping data to raise the next billion dollars from venture funds.

There is nothing wrong in eCommerce companies modelling their business and pricing the sellers with such policies. But in the long run, this is a biased business model, where sellers are screwed to make customers happy. The discounts and offers do not go a long way and the customer expectations are increasing day by day. To meet those expectations sellers are giving up their margins and closing businesses.

I am still optimistic about my business and not quitting my journey. It’s a start.

I am here to build – not to fall.

Image credit: baynote

9 Comments

  1. I knew in my heart that the kind of pain we are having in maintaining proper accounts so is the pain for other sellers, But after reading this blog i am sure there are thousands others who are suffering,

    I see Mr Gurpreet from Brown tape has replied to this , I would like to request him that why not try and develop a software that can link up the accounting data of the websites to our software ,

    Most big e-commernce companies use ORACLE/SAP , but if any cheaper version can be developed that is made in sync with the software being used by flipkart , snapdeal , amazon then even the sellers can install the same software and use that for billing and for payments and stock matching.

    Now all tax department are finding out ways to check the accounts of all sellers on these panels and if the accounts dont match , they are in for huge trouble.

    Another problem is the call centres that flipkart and others have , you call them and first you have to train them that what we are asking and then a simple reply is ” We have forwarded request to concerned team”

    I dont see any help from these companies soon but the only hope i have is that some third party comes up with some software to solve all these problems as softwares like tally ,busy cannot cope up with this work.

    If any ceo of FLIPKART , SNAPDEAL , AMAZON read this ” PLEASE HELP SELLERS”
    1. Give big sellers a “1 to 1” accounts handling team , where accounts problems can be handled on priority
    2. Sell some accounting software to us that matches your software.
    3. Payments related issues need to handled in priority.
    4. Stock is money, its impossible to match the stocks that we send to warehouse of these websites.

  2. Akash kumar Reply

    Is there any kind of training course for ecommerce.i want to take my shop online.if there is plz guide

  3. Market Places r a Boon for Distributors & Companies who Sell Directly to End Customers. Retailing is a Different Ball game. Customer Wants to touch n feel the product in Beautifully Done Show Room with Excellent Sales People who can converse in different languages with Full AC and Neat Ambiance, ultimately they open their mobiles showing Flipkart, Amazon etc ask what is your Price????
    The Same Customer pays 10% Tip for a Lousy Service in a Restaurant or Bar, but as a Retailer we are struggling for a 2% Margin on Electronic Products Like Digital Cameras, DSLRS, Mobiles etc.
    These Sites are Subsidising the Product Prices just to Lure the Customer, if its a Genuine Price why can’t they sell 5-10nos of Same Product to Same Customer, that is the hitch.
    This is a very Disturbing Trend but we have to ADAPT & SURVIVE

  4. sad to hear it. i am also a independent seller running my online book store at chennaishopping.com . all these marketplaces approached us for listing.

    As a business owner, i tried to calculated the net profit after all the expenses before even signing up. most of the marketplaces charge heavy fees by combining the logistics into it.

    these marketplaces are suitable for direct manufacturers. and not sellers or resellers for sure.

    Gurudatt, you should understand that these marketplaces are not here for charity. i would say you did not execute well in this which lead to loss.

    As a business owner, we should work out every P&L before tying up with these MNC’s.

    remember, its our money. it is very easy for us to say that we are sellers of famous brands.

    but at the end, if we don’t compute profit, it is a loss for us. not for them. hope you understood.

    As far as i have heard, most marketplaces are running to sellers just to woo high number of listings. thats how, amazon became largest online store by combining products from amazon.com and from sellers in india.

    hope my 2 paise tip helps

  5. A friend sent me this article. I have been constantly hearing this side of things for 3 years now since we started Browntape. The bottom-line every time SOMEHOW is that the seller does not want to quit online selling. After a long, very well structured letter, Gurudatt still does not want to stop. I have a client with a 6-month long tussle with Paytm for unsettled dues, but has not cut the chord with Paytm.

    To add to Gurudatt’s letter, here are some action points that sellers can follow to address these issues. They should not expect the marketplaces to change. Marketplaces are being able to raise the billions, so they will continue to do what they are doing.

    SHORTEN THE SUPPLY CHAIN
    Yes, the market is very consumer focused. Yes, there is margin pressure. No, it will not change anytime soon. Bargaining, deal hunting on the buyer side is in our culture. Price cutting, working on thin margins on the seller side also has been in our culture for long. We are not like Europeans who will not touch a business unless there is 100% margin.

    If you can cut the steps from the manufacturer to the consumer, you will win. 20 years back, the trader was adding value in the supply chain. The customer sitting in Yawatmal could have access to a product made in Tirupur ONLY if there was a trader (or a chain of traders) in the middle. The democratizing force of the Internet is taking that value-add away. Now the customer in Yawatmal can order from the manufacturer in Tirupur directly and the courier experience is also pretty good. The trader in the middle is losing ‘value-addition’ prospect due to tectonic shifts in the market.

    DON’T SELL EVERYTHING EVERYWHERE
    Once you have some data from various channels, you can do some analysis as to which products work where.
    – If you are not being able to manage delicate products for ecommerce, might as well stop them instead of losing money on them.
    – Some channels are not suited for cheaper products. For a Rs.300 product, Snapdeal is not viable due to a minimum payment charge of Rs. 30 odd. Do this analysis and remove some products from some marketplaces

    MANAGE REMITTANCES ON A DAILY BASIS
    Sellers make the mistake of trusting the marketplaces blindly with remittances. “…Yeh badi companies humein ullu nahi banayengi…”. While they may not want to fool you intentionally, there are lot of errors that happen. Especially in courier cost allocation, we see a lot of errors. At times, a 400gm product is punched as 4000gm and courier cost shoots up.

    Keep a daily watch on this and fight with the marketplaces when you spot issues. Browntape has a feature which allows you to spot issues in remittances easily. We are strengthening this feature with every weekly release.

    In conclusion, I would like to quote John Lennon. “Every day in every way. It’s getting better and better”. Marketplaces have many teething issues because they are growing at break-neck speed. I have met CEOs of all majour marketplaces and none of them have a devious plan of screwing the sellers. Some of it is inevitable shift in business (margin pressure), some of it will get ironed out with time.

    Gurpreet Singh,
    Co-founder of Browntape

  6. I completely Agree with the points mentioned in the article. I am Selling online for past 3 years and have faced each and every situation mentioned in the article.

    Seems like Marketplaces do not know any other way to attract customers apart from Huge Discounts.

    More Numbers of New Sellers are brought onboard everyday just to create more fierce competition among the sellers themselves to price the product to the lowest. Sellers Fall to this trap as thats the only way the website shows them as preferred seller for a product without which they can never get orders.

    Initially the commission charges for a range of categories were less. However day by day it has increased exponentially.

    Marketplaces purposely create offer Banners promising Sellers of bulk orders. Sellers go down on pricing to a limit where they are working on literally no margins. Little do they realise that even at no profit No loss margins, they are loosing out heavily because of customer order cancellations, Returns, Product transit damages, and reverse Shipping for Returns.

    All this at the cost of Discount being born by the sellers only. Hardly anytime or mostly none of the times you see these marketplaces slashing their Commission percentages to give the discount benefit to the customer. Its mostly the Sellers who bear the discount which ultimately is a loss.

    I started product sales Online. However now after 3 years i have realised that marketplaces gained their place among customers only because of discounts which anyways is going to not be the case in a year or two from now as the sellers have started feeling the heat and soon shall stop entertaining such unrealistic price expectations from Marketplaces. Thats when consolidation shall begin and marketplaces shall then look out for ways other than discounts to lure the customers. Its not that today they arent working on alternative ways, however, still the biggest reason they attract customers remains “Discounts” only.

    After Selling Online for 3 Years i have started realizing that you cannot rely at all on income from marketplaces. They control which product is visiblle to the customers, they control the commissions, logistics, Customer Support and Returns. They can ban you anytime they want and then all the efforts you took to build a reputation over a period of years is down the drain and your income stops immediately.

    I urge all my Fellow Online Sellers to Stop Competing on Pricing as its only going the make the situation worse. Only the Seller with Lowest price is favoured by Marketplaces and believe me my friends, one day they lure another seller to sell lower than you and all your favouratism goes the down the drain. These are Marketplaces are Cold Blooded and Mean and shall do everything in their hand to make sure that they remain afloat no matter their Sellers are making money or not.

    Dear Sellers, Unite ! Stop Competing on Price. By Competing on Price you Diminish Value of the Product and Yourself as well.

  7. To start with, the facts mentioned in this article are segment specific and they should not be generalised as such. The commission charges are not 15% for all categories. The cancellation policies mentioned are also incorrect. They charge you commission wen you fail to ship the products within stipulated time.
    Also, I dont see any harm in calling courier guys daily for picking up the goods. Its also pretty much part of offline business. And again if you call them within a stipulated time, they would never say NO to your calls.
    The return percentage is also mentioned pretty high. Again it varies from segment to segment, but based on my experience in 2-3 different categories, it never goes beyond 10%.
    And even if buyer cancels the order due to any reason or returns it within a week, I don’t find any fault with the ecom companies in this. Its the buyers fault & you find such buyers in offline sales too.

    Regarding accounting thing, I totally agree that nobody in this country knows this. But again, how come this is ecom companies fault!? This is the incapability of CAs and not the companies.

    Hence, the story is not so thorny as it is shown here.

  8. I too have the same feedback-
    # Why marketplace commission being charged on shipping charges i.e. 15% or 13%. If I am selling a product for 349 + 50 (shipping charge). The marketplace use to charge 15% on 399.
    # Cancellation charges and Reverse logistics charges.

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