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Etailers told cut marketing, not margins

News, 25 November 2014

NEW DELHI: The business model adopted by India's booming ecommerce businesses is leading to increased pressure on brands, especially in fashion, where leading e-tailer Myntra is reported to be demanding bigger discounts from its vendors.

The Economic Times reported that margins of between 28% and 32% had been increased to between 36% and 38% with some weaker players being asked for 40%.

Observers suggested that a business model that seeks to attract buyers with deep discounts might be incompatible with achieving profitability.

Fashion websites, for example, have reported that many online shoppers start their purchase journey from couponing sites; Myntra, for example, estimates that affiliates drive as much as 15% of its overall transactions.

One unnamed head of a foreign fashion label argued that ecommerce companies needed to put their own houses in order, by creating supply chain efficiencies and cutting back on their marketing and staff costs, rather than looking for more discounts from brands.

"A lot of manufacturers are hooked to the volume drug," said another." Now, Myntra is saying give us bigger discounts otherwise we won't do volumes from you or even block your products."

Amazon has been accused of similar practices, with one report earlier this year accusing it of "muscling" brands in the fashion and cosmetics categories, by seeking direct distribution deals, with sales via third-party resellers restricted in return for greater promotion.

It appeared that only those not affected were prepared to go on the record. J Suresh, CEO of Arvind Lifestyle Brands, said Myntra had not approached him for bigger margins.

"We are only concerned they don't undervalue our brands by discounting," he said. "We ensure that doesn't happen and it is part of our agreement."

Mukesh Bansal, CEO of Myntra, claimed to have "an excellent and mutually profitable relationship with our brand partners".

He added that the business had built very close relationships with the major fashion through "very close collaboration and trust".

Data sourced from Economic Times; additional content by Warc staff