Myntra restructures business to comply with regulations

Myntra restructures business to comply with regulations

Flipkart’s subsidiary Myntra which drives a large part of its business through exclusive brand tie-ups and private labels has clarified that it does not own any equity stake in sellers on its platform thereby complying with the new FDI norms. The move signals a significant restructuring at Myntra since the company continues to sell brands through third-party merchants instead of directly from its brand stores.

Myntra and other e-commerce retailers like Amazon have been bringing on board new seller entities so that they do not flout the regulations which prohibit online marketplaces to own equity stakes in sellers. The regulations also disallow an e-commerce marketplace from making exclusive deals with sellers.

Fast-fashion brand, Chemistry is now sold on Myntra by Wiztech Corp, while AKS, and Anouk sell through FashionTech, while Mango is sold by WandWagon. Other private labels are being sold by sellers including Unistand, and Mayazen. In December, last year, ET reported that Myntra’s top alpha seller Vector E-commerce showed a 90% revenue fall in FY18 indicating that the.platform was reducing its dependence from its top few sellers.

“This will mean a longer paper trail to be compliant, and a middleman to squeeze margins” said one person aware of the restructuring.

Myntra holds stakes in brands including Chemistry and ethnic wear brand AKS through its accelerator programme launched in 2017, which it said would drive about 5% if its sales. The programme offered brands technical, design and financial support and the company at that time said that it will partner with about 10-15 local fashion brands. The fashion etailer also has a strategic partnership with Spanish brand, Mango along with holding stakes in celebrity fashion brands owned by Saif Ali Khan, Hrithik Roshan, Deepika Padukone and Alia Bhatt, which exclusively sell though their portal.

Flipkart confirmed the restructuring to ET in an emailed response, “We did not have any equity ownership issues to contend with in our seller base. We are committed to full compliance with the new regulations.”

” There will be an immediate impact on Myntra’s margins, since now an intermediary will be introduced, who will invoice consumers, for a percentage of the transaction,” said Devangshu Dutta, chief executive of Third Eyesight, a specialist retail consulting firm. “However as long as Myntra doesn’t hold equity in the seller and the seller doesn’t get more than 25% of its business from Myntra, they should be in the clear,” he said.

Myntra’s former CEO Ananth Narayan had said private labels drive 25% of the company’s revenues and the business arm is profitable. The apparel e-retailer also has about 30-40 exclusive brand partnerships, which indicates that these brands derive bulk of their online sales from Myntra. “The way Myntra has designed itself it depends a lot on brand relationships to boost sales. It is in favor of these brands to work closely with Myntra since the etailer helps them manage product pricing and positioning. Selling equity does not solve the purpose, majority of these brands see their sales still come from Myntra,” said an investor whose portfolio company sells on the online retailer.

What is interesting is that Myntra also has a joint venture with Prateek Apparel, which manufactures some of its private labels, sources told ET. “For competitive reasons, we won’t comment on the specific changes we implemented to ensure compliance with the new rules,” according to the statement.