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Snapdeal seeks 30 per cent rise in margins from vendors for home decor sale

Varun Jain, The Economic Times

New Delhi, 10 Jun 2015

Snapdeal is starting a two week advertising blitz for a home decor sale and has asked vendors for higher margins to fund the ad campaigns.

In an email to its sellers, the online marketplace sought to raise its margins by 30% during the event and has asked them for a margin of 21% during the upcoming sale, "Decor Carnival", against the current margin of 16%. Snapdeal claims it is organising the biggest-ever Decor Carnival from June 15 to June 30.

According to a mail accessed by ET, Snapdeal is planning to spend big on this promotion for the entire fortnight, and the traffic on the site is expected to be higher than previous occasions. Justifying its decision to raise the margin by 30%, Snapdeal told sellers: "To create a new milestone in terms of sales, we would require extra promotion fee on the value of all your home decor orders taken on website during these days."

When contacted, a spokesperson of Snapdeal said: "Any change in commercials for a specific product line is done in a fair manner by involving all sellers. For such promotional days, our sellers have an option to stay out of the promotional period if they wish to. The promotional days provide a great opportunity to our seller base to increase their sales manyfold because of the increased level of marketing and visibility we provide in this period."

Flipkart, eBay and Jabong declined to comment when asked whether they also ask their sellers to increase margins during such activity. An email query sent to Amazon did not elicit any response till the time of going to press.

However, some of Snapdeal’s partners feel that a 30% increase would be huge burden on them. "We work on very thin margins. Participating in this sale for better revenue by giving 30% extra is not making much sense," said a partner who did not wish to be named.

Another home decor supplier on Snapdeal’s platform said if they back out of the sale, they will not be allowed to sell their stuff during the upcoming activity.

Experts ET spoke to, however, said that this could be a one-off instance and they have never come across a situation where an online marketplace has asked suppliers to give them better margins.

Devangshu Dutta, chief executive of retail consultancy firm, Third Eyesight, feels that for ecommerce players operating in India, asking for better margins during promotional event is not "normal".

"It is not a routine exercise because their business model so far has been about acquiring customers and for that they have been spending huge amounts of cash. Their current margin structures are untenable and not sustainable," said Dutta.

Ratul Ghosh, former head of strategy at eBay and an ecommerce industry expert, admits that he has not heard of something like this before. It is somewhat unusual because when a seller signs up, he does with a particular understanding.

"How do you expect the seller to give a better price after giving Snapdeal 30% more?" said Ghosh. In my opinion, this is not seller-friendly. Also, Snapdeal is not guaranteeing higher sales to every participant, he said. Snapdeal has urged its partners to go all out to make this campaign a success. "To ensure that the campaign is a super success, we will need blocked inventories from all our partners," the mail said.

(Published in The Economic Times.)

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