Flipkart top seller WS Retail to separate logistics

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Flipkart top seller WS Retail to separate logistics arm Ekart into wholly-owned unit

BENGALURU: WS Retail, the top seller on online marketplace Flipkart, is looking to spin off its logistics arm, Ekart, into a wholly owned subsidiary to make the privately held company comply with regulatory requirements of different states, two people with knowledge of the plan said.


The separation could happen before Flipkart's proposed US listing, expected sometime next year, according to one executive. WS Retail was set up by Flipkart cofounders Sachin Bansal and Binny Bansal in 2010.

They sold off their stake in September 2012 and the company is now 46 per cent controlled by former Flipkart employees and accounts for 85 per cent of products sold on the retailer.


WS Retail will spin off their logistics arm as a separate entity and then do pretty much what US companies do, collect a fee for delivery," said a source on the condition of anonymity. "This is expected to happen before Flipkart files for IPO (initial public offering)," the person added. "WSR (WS Retail) is a seller and Ekart is a brand for logistics. Why it is becoming challenging is that states have separate rules for registration as a transportation agency or a courier company. But WSR is a not a transportation agency. So that's where we are facing the problem," explained the second executive.

"We are still evaluating how to go about with but (nonetheless) it is becoming important as WSR cannot be doing both the retail and logistics part," said this executive, declining to share a time line by when Ekart will be formed as a separate entity.

Bengaluru-based WS Retail's plans to make Ekart a subsidiary mirrors the trend witnessed in the industry after online fashion retailer Jabong spun off its logistics arm GoJavas into a separate entity in 2013. According to some experts, this makes sense as the parent company can then focus on its core business.

"It can be more efficient and effective to separate the management and operation of the two businesses so that one can focus on providing the best service to end customers and getting end other can focus on building relationships with suppliers and gaining market share on the supply side," said Jaideep Prabhu, Jawaharlal Nehru professor of business and enterprise at University of Cambridge's Judge Business School. "In the UK, for instance, the Royal Mail has just decoupled its customer serving component, namely post offices, from its back-office logistics operation."

Tapas Rudrapatna, who oversees WS Retail's marketplace operations, and Sujeet Kumar, who takes care of logistics or Ekart business, control nearly half of WS Retail. India allows overseas ownership in online marketplaces, but foreign funded entities cannot sell directly to consumers.

For instance, Flipkart with backing from foreign investors cannot sell directly to consumers, but can allow local retailers like WS Retail to use its platform. The spinoff is likely to give more transparency on how Flipkart deals with third-party players ahead of its IPO.


"Both WSR and Ekart work at arms distance from Flipkart and it is just a client for us now," explained the second executive, who said the company does not have any plan for carrying out delivery operations for other retailers.

For now, Ekart ships 85 per cent of products ordered on Flipkart, with Kumar of Ekart telling ET last month that the delivery arm may not be able to keep up with demand when Flipkart scales up operations, as hiring more delivery staff, training them and getting police verifications done will be a challenging task.

The company instead may focus on more value-added services like helping the online retailer when consumers return products.

For this reason, Ekart expects the share of shipments done by third-party logistics companies, including FedEx and BlueDart, to double in the coming 12 months.

Source:

Flipkart top seller WS Retail to separate logistics arm Ekart into wholly-owned unit - The Economic Times
 
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