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Washing machines continue to remain among the more heavily searched home appliance categories during the ongoing Amazon Great Summer Sale as buyers look for larger capacities, inverter motors and lower-maintenance laundry setups before peak summer usage
Ecomm sellers, brands face working capital strain
Ecommerce sellers and brands, particularly those in categories like handicraft, apparel, footwear and home essentials, are bracing for a short-term working capital crunch due to higher input tax they paid on unsold inventory stocked up earlier for festive sales.
With the new goods and services tax (GST) regime effective from Monday reducing the tax on these items, retailers cannot pass on their higher input costs to consumers. The gap, they said, will block working capital and dent margins in the near term.
This assumes significance given the annual ecommerce festive sales, which begin on Tuesday, when these sellers usually spend heavily towards ads and logistics to push inventory.
ETtech
Sumit Kumar, founder and chief executive of Leopax Enterprises, a seller on ecommerce platforms, noted that the GST rate on items such as apparel priced below Rs 2,500, metal items like shoe racks and handicrafts has fallen to 5% from 12%.
“We paid higher input tax for these products when we bought them last quarter. And after the GST cut, I will incur some loss in the near future for the current stock,” he said.
Brands and sellers pay a certain input tax on items they purchase under the GST rules. Usually, sellers would pass on this cost to the customers while selling.
“As the input tax on the products was 12% or higher, a sudden reduction in the output rate limits seller and brands ability to set off the input tax, leading to temporary credit accumulation,” said Harpreet Singh, partner, Indirect tax, at Deloitte India. “Since they immediately can't set off the higher input tax already paid, with the reduced output tax, it may result in temporary working capital blockage.”
"Brands selling apparels, footwear, pharmaceuticals, air-conditioners, televisions, dishwashers and FMCG will be seeing the impact of this in the short term on their working capital," Singh said.
Low demand
Sellers said they expect demand-led recovery in the next quarter, but right now they have little choice but to take a hit as consumers have been holding off purchases to buy the same products at lower prices once the GST cuts apply.
“A lot of sellers will be impacted by this rate cut,” said Santhosh Balasundaram, chief executive and founder of Shadow Etail, a D2C company selling on ecommerce websites. “Ecommerce sales were set to start from September 13 but Amazon and Flipkart pushed it to after the rate cuts were implemented. So, sellers have no option but to absorb the losses."
To be sure, this is a temporary problem. A seller or brand who has paid high input tax for products can utilise the excess amount on their next purchases.
Sellers are hopeful that strong sales in the coming quarters will offset the current losses and help them recover over the long term.
“We expect that over the next two to three months, the working capital will get managed,” said Dhiraj Agarwal, cofounder of apparel brand Campus Sutra. “The GST cut will spur demand and boost consumer confidence in the long run.”
Earlier ET reported that analysts are expecting better sales during this festive period, which accounts for 30-40% of annual sales in categories like apparel and electronics.
Platforms simplify process
Meanwhile, ecommerce majors Amazon and Flipkart said they would help sellers and brands to make a smooth transition to the new GST regime. Both the platforms will start their annual festive sale on Tuesday, a day after the new rates will be implemented.
According to Saurabh Srivastava, vice president of categories at Amazon, the firm has already started implementing the revised GST codes in its internal system to enable sellers to use the new rates.
“We are still getting a lot of inventory in our fulfilment centre because you don't need to change the MRP or the tag to offer cheaper prices to the customer, so that's not a problem,” he said. “The right tax code has to be applied, and that can be applied at the system level.”
Flipkart said it is communicating the changes in GST slabs and their impact to its sellers, and has simplified the seller dashboard with automatic backend updates of new GST slabs.
Source: EconomicTimes
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