E-Commerce Marketplaces Are A Catch-22 For India's Small Brands

In January this year, Amrutam, a personal care direct-to-consumer (D2C) brand, wrote an open letter to Nykaa, the biggest beauty and personal care e-commerce marketplace in India. In its letter, the brand called out the platform for its hefty commissions, inefficient communication and preferential treatment to “big enough” brands. The brand eventually decided to delist from the platform and shifted focus to its own website. 

“We were not comfortable having that relationship, where you have to just focus on their needs and their demands,” Yash Batra, who heads economics and communication at Amrutam told The Core. 

Multiple brands and consumers came out in support of the brand by commenting on their LinkedIn and Instagram posts, highlighting the problems they have faced with Nykaa specifically and marketplaces in general. “It’s been a year we Himalayan Organics have stopped selling on Nykaa due to multiple issues including holding of compensation and wrong charges by platform. Please beware of Nykaa all fellow D2C Founders!” Vaibhav Raghuwanshi, another startup founder wrote, while resharing Amrutam’s letter on Linkedin. 

The Core presented Nykaa with a detailed questionnaire during a meeting, however, the company did not wish to respond on the record. 

The deep dissatisfaction that Amrutam felt being in business with Nykaa is shared by many small D2C brands when it comes to online marketplaces. However, their experiences also suggest that being on these platforms is inescapable for small brands to succeed. The lack of alternatives to grow small businesses and reach a wider customer base is forcing them to stay on. 

Marketplaces Are Indispensable

During the pandemic, lots of cool new brands popped up online, thanks to the e-commerce boom. Businesses grew from ideas discussed in living rooms by those who had little to no business and brand-building experience, marketplaces became the quickest way to reach a much wider audience. 

“We grew our sales by 600% just through Nykaa between 2022 and 2023”, Anshita Mehrotra –founder of Fix My Curls, a haircare brand, told The Core. “Brands have to go after the marketplace, fix meetings with the POC (point of contact), build that relationship, be willing to make those spends on advertising and eventually it pays off if you are consistent,” she added. 

While creating a marketplace-independent business is not unheard of, there are various benefits that e-commerce platforms bring for brands, the most important being a ready-made base of high-spending consumers. The average order value on Nykaa was Rs 1,857 in FY23 up from Rs 1,449 in FY22.

“We need visibility. So Nykaa is a platform for that kind of visibility. So we have no choice left here,” a seller on the platform told The Core requesting anonymity.

Where The Problems Arise

The barriers to entry differ from platform to platform. While Amazon and Flipkart have a much easier onboarding process, others like Nykaa have restrictions, checks and balances in place to maintain quality and customer trust.

After brands list themselves on marketplaces, a range of operational troubles usually follow which bootstrapped brands with lesser capital have trouble manoeuvring. For example, under the inventory model, where the online marketplaces store products of smaller brands in their warehouses, sellers need to book a slot on a particular day and a certain time window. This window is usually an hour or a half long and is assigned to them. Sellers have to get their products delivered only during that time for the warehouses to accept them. 

“My relative has a brand that was listed on a beauty marketplace and due to the unpredictability of logistics in India, she missed the time window. The products were sent back and she had to bear the cost of shipping to and fro, and also (it was) for the third time when she finally managed to send it on time,” Sunvi Aggarwal, the founder of Well Well, a skincare brand, told The Core. Her relative eventually had to bear an additional cost of Rs 20,000 - 30,000 for products that were worth just above Rs 60,000. What further agitated the seller was that the products took another 15 days to show up on the platform. 

“They have a dashboard for fixing appointments. Sometimes we will not get appointments at all. We have to manually check with the warehouse manager why it is not working. So from the beginning, from fixing appointments with the warehouse to rendering any kind of support, it is problematic,” the aforementioned anonymous brand said. 

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High Commissions, Long Payment Cycles

Smaller D2C brands have very little bargaining power when they are dealing with marketplaces. The terms of the contract tend to be skewed in favour of the marketplace since the brands approach them to be onboarded. 

The payment cycles in marketplaces are over a month long, and with limited working capital, this becomes a problem for small D2C brands. This works a little differently with bigger brands. Marketing platforms need them just as much as they need platforms. So there is no power imbalance. 

“The bigger brands on these platforms have solved for their working capital and advertising costs. The older players are much more comfortable running blanket ad campaigns also. They can participate in more discounting events, simply because of the money they can pump,” Meghha Sharrma, a brand consultant and market researcher told The Core. 

The commission on marketplaces can be as high as 40%, meaning that a sizable chunk of the revenue is pocketed by the platforms. As the competition across categories intensifies, many D2C brands bank on affordable pricing to gain market share. Commission costs and spending on advertising elongate their road to profitability. 

Amazon hiked its commission in May last year. “Earlier they had a different commission rate between beauty products under Rs 500 and those above Rs 500, which they’ve now standardised making products under Rs 500 more expensive to sell,” Sharrma said.

Even in terms of discounting, since many marketplaces follow deep discounting practices to gain market share, the costs of discounting used to be borne by the platform and the brands. 

“Earlier, we used to bear 50% of the discounting and Nykaa bore the rest. Now, they have said that they can’t bear the discount any more. So overall, to sell on the platform we pay a 39% commission and bear the cost of discounting on top of that. As a result, we have reduced discounting on the platform. Only if there is a big sale, we'll be giving some discounts, ” the aforementioned anonymous brand said.

Where Nykaa Fails Is Support

While these problems are pretty standard with marketplaces and are more by design than deliberate, the dissatisfaction among sellers for Nykaa stems from the lack of support and communication. 

“Amazon has a very robust seller support system. You can call them right away, get a call back from their support and they will answer your queries. If they do not have an answer, they have the ticketing system. But in the case of other marketplaces, it is not as robust,” Batra of Amrutam said. 

Aggarwal of Well Well also added that Amazon has a seller dashboard which allows the seller to have control, Nykaa on the other hand requires much more direct contact with the company for everything. 

“Nykaa is like a government office. Nobody bothers. There nobody cares because people come and go,” the anonymous seller said. They also highlighted that the account managers change frequently. This makes building a rapport with the brand difficult. 

“We have to be behind them for months, not even months, years. For a simple address change, we have been behind them for over a year. It happened only after we said we were not going to give any discounts,” said the anonymous seller. 

Not All Brands De-List

While Amrutam’s dissatisfaction with Nykaa may be a shared sentiment, delisting is a bold step and not as common. Even after all the troubles that sellers are facing with the platform, they continue to be listed on the platform. 

“Brands eventually want to take themselves off the marketplaces, but most of them cannot afford to do it,” Sharma said. 

The anonymous brand mentioned above said that they once did over Rs 1 crore monthly sales on Nykaa but this has come down to Rs 30-40 lakh monthly. The brand has also shifted focus from the platform and is not participating as excitedly in its events. 

Aggarwal of Well Well is not listed on Nykaa yet and only plans to do so when the brand is approached by the platform.

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