Tuesday, October 7, 2014

FlipKart sale - Who ends up paying?

I admit I am a sucker for sales.  I don't buy anything unless it is on sale. Why, I have even bought stuff I did not need because they were on sale.

Still, I decided to let forego the big billion day sale on FlipKart.  Somehow, buying products at 90% discount sounded less like a good deal and more like plundering and pillaging.

Deep down inside, I have always wanted to know why something was being sold at a cheaper price. I know there are many reasons why products are sold at lower than usual price. Some of the most common reasons are:
1.  Stock clearing (liquidating  dead stock)
2.  End of season (before the lean period starts)
3.  Festive season (Diwali, Christmas)
4.  Products going out of style
5.  Newer version is imminent or has arrived
6.  Seconds (products rejected due to quality issues)
7.  Surplus (export units having unexported stock)
8.  closing down sale (shop is closing down)
9.  Smuggled goods
10. Stolen goods

In each case, we know who is covering the discount and why.  Also in most of the legitimate cases, except for the closing down sale, there is usually no loss to the seller, only reduced profits.

In the case of FlipKart sale, there is definitely loss. So, who is paying the difference, who is covering the loss? After all, we all know that at the end of the day, somebody has gotta pay the price.

Ostensibly, Flipkart (under their marketing budget), the actual seller (in case it is a 3rd party selling on Flipkart) and the manufacturer are together making good the deficit.  But this is just on the surface level. Dig a little deeper and you will see that eventually we, the people, will end up paying for it all, and at a premium!

The manufacturer makes good by cutting corners, producing inferior products and using cheap labour working in sub-par conditions that cannot pass even minimum safety norms. Cheap labour is not just about cost of living arbitrage any more ( it is not about labour being cheaper in another country anymore, after all everything is manufactured in China), but about denial of basic necessities to the workers for which they suffer deterioration of health and living standards.

The vendor/seller on flipkart probably goes for a no loss/ no gain model because of the pressure from Flipkart. FlipKart bears the rest of the loss.

They have a lot of investor money in the bank. Profit does not enter into their scheme of things.  They bear the loss and the cost of all the advertising using investors' money.  So are the investors the biggest losers?  No they are not, at least not yet.  They are the biggest risk takers definitely.  They are hoping that when flipkart goes public, they will be able to rake in the moolah!

That's where we come in.  We will believe their stories of grandeur and plonk many times more than the money we saved on deals buying FlipKart shares.  By then, the price of the stock will be far in excess of the true value of the stock and we will end up paying a premium.

Then if FlipKart goes belly up, a lot of people will lose money.  I have used "if" but am tempted to use "when" because I am yet to see a viable business model emerging.

I don't want to be part of this racket.  Be a conscientious citizen.  Buy when the price is right otherwise you are stealing from someone else.  Ignorance is no excuse. Besides, now you know.