Commissions, though, make sense for Udaan. For an order of Rs 5 lakh (US$6,619), Udaan could pocket up to Rs 50,000 (US$661) simply to facilitate the transaction. This is apart from the flat fee it charges for logistics, interest on lending, and value-added services like banner ads. Amazon, for instance, charges a 16.5% commission in its business-to-consumer (B2C) mobile accessories category, though it should be noted that margins are higher in B2C.
The stages of a scaling sprint
The high commissions took a toll on Udaan’s retailers and suppliers, a former zonal manager in the clothing category said. Seller interest in the category dropped by almost half, the former manager added. In a Facebook group titled ‘All India Udaan Sellers’, several members stated that the commission was not brought up with them beforehand.
In an earlier story on Udaan, We spoke to a seller who was charged a 6% commission by the company. He said he planned to mark up his products by 6% to make up for this. That is precisely what has happened as Udaan rolled commissions out across its platform—sellers passed the commission on to buyers. For buyers, it’s a double whammy, as they also pay the platform’s logistics fees.
Sharma, who has been on Udaan for two-and-a-half years, says he stopped buying mobile accessories after this change. “Sellers increased their rates to sell on Udaan. 80% of the retailers dropped out from the category after that. I can’t buy anymore, 10% is very high,” he says.
The commissions also led to an uneven marketplace, with each seller choosing to price the product differently. In other B2B firms like ShoeKonnect and Paytm’s* B2B arm, sellers must get their updated pricing approved by the platforms’ business development managers, a Delhi-based seller of Udaan said. Not so with Udaan. Not only can prices be changed on a daily basis by sellers, there is no minimum order mandated on the platform.
The logic of logistics
Udaan’s other great monetisation hope was logistics. The company’s logistics arm, Udaan Express, delivers 60-70% of all orders across 800 cities, four former and current executives said. The remaining orders are outsourced to third-party logistics providers like Delhivery and Ecom Express.
The company also currently has 25-30 warehouses pan-India, three former and current employees said. Owning warehouses and handling inventory means that Udaan is further from Chinese B2B giant Alibaba, and closer to e-commerce leader Amazon. This isn’t great for profit margins, as evidenced by the fact that asset-light Alibaba has higher profit margins than Amazon. In fact, for the year ended March 2019, expenditure on logistics and cash collection (for credit) was Udaan’s single-largest expense at Rs 254 crore (US$33.6 million).
Udaan, though, believes that owning a logistics play improves the experience it offers. Not only does it make for a smoother supply chain, it also allows for economies of scale thanks to warehouses as pickup is streamlined.
Udaan implemented a flat logistics fee for each category—around Rs 100 (US$1.3) for clothing and Rs 30 (US$0.40) for fresh produce, said one Delhi-based buyer.