Inventory-led e-commerce model

Why in the News 

The Ministry of Commerce and Industry has started discussions with industry players, including leading e-commerce companies and MSMEs, to identify models that can enhance exports. MSMEs are asking the government to allow 100% FDI in the inventory-led e-commerce model to strengthen e-commerce exports.

Key Points:Inventory-led e-commerce model

• The government is exploring the E-commerce Export Hubs (ECEHs) model announced in the Union Budget.
• MSMEs are requesting permission to permit FDI in inventory-based e-commerce, a practice that is currently not allowed.
• Inventory-led models could help MSMEs overcome compliance burdens and better compete globally.
• India’s e-commerce exports are currently valued at $5 billion and are expected to reach $200 billion by 2030.
•  China’s e-commerce exports are already at $300 billion annually.
  MSMEs say the new model will help them scale up production and reach overseas buyers.

 What is an Inventory-Based E-commerce Model?

In this model, the e-commerce company owns, manages, and sells products directly from its own inventory. It acts as both retailer and seller, storing goods in its warehouses and selling them through its online platform.

Key Features:

• Ownership of Stock: The platform purchases goods from manufacturers/wholesalers and keeps them in its own warehouses.
• Direct Selling: Customers buy directly from the e-commerce company, not from third-party sellers.
• Full Control: The company controls pricing, quality, packaging, and delivery.
• High Investment: Requires heavy capital for procurement, storage, and logistics.

Advantages:

• Better quality control and standardized customer experience.
• Faster and more reliable delivery timelines.
• Higher margins as the company directly sells products.
• Reduced chances of counterfeit or fake products.

Disadvantages:

• High working capital requirement.
• Storage & inventory management costs are significant.
• Risk of unsold inventory leading to losses.

Examples:

• Myntra (earlier model before marketplace shift)
• Reliance Digital’s Ajio
• BigBasket (for groceries)
• AmazonBasics (Amazon’s in-house product line)