Amount running into crores; e-marketplaces’ current management has lined up a buyout with the help of investors
Online sellers with AskMeBazaar and its subsidiary Mebelkart are crying foul over delayed payments by the two e-marketplace operators.
While some vendors are awaiting for payments for the last couple of months, some others are chasing the company since September-October last year. The e-commerce players that follow a vendor-managed inventory model, meanwhile, claim they are planning a management buyout with the backing of new investors. “We (the current management, along with investors) have already made a formal bid and our management buyout is (going to be) settled with the cut-off date of July 31 with a backer,” a spokesperson for AskMeBazaar and Mebelkart said.
While dna could not ascertain exactly how much money both e-marketplaces are holding back collectively, between the handful of vendors dna spoke to the amount outstanding is already running into a few crores of rupees. In fact, a lot of sellers have even stopped delivering the goods being purchased on the two portals in the fear of adding to their delayed payments. And there are a few others who have stopped selling their products as well.
For instance, furniture maker HouseFull International, promoted by BSE-listed Renaissance Jewellery Ltd, hasn’t received the outstanding sum of Rs 29 lakh from Mebelkart, and hence has discontinued selling on the latter’s e-marketplace.
Akshay Chaturvedi, managing director, HouseFull International, said this outstanding has accumulated over the last one year. “Mebelkart has not assigned us any reason for not paying. They have not responded to any of our email communications/notices asking for the payments,” he said. “We have also caught them (Mebelkart) red-handed selling and supplying fake products using our brand name for which we have already filed a complaint with the police and have sent them a notice for damages to the extent of Rs 120 crore,” added Chaturvedi.
According to voluntary disclosures by four vendors (data compiled by eSeller Suraksha) selling on Mebelkart and AskMeBazaar, the outstanding amount is Rs 28.5 lakh just between them. “A lot of our members are facing payment related issues with AskMe and Mebelkart. However, not all are comfortable speaking about it in public for the fear of losing their money,” said Sanjay Thakur, president, eSeller Suraksha (a body of over 1,500 online sellers from across the country).
Echoing the sentiments, Vinod Narwani, an online seller of leather-based accessories, said that doing business with AskMe Group is very challenging because of delayed payments. “I have discontinued selling on their e-marketplace but there are quite a few vendors who are stuck and chasing their payments,” he said. According to another vendor spoken to, the company owes over Rs 45 lakh to three sellers in his circle. “When we call, the company executives say they don’t have money to pay. They say the company is expecting some funding and once that happens, vendors can expect some payments,” said one of the members from All India Online Vendor Association (AIOVA).
Playing down the payments issue, the AskMe group spokesperson said in an email response that some sellers have had delayed payments in the month of June 2016. Though not sharing precise details, the spokesperson said, “The sum is different across different platforms like NDD, AskmeBazaar and AskmeGrocery, etc. We have told Astro (its promoter company) to expedite this (payments).” On reasons for the delay in payments, the spokesperson said, “We have announced a management buyout and asking the old investor Astro Holdings (Malaysia-based Astro Group), who is exiting, to settle and honour the old dues immediately as per their commitments. As per the agreement, the changeover date is July 31, 2016.”
As per the spokesperson, Astro holds 98% stake in the AskMe Group and has invested around Rs 1,700 crore over a five-year period and, the last investment was at a $400 million valuation. “Astro has invested regularly till June 2016,” the spokesperson said, adding that Astro is in legal and political trouble in India and is exiting all companies. “They have already exited FoodFood and are in the process of exiting others. They are already charge-sheeted by the CBI in the Aircel-Maxis case. They also had to exit Indonesia for the same charges,” said the spokesperson.
However, vendors aren’t buying into AskMe Group’s excuse for non-payment of their dues. “Payments to vendors / service providers / affiliates are governed by the respective agreements that a company has, which is independent of and unaffected by any consolidation / buyout process, within the company. Hence the reason cited above for non-payment of dues of the vendors / affiliates does not seem to be valid as it could severely impact the cash flow of the vendors / affiliates, affecting their day-to-day functioning. They have already collected this payment from the consumer for selling our products and should pass it to us in any case,” said Chaturvedi.
According to industry experts, when there is a buyout happening and a transaction is going through, owing to possible delay in the due-diligence process the company being bought may run out of cash. And the company that is buying out is expected to bring in the cash after the transaction is over. “So in the interim period, that could take several weeks to a couple of months payments, can get delayed. In theory this is possible, though am not saying that’s what is happening here. However, the caution to this is that the company that is buying out – if they are buying out with the intent to continue the business – would rarely allow this to happen as it will lead to significant damage to the brand. Also, there is no point in delaying payments and buying out the business because by that time both the vendors and customers would have gone away,” said K Vaitheeswaran, founder of Indiaplaza, the first e-commerce venture in India.
Questions are also being raised on AskMe’s claims of having a backer on board to pursue the management buyout. “Given the market conditions wherein e-marketplaces are finding it tough to raise additional funding while continuing to see a drop in their market valuations, it seems very unlikely that any investor will put in the required funds. It is really a worrying situation and we are wondering how this situation will play out in the coming weeks,” said one of the vendors awaiting payments.
Another reason behind AskMe’s financial crunch situation, experts said, could be their huge spends on advertising and marketing leading to significant cash burn. Going by earlier reports, the group had earmarked Rs 350 crore towards advertising and marketing in 2015 and has splurged on on-boarding Bollywood biggies like Kangana Ranaut, Ranbir Kapoor and Farhan Akhtar to endorse the e-marketplace. In February 2016, the company had launched a new advertising campaign conceptualised by filmmaker Rajkumar Hirani for the launch of online grocery portal askmegrocery.com.
On possible options for vendors, in case the payments do not come by, industry experts said there are just two ways – either wait it out in the hope that payments get cleared or take the company to court. “AskMe, Mebelkart have collected money from the buyer for goods being sold by the vendors on its platform. So logically and legally speaking they are supposed to transfer the money to the vendors but they haven’t.
“The money is not available with the company as they have spent it already, so what can you do? Nothing actually. That’s because unfortunately when a vendor supplies goods to any company in India, on the books (legally and practically) it is treated as an unsecured loan. So unless there is any collateral in the play like in the case of banks that can take away the asset, there is nothing (apart from the two options mentioned earlier) that vendors can do if the payments are delayed or denied,” said the expert.