Personal care brand Mamaearth’s parent firm Honasa Consumer Ltd is facing significant challenges pertaining to its large inventory, ever since the company changed its distribution strategy from super stockists to direct distributors.
The All India Consumer Products Distributors Federation has raised concerns over the “unethical stock dumping practices” of Honasa. The group claims that distributors and retailers are facing an “alarming crisis” of unsold inventory nearing expiry, resulting in a financial burden of Rs 300 crore approximately.
Mamaearth-parent firm Honasa Consumer reports loss of Rs 18.57 crore, sales down 7%
Commenting on the inventory crisis, Honasa Consumer’s co-founder and CEO Varun Alagh agreed that the distribution strategy has not gone in line with the company’s expectations. “I think it will take us a few quarters to get the scale-up of offline going”.
Honasa has also denied claims of AICPDF, stating that, “The distribution value-chain, consisting of direct distributors, superstockists and sub-distributors, carried a total inventory of Rs 40.69 crore, (as against the quoted figure of Rs 300 crore of near-expiry inventory by AICPDF)”.
During Q4 FY 24, Honasa announced a new distribution approach, dubbed Project Neev, in which it reduced its dependency on super stockists (large distributors) to ramp up offline distribution. The super stockist was responsible for supplying products to small retailers nationwide. While it led to rapid penetration of the brand, it limited the company’s visibility into real-time data sales leading to large unsold inventory. To curb this problem, Mamaearth launched Project Neev replacing the large distributors with direct distributors in major cities. However, the transition faced challenges, resulting in the accumulation of product write-offs of Rs 63 crore worth of expired products. Of these, the company has already received returns worth Rs 41.21 crore in its warehouses, while balance returns of Rs 21.32 crore are in the process of being picked up from the concerned distributors.
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While the company anticipated some disruption, the September quarter proved more challenging than expected.
Honasa’s CEO Varun Alagh has claimed that, for Mamaearth, a large part of the growth delta comes from offline consumers as a result the skincare brand is trying to get the game right.
During the Q2 earning call, Alagh agreed that the inventory impact has been higher because “Most of our understanding was from the system inventory which we were seeing just for the superstockists. But during the same period when we have actually executed this, they’ve also taken inventory from sub-stockists who owed them money, as well as to some extent in certain cases trade. And all of that has resulted in a higher net inventory take back compared to what we had estimated it to be”.
Honasa Consumer reported a 9 percent drop in sales to Rs 417 crore and a Rs 15 crore loss in Q2 FY 25—the first since its initial public offering last November.