The All India Consumer Products Distributors Federation (AICPDF) has flagged the large unsold inventory of Honasa Consumer, the parent of D2C unicorn Mamaearth, lying with distributors and retailers, saying it is causing a financial burden of INR 300 Cr.
In a statement, the AICPDF said that besides the issue of “unsold stocks nearing expiry”, credit notes of about INR 50 Cr are unsettled, which is creating cash flow challenges and threatens the stability of the entire distribution network.
The distributors’ body alleged that Mamaearth
has been offloading excessive stocks to distributors without considering market demand, which has caused damage to the distribution and the retail ecosystem and erosion of trust.
“The unethical stock-dumping practices by Mamaearth have created a crisis of trust and financial viability for distributors. If corrective actions are not taken immediately, AICPDF will be compelled to explore a nationwide decision of non-cooperation to protect the interests of the distribution network,” AICPDF’s national president Dhairyashil Patil said in a statement.
Talking to Inc42, one of the distributors said that Honasa’s practices were causing significant challenges with inventory management. “The company was dumping products in our warehouse. While our monthly sales were around INR 15 Lakh, we were holding stocks worth INR 85 Lakh,” the distributor said.
As a result, the distributor said that they stopped distribution of Honasa’s products. “It was a kind of harassment to the distribution channel. We had other brands to manage, and this one brand was creating an imbalance in our entire operation,” the distributor added.
Meanwhile, Honasa rubbished the allegations of the AICPDF. The company said it has been actively working with the channel partners for the last few months to clear the unsold stocks.
“We strongly deny the allegations made by AICPDF. The figures mentioned are inconsistent with the sales driven through this channel,” the company said in a statement.
It added that a significant progress has been made in removing stocks worth INR 63 Cr from its distribution system as part of Project Neev – its initiative to transition away from super stockists to a direct distribution model.
Honasa’s Distribution Woes
It is pertinent to note that this is not the first time that the AICPDF has raised the issue of Honasa’s unsold inventory. In the past, the distributors’ body flagged this problem multiple times.
To address this issue, Honasa has been looking to change its distribution model. This also resulted in the company slipping into the red in the second quarter of the financial year 2024-25.
Honasa posted a net loss of INR 18.6 Cr in the September quarter of 2024 as against a net profit of INR 29.4 Cr in the year-ago period. Operating revenue also declined 7% year-on-year to INR 461.8 Cr during the quarter.
In a post-earnings call, Honasa cofounder, chairman and CEO Varun Alagh said, “From a distribution system perspective, the bulk of the cleanup that we need to do has already been done in quarter two. The ramp-up from here onwards is going to be slightly gradual and will take a few quarters.”
In the statement, Honasa added that all secondary claims from active distributors have been cleared till August and the rest are in final stages.
“As of October 31, 2024, our total stock with our active channel partners, as per our Distribution Management System, is in line with revised norms. As per Nielsen RMS data, our stock turnover ratio has improved from 35 to 27 days in the past year while the category still stands at 35 days in general trade. This directly disproves the claim of high expiry of stock in retail,” it said.
Meanwhile, the decline in its top line and the loss-making September quarter due to distribution transition challenges have also shook investors. Honasa released its Q2 numbers on Thursday (November 14) after market hours. When the markets opened on Monday (November 18), its shares tanked 20% on the BSE. The stock crashed another 12% on Tuesday (November 19) to close at INR 263.75 on the BSE, more than 18% below its IPO issue price of INR 324.
The stock market was closed on Wednesday (November 20) due to assembly elections in Maharashtra.
