Deep discount: It’s Amazon, Walmart-Flipkart vs rest of India in draft ecommerce policy
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Imagine buying a Caran d’Ache fountain pen, originally priced at Rs 50,000 from your favourite ecommerce site, for 50% of the price. It makes for a great purchase, isn’t it? Except, sometime in the near future, it probably wouldn’t.
Also imagine the government — keen to stall this run — putting in place a regime where a phenomenon known as ‘deep discounting’ (any discount more than what is deemed normal) in check, an age-old demand of the offline retail lobbies in India. This is the core of the draft ecommerce policy released by the commerce ministry on Monday, seeking to champion Make in India and create a level playing field for homegrown companies. Two of the largest online marketplaces —Walmart-owned Flipkart and Amazon — are at the receiving end but oddly enough, several local players are also seeking the fineprint.
This ‘India First’ policy also called for what experts believe is a “hard model” of data localisation. If implemented as is, these proposals could change the way companies operate here. “The intent of ecommerce is not to create a bipolar world,” says Sandipan Mitra, chief executive, HungerBox, a food tech startup. Vidhya Shankar, executive director, Grant Thornton India, an advisory firm, says, “With the Walmart-Flipkart deal this year, the stakes have become higher in the Indian ecommerce market.”
With their global sourcing strategies, scale, deep pockets and Big Data on consumer insights, Amazon and Walmart have the power to dominate both mind and wallet shares with the help of what may seem predatory pricing and bargain basement offers. Neighbourhood shops or even malls can’t match either the range of inventory available online or deep discounts to easy returns, home deliveries that ecommerce shoppers can get.
A mobile phone even 5% cheaper online is a great buy. Amazon.in and Walmart (Flipkart) account for nearly three-fourths of the $20-billion ecommerce business in India and their dominance is growing. Ecommerce accounts for less than 4% of the $500 billion India retail market, but is growing about 4x every year compared to brick-and-mortar selling. It’s clearly a bonanza for shoppers but at the cost of several local businesses. As ecommerce grew with the two top players cornering most of the market the commerce ministry initiated discussion with various stakeholders which resulted in the draft proposals.
Eight meet ings over the last three months included Ola, Paytm, Makemytrip, UrbanClap, Airtel,Nasscom and others. Flipkart was part of the first meeting but not post the Walmart deal. Amarjeet Singh, partner, KPMG, says, “Pressure is being built by brick-andmortar lobbies. But on certain points like discounts and sunset clause there’s an overreach. Are you telling the vendors what discounts you can or cannot offer?” With large foreign investors sitting in many of these local champions such as Snapdeal, Paytm, Ola and Makemytrip, their “Indianess” is intriguing. “If you say Ola or MMT are Indian companies, then you are kidding yourself. Alibaba entities are the single largest shareholder in Paytm,” argues the Indian chief executive of a large global retailer.
“In the long run, it helps the country and Make in India,” feels Suchi Mukherjee, chief executive, Limeroad, fashion etailer. Rajaraman Sundaresan, CEO, Aahaa Stores, adds, “ Millions of micro, medium and small enterprises (MSMEs) have a better chance to go online. Pricing will no longer be controlled by group companies.” “This is an important step towards creating forward looking, enabling regulation which will catalyse robust and orderly growth of the ecommerce sector in India,” said a Snapdeal spokesperson. “It will provide direction for genuine and broad-based growth.”
“We cannot allow big companies to eat up small ones,” said Ashwani Mahajan, national co-convenor, Swadeshi Jagran Manch. “We are not afraid of anybody and we do not think our Prime Minister can be pressured by anyone. We exposed violation of laws by these companies. Now, the Enforcement Directorate, Reserve Bank of India and other agencies know about the violations. It is up to them to act.”
For large global retailers like Amazon and Walmart the draft policy is anti-business, as it shifts goalposts after they have invested billions to consolidate their position in a key market like India. Amazon has pledged to invest about $5 billion into India and Walmart in May agreed to acquire controlling 77% in Amazon’s local rival Flipkart for $16 billion. For them, an ecommerce regulator will intervene in decision-making, slowing down business operations and ending up creating an uneven playing field.
Amazon declined comment while mails sent to Flipkart went unanswered. Even though Kishore Biyani, chief executive, Future Group, said many issues raised in the draft proposal have been spoken about in the past, he argues that the draft policy will be good to promote Indian entrepreneurship and is, thus, in the right direction. “But we need to look at how the space is evolving—it’s not digital or physical retail alone but phygital (physical plus digital) retail. We need a policy for that.”
Local etailers and brick-and-mortar players are also planning to approach the commerce ministry to seek further clarifications The Retailers’ Association of India that has members including Shoppers Stop, Reliance Retail, Aditya Birla Retail and Future Group argues that retail should be looked from a multi-channel lens and laws that apply to one channel should be the same for other formats too.
“There are many issues and ambiguity with the policy including the definition of ecommerce. There is no clarity on who is an ecommerce player now,” says Kumar Rajagopalan, chief executive, Retailers Association of India. “Almost every retailer uses technology and supports online buying and delivery. Can everyone be called ecommerce then? The new draft suggestion seems to be dividing retail by channels which is creating confusion even from an FDI angle.” Within 48 hours, the battlelines are drawn. “It’s now between the US Govt, who is being approached by Flipkart and Amazon, and SJM championing the cause of ecommerce startups, small shopkeepers, booksellers, Make in India and youth,” Mahajan tweeted on Wednesday.
Though much of what the draft policy covers is already under DIPP Press Note 3, there is a feeling within certain quarters that both Amazon and Flipkart (now Walmart-owned) have misused the 2016 Press Note 3, and that this policy, if implemented, could put an end to that. Or control that misuse to some extent. “Press Note 3 has been very often subverted and misused by these companies. Though there is a separate committee looking into this specifically, if this is enforced, it could become an issue for them,” says a Delhi-based corporate affairs executive on condition of anonymity as he’s not authorised to speak to the press. He attended several meetings of the ministry’s think-tank.
The direct impact, for both Amazon and Walmart-Flipkart companies may be felt through pricing strategies. “Deep discounts will be regulated now. And this proposed regulator will tighten the screws on the same,” the executive quoted above says. “No one is against discounts. It is the unethical side of discounting that has to be checked.” If overlooked, he says, it could have a direct impact on MSMEs, which “you can’t afford to kill. The economy will go into a tailspin.”
LEVELLING THE PLAYING FIELD
This July saw a mega face-off between Amazon and Flipkart on their Prime Day and Big Shopping Day sales — mega product launches, curated offers and deep discounts. Flipkart generated four times its daily revenue and sold 2.5 times more than its daily run rate while Prime members became the highest streamers in India ever. Amazon had 40% mindshare during its 36-hour extravaganza; 35% new customers from tier II-III cities leading to 3x overall sales growth in daily essentials. This would be impossible for many of the more than 1,000 ecommerce startups without a dollar tap and access to clever tech. “The whole idea of ecommerce,” says Vidhyashankar, “is to sell directly to the consumer. There’s lot of disintermediation.
Are we excluding people from supply chain? If you are going hyperlocal, how are you benefitting local stores?” For example there are more than 20 million SMEs who make a living by supplying something to the apparel industry. “Large companies have the wherewithal to globally source products at rock bottom prices. This could kill local industries, the very businesses that Make in India seeks to expand and grow,” adds Mukherjee.
Discounts alone are breaking the back for most. Anand Khurana, co-founder & partner, Hypersonic Advisory says, “Currently its almost like reservation based rules benefitting a few players. But government has to look after interest of all players. The draft policy is in the right direction and gives industry some time to plan and respond. It will also help large companies build a viable business rather than just depend on discounts.”
Vinamra Pandiya, CEO, Qtrove says at $20 billion ecommerce is a sizeable business for rules to be laid out and policy interventions. “We have so far seen Phase 1 of ecommerce. But there are lot of grey areas. Industry will be relieved with the draft proposals.” Qtrove, a curated marketplace sells food and beverages, home décor and other products but steers clear of electronics and apparel. “Electronics is all about discounts. I have kept clear of electronics and apparel as I don’t want to fight price wars.”
YOUR DATA OR MINE?
While even local players don’t want government to get into micro management they do need help on moves like predatory pricing. Mukherjee of Limeroad, for example, believes there’s lot of Chinese dumping (via online & offline stores) in India both in electronics and fashion besides pricing gaps in online and offline stores and needs to be addressed. She cites cases of Sony Playstation PS4 available anywhere from Rs 24,000 to Rs 36,000 online and offline and or even lack of clarity on whether a fashionwear is made of polyester or poly silk. “Is it a refurbished product or a new one or what is the material? Customer needs information and its neither clear nor available,” she asks.
The draft policy envisages an appointment of a regulatory body for ecommerce besides ED to look into violations and CCI to examine potentially competition distorting M&As. “Problem is how well laws are executed. A single agency is better than multiple agencies,” says Mukherjee. Vidhya Shankar sees CCI involvement a step to avoid a behemoth like Facebook in social media which acquired Instagram, WhatsApp and is pretty much most of what is called social media.
Besides, industry executives believe that data localisation clause could hit both companies dearly. “Unlike the Srikrishna panel report (released last week), the Commerce Ministry has opted for a hard localisation clause, which is a huge setback to many of the players, including these two,” the executive quoted earlier added. The thinking, according to several industry bodies, is that the government is under strong domestic pressure to localise data and that this move is led by the telecom companies.
“The language used for localising ecommerce and, oddly, social media data exclusively in India unleashes chilling consequences on free trade and transparency. Ironically, though the draft policy talks about consumer protection, it does not mention consumer consent at all when it speaks of storing all data within the country,” says Manasa Venkataraman, lawyer and associate fellow at Bengaluru-based think-tank, the Takshashila Foundation. Access to data is a huge talking point juxtaposed with the recent Srikrishna Committee report, RBI guidelines and this draft policy. “It’s very narrow.
They’re not seeing benefits for the larger ecosystem,” says a member of an industry body, who did not want to be named. Niren Shah, managing director, Norwest Venture Partners India says, “as long as there’s parity in online and offline, do what is in the best interest of the consumer.” That consumer interest has so far left out millions of small and mid-sized companies from selling to the online shopper.