Retailers hail government’s amendments to ecommerce policy
They say that all’s well that ends well. And spending a year protesting about predatory business practices and deep discounting adopted by larger ecommerce players, offline and SME retailers can end 2018 on a pleasant note.
Through a press note dated 26th December 2018, the government issued clarifications to the policy related to E-commerce Market Place, originally issued on 29th March 2016. As per this, e-commerce firms were barred from selling products of the companies in which they have equity stakes or management control. It also forbid e-commerce companies from entering into an agreement for exclusive sale of products. These measures would be implemented with retrospective effect from 1st April, 2019.
According to Harminder Sahni, Founder of Wazir Advisors, the government has made it amply clear that it will not allow FDI into ecommerce retail at all. This was quite clear in the previous policy too, but certain loopholes in the language left it open to interpretation.
“This was always the government’s intent, but now it has put it in as many words that no foreign company should be involved in ecommerce in India. If tomorrow, any Indian company sets up an online store they will be allowed to give discounts,” he opined.
TIME TO REJOICE
Traders bodies and retailers across the country have welcomed this move, where deep discounting, exclusive partnership between brands and online players and positioning of self-owned private labels by ecommerce portals was becoming rampant. Offline retailers were badly affected by these moves and saw their business drop drastically.
Ishita Gala, MD of Mumbai-based Suumaya Lifestyle said saw this in her business and said that heavy discounts and cashbacks had impacted the offline market, with customers increasingly shifting to online to avail these attractive options. “To deal with this, we maintained a single pricing policy for online and offline and did stock bifurcation for online and offline so that the right kind of discount could be offered to consumers,” she noted.
Pradeep Singh, MD of Delhi’s Tipsy Lingerie said that while the online discounts were a big lure for customers, not all was kosher in the business. “Many times, we have seen online players offer discounts on old stock or out-of-season inventory. In retrospect, many small suppliers dump their out-of-season stock on online portals by selling it with heavy discounts,” he pointed out.
A LEVEL PLAYING FIELD
As Tipsy Lingerie increases the percentage of its business on online marketplaces, Pradeep believes that the government’s decision is highly beneficial as it will create a level playing field for online and offline retailers.
Abhishek Tibrewal, Director of Coimbatore-based Crusoe, another lingerie brand, too felt that this move will create a level playing field between offline and online retailers, as well as those retailers selling online and competing with ecommerce portals themselves. “The heavy online discounts were virtually killing offline retail business. Now there is some amount of control mechanism from the government,” he said. In fact, with almost 5% of Crusoe’s business coming from online marketplaces, he has already decided that he will not permit online players to offer discount on the brand’s products.
A NOTE OF CAUTION
While delighted with the government’s move to ease matters for offline and SME retailers, Ishita felt that it would be tough for the government to completely stop online discounting. “However, this move by the DIPP will help create level playing field for ecommerce and online players. Ultimately, it is up to every company to decide how to treat their online and offline market,” she added.
Harminder Sahni too is doubtful how the changes in the FDI policy can stop online discounting and address concerns of small and medium retailers. he argued that if smaller retailers are affected by international etailers, they will be equally impacted by domestic players. If the government decides to control discounts, then this will be seen as intrusion into private business.
“We can agree or disagree with this policy, but ecommerce marketplaces are run by technology platform providers. If the government tells Amazon or Walmart that you are not a retailer, but a technology company like SAP, IBM or Infosys, it is then up to Amazon and Walmart to define whether they want to be in the technology business or retail business,” he pointed out.
Devangshu Dutta, Chief Executive of Third Eye Sight does not believe that a level playing field can truly exist between competitors with disparate sizes and sophistication. He felt that large companies have more financial and human resources available to handle market complexities, absorb regulatory changes, and sustain loss-making initiatives, which smaller retailers lack.
“In India, the ecommerce sector has grown on the back of capital investment pumped into advertising, creating logistical networks, providing discounts and attractive deals to consumers. For physical retailers, aggressive discounting by ecommerce companies has been a major complaint for several years. Adding to the mix, is the fact that most of the capital has come from foreign sources. While both UPA and NDA governments have been caught between the need to attract FDI and looking after wider domestic interests, in an election year immediate domestic concerns would take precedence in any democracy,” he opined.
He added that the press note has made this intent very clear, where it mentions that 100% FDI under automatic route is permitted in marketplace model of ecommerce but FDI is not permitted in inventory based model of e-commerce. This means that FDI is being welcomed as an enabler of the domestic business ecosystem, not as a replacement of it.
For now, retailers can bask in the knowledge that the ecommerce journey has gotten a little smoother, but not entirely easy.