It was not the kind of news Amazon and Flipkart would have liked to hear in the run-up to the New Year. On December 26, the Modi government announced a new foreign direct investment policy to protect the interests of small retailers, who accuse online marketplaces of predatory pricing and deep discounting.
From February 1, sites such as Amazon and Flipkart are barred from giving preferential treatment to particular vendors and brands, and promoting businesses in which they have a stake.
The mood among small traders in Bengaluru is cautiously optimistic.
Mohammed Imran, store manager at i2i Computer Shop, Church Street, says he will wait and watch. “If these norms are permanent, they could make a difference,’’ he says.
Things have gone downhill for smaller businessmen like him since e-commerce picked up, by his own admission. “I’ve lost customers at the last minute because of offers like cashback provided by e-tailers,’’ he says.
Smaller retailers do not have the luxury of large inventories, even if their margins are slightly larger than those of e-tailers. “When online platforms came up, we lost about 50% of our business. I think with this, about 15% might come back,’’ he says.
Another shopkeeper, who sells footwear and accessories on Church Street, says the regulations might not turn around their fortunes.
“They are big players. Their discounts are really attractive to customers. They will find some loopholes in the law,” he says.
Bharath V Rao, marketing manager for phone brand Oppo, believes the new rules will ensure a level playing field for all.
“Customers compare store prices with online ones. The online prices are cheaper; there is a difference of almost Rs 1,000 to 2,000 when it comes to phones. With the new regulations, the prices could be the same online and offline,” he says.
With brands like Oppo, the prices are the same online and offline, but online stores announce festive offers, bank discounts and cashback options on platforms like Paytm. “With these new regulations, we may lose out on exclusive launches online,” he says.
Retailers like greeting cards and toys brand Archies also see this as a positive step.
“These measures are necessary as the market has been spoilt with unrealistic offers provided by online stores. We sold our products online, but we stopped because we had to sell them at a higher rate. The rules will usher in healthy business practices,’’ says Ramesh Chandiramani, partner, Archies. However, he feels there will be loopholes and it will be difficult to equalise the prices between online and offline stores.
No more acche din for buyers?
It is not clear yet how the new regulations will pan out, but consumers may enjoy fewer discounts on electronics, personal tech, phones, and fashion.
In a retail festive face-off, Amazon and Flipkart offer attractive discounts, cashback on bank debit and credit cards, EMI options and instant credit.
They see massive sales. This year, the two companies reportedly generated a massive Rs 15,000 crore in sales over five days of the Deepavali sales, 64 per cent more than the sales volume the previous year.
Not just discounts, retailers face other hurdles while competing online
A garment stall owner at the recently concluded Cake Show in St Joseph’s PUC grounds told Metrolife he tried selling his products online but had wound up soon after.
“It wasn’t just the deep discounts that we had to compete with; customers cheated us too,” he says.
Once a woman bought an outfit from his store and returned it after two days, saying she wasn’t satisfied.
“When I got the packet back, I was sure the outfit had been worn. I had her number so when I checked her WhatsApp picture, and saw a picture of her wearing the dress. But we couldn’t say anything; we can’t offend customers as they can badmouth us on social media,” he says.
What new rules say
Big e-commerce players like Amazon and Flipkart cannot sell products of companies in which they hold equity stake. They now source a big chunk of their goods from preferred vendors, such as Cloudtail and WS Retail.
Sale of products exclusively in one marketplace is barred. This means product launches on just one site will no longer be possible. For example, you may no longer find a phone launch (usually accompanied by special discounts) on just one site.
Online sellers must maintain a level playing field, and ensure they do not directly or indirectly influence the sale price of goods and services. In other words, they can’t push their own products at the cost of others. The rules will come into effect from February 1.