November 20, 2017

This may be the biggest threat to India’s e-commerce industry

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This may be the biggest threat to India’s e-commerce industry

Rasul Bailay & Chaitali Chakravarty|

India’s e-comm players are disunited, even when they are confronted with a constricting set of central government rules
· Recently, Flipkart, Snapdeal refused to sign Amazon-sponsored letter on government rules
· Such sniping is common and the contrast with the offline retailers’ lobby group,Retailers Association of India
Amazon, Flipkart, Snapdeal, ShopClues and others face a determined and united brick-and-mortar retailers’ grou… Read More
NEW DELHI: It should have been like K Street (a US TV series on powerful lobbyist firms). But it’s become Game of Thrones (another US TV series, on powerful royals fighting each other, not realizing there’s a bigger danger).

India’s e-commerce blue chips are disunited and fractious, even when confronted with a constricting set of central government rules – the April-announced policy on e-tailers and marketplaces – and various state-level taxation threats.

This is a more serious fight than Twitter put-downs, for example, those exchanged byFlipkart ‘s Sachin Bansal and Snapdeal’s Kunal Bahl.

Amazon, Flipkart, Snapdeal , ShopClues and others face a determined and united brick-and-mortar retailers’ group, Retailers Association of India (RAI), but the stars of e-commerce can’t lobby the government with one voice. And the impact of this on the e-tailing business is at best uncertain.

ET spoke to a wide range of people from the e-commerce industry for this story. Many of them spoke on the condition they not be identified. Amazon and Flipkart did not respond to questions. Snapdeal responded, saying the company is working with all stakeholders on all important issues. “Brick-and-mortar retailers are a huge cartel, they will not even sell a bottle of water below an agreed price, unlike us,” a senior executive at a top e-tailer told ET, explaining the basic difference in online and offline retail trade.
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Radhika Aggarwal, co-founder of ShopClues.com, which gets funding from Tiger Global and Nexus Ventures among others, has a sharp take: “This is like the Game of Thrones as every house is trying to consolidate according to its strength. We are a fragmented lot.”

The fragmentation can be striking. Early April, Amazon got the lobby group Internet and Mobile Association of India (IAMAI) to draft a letter asking the government for six months’ moratorium on the marketplace policy’s implementation. But Flipkart and Snapdeal refused to sign it. People familiar with this matter told ET that the e-tailers promoted by Indians refused to sign because they thought US-based Amazon would benefit most from a policy postponement. IAMAI did not send a letter.

That a lobby group could not even send a united petition is remarkable, say those knowledgeable about government-industry relations. A senior executive of a large e-tailer was candid: “It is true we hate each other, it is beginning to hurt. There should be a joint, concerted effort. Why are brick-and-mortar players successful in lobbying? Because they speak in one voice.”

Divisions among etailers are getting sharper. Amazon CEO Jeff Bezos, as ET reported, had lobbied Prime Minister Narendra Modi when the latter visited the US earlier this month. Bezos reportedly asked for a hybrid model for foreign promoter-backed e-tailers.

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A hybrid model would allow online retailing where a platform sources, stocks and sells merchandise itself while also allowing other retailers to sell through it.

Flipkart and Snapdeal are ferociously opposed to Bezos’s idea, four senior executives from these two companies told ET. Homegrown etailers say they reckon Bezos will find it tough to get his way but if he does, Amazon can pose a huge threat.

“Amazon wants FDI in hybrid model so that they can embark on a scorched earth policy by discounting indiscriminately which no player will be able to counter because no one has excess cash to burn any more,” says a person familiar with Flipkart’s thinking.

He also explained Flipkart’s constraints: “Flipkart is pivoted to marketplace model now even if purely by default. If they have to go back to the inventory model, it will be a gut-wrenching change which the company won’t be able to bear. Amazon on the other hand is a veteran of the inventory model globally and would welcome it.”

Homegrown e-commerce stars happily point out to Amazon’s “struggle” to comply with the new rules of online marketplace – any venture that has FDI cannot have any one vendor selling more than 25% of total sales by value. Senior executives of these e-tailers claim Amazon’s joint venture entity, Cloudtail, currently sells well above the 25% threshold.

Such sniping is common and the contrast with the offline retailers’ lobby group, RAI, cannot be starker – two cases have been filed by brick-and-mortar retailers since May last year accusing e-commerce companies of circumventing Indian laws and it was those lawsuits that forced the government to write the new online marketplace rules.

More’s on the way. RAI members, ET has learnt, are investigating what they see as noncompliance of e-tailers with new marketplace rules. RAI is updated by its members about e-tailers’ special deals, pricing behavior and discounts.

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A RAI member recently sent a screenshot of the Indian cricket team’s cap being sold at a 60 per cent discount on Amazon.in and of a Samsung Galaxy Note 4 smartphone being sold on Flipkart for Rs 29,900, at 18 per cent discount to the original price. Under the new rules, e-commerce companies are not allowed to give any discounts. The marketplaces say it is the sellers that are offering products at discounted prices. RAI is compiling what’s essentially a chargesheet against India’s e-commerce stars. But the stars themselves are not even getting together on existential issues.

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Here’s a glaring example. Many e-commerce executives and industry observers say the new set of rules doesn’t offer clarity on whether marketplaces can promote themselves. United lobbying would have helped e-tailers get an answer and probably a way to promote themselves. But disunited, no individual e-tailer is willing to risk promotion, lest the united offline retailers’ lobby group come after it.

RAI’s CEO Kumar Rajagopalan is scathing on India’s e-tailers. “Their issues are same as retailers but they don’t want to call themselves retailers that is why they are like illegitimate children of the same industry. They are not willing to recognize their parents because if they tell who their parents are they will be jailed.” Faced with such an aggressive and purposeful rival, India’s e-tail majors are finally thinking of some united efforts, but these are plagued by the instinct to go alone.

So, as senior executives from e-commerce space said, while Flipkart, Snapdeal and Amazon are thinking of joining hands under Nasscom and petitioning the government on allowing marketplaces to promote themselves, they are fighting separate legal battles despite having the same grievances.

In April, Flipkart challenged a Gujarat government entry tax on goods etailers deliver to the state from outside. Amazon challenged the same tax in early June.

Brick-and-mortar retailers, despite being promoted by powerful corporate entities such as Reliance Industries and Aditya Birla Group, would have most likely mounted a joint legal challenge. India’s online retail stars continue to play the costly and potentially bloody Game of Thrones.

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