Last October, when Flipkart launched Big Billion Day, it sold over 10 lakh products in a matter of 10 hours, with 25 items being sold every second. Around the same time, Snapdeal launched its Home Bonanza Sale as a run-up to Diwali. Reportedly, the company received around 65 orders per minute back then. Not to be left behind, Amazon followed suit, selling more products in the fourth quarter of 2015 than in all four quarters combined in 2014. A year earlier, when Flipkart had come out with its Big Billion Day, it had reported 1 Bn hits on the site in one day, and stated that it sold goods worth $100 Mn within 10 hours.
At that time, concerns had been raised by trader associations as to how these ecommerce players are offering such huge discounts for these sales. Even Future Group’s Kishore Biyani had expressed resentment against these ecommerce players for selling products below manufacturing prices and thereby effectively destroying competition. Yesterday, with DIPP formalising guidelines on ecommerce, which will apparently limit discounting by marketplaces, the offline trading community seems to be a happy lot. So is Biyani, who told TOI,
This was needed. They will now not only stop giving huge discounts but also perhaps not advertise openly about big sale days. This will call for change of business model.
Leaving no room for ambiguity, the new guidelines have clarified definitions of ‘ecommerce’, ‘inventory-based model’ and ‘marketplace model’, and have formalised permitting 100% foreign direct investment in business to customers (B2C) in marketplace model ecommerce. In addition, it also explicitly spoke on limiting discounting and capping sales from one vendor. These two guidelines state –
- An ecommerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.
- Ecommerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
More Sellers, Less Discounts?
The first guideline will affect the likes of biggies like Flipkart and Amazon. Flipkart’s largest seller WS Retail Services Pvt. Ltd accounts for more than 25% of the company’s sales, while Cloudtail India Pvt. Ltd, the biggest seller on Amazon India, contributes even more, sometimes generating at least 40% of the company’s sales in some months, as per a Mint report. Cloudtail India Pvt. Ltd, a joint venture between Amazon.com, Inc. and N.R. Narayana Murthy’s Catamaran Ventures, is particularly dominant in electronics and fashion sales.
These new regulations imply that both Flipkart and Amazon India may have to find new seller entities on their platforms. This could be somewhat restrictive as noted by Nasscom,
We believe that restricting sales of a vendor to only 25% of the sales in the marketplace may prove to be restrictive, more so if the vendor sells high value items. The industry might face difficulties in case of sale of electronic items, where, maybe, a vendor is offering exclusive access to certain items or discounts.
Nasscom added that marketplaces have no control on how a product is priced and that they only organise ‘sales’, where vendors participate. “This offers consumers with a variety of choices and also attractive prices. We hope that such consumer-friendly practices, similar to ‘sales’ being offered by retailers, will not be restricted,” the statement said. That makes one ponder if the government has bowed down to the offline traders’ lobby?