Ecommerce FDI Rule: Amazon, Walmart Lose $50 Bn In Market Cap, May Adopt Subsidiary Route

With the new ecommerce rules in place from February 1, Amazon and Walmart’s have together lost $50 Bn in market capitalisation.

While Nasdaq-listed Amazon’s shares fell by 5.38% to $1,626.23, losing $45.22 Bn, Walmart’s share price fell by 2.06% to $93.86 on the New York Stock Exchange, losing $5.7 Bn in market capitalisation. At the close of trade on Friday in the US, Amazon was valued at $795.18 Bn while Walmart was at $272.69 Bn.

Amazon had made a commitment to spend $5 Bn in India while Walmart acquired Indian ecommerce unicorn Flipkart for $16 Bn in May 2018.

On January 31, the freshly renamed Department for Promotion of Industry and Internal Trade (DPIIT), rejected requests by leading ecommerce giants — Flipkart and Amazon — to extend the February 1 deadline for the changes advised in the Press Note 2 of 2018 series on FDI policy in ecommerce.

The rules notified on December 26, 2018, indicate:

• Ecommerce companies can enter into transactions with sellers only on a B2B basis
• They will not exercise ownership or control over the inventory
• Cash back provided by group companies of marketplace entity to buyers shall be fair
• Ecommerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only
• Categorise sellers who drive more than 25% of their overall sales from a single marketplace as entities of that marketplace and bar them

This means that Amazon’s monopoly with two of its main seller entities –  Cloudtail (a joint venture with Narayana Murthy’s investment firm Catamaran) and Appario Retail (a joint venture with the Ashok Patni family office), is now in jeopardy.

Flipkart And Amazon India Rush To Comply

As per reports, since February 1,  Amazon and Flipkart, have seen as much as a third of sales volume disappear on their platforms. They have also started minimising #Exclusive tags on their platforms.

At the same time, the etailers have reportedly told their exclusive partners that even though they won’t be able to mandate exclusivity, the business will run as usual as the brands can still choose to be exclusive to them, as they are free to adopt their channel and sales strategy.

However, online sellers group, All India Online Vendors Association (AIOVA), said that new sellers similar to Cloudtail and Appario were seen selling the same products and at the same prices.

Apart from this, rumours are also rife that ecommerce majors are now looking to set up a chain of subsidiaries. This will allow them to create a list of new vendors which do not violate the Companies Act as well as Press Note 2 which bars equity participation by foreign-funded companies, or their respective group companies, in the sellers on their platforms.

Amazon is also said to be looking at converting Cloudtail and Appario into wholesale entities undertaking business-to-business (B2B) transactions. Both entities will then sell to a third party, preferred vendors that will undertake final sales to consumers.

According to a Crisil report, 35-40% of e-retail industry sales, amounting to $4.89 Bn – $5.6 Bn (INR 35K Cr to INR 40K Cr) could be impacted due to the tightened policy.