Changing E-commerce in India
The e-commerce industry has been witnessing a change in the recent times and this time around the change is an imposed one. The Government has come up with new regulations pertaining to the FDI in B-2-C e-commerce and the marketplace model.
How it all began
I believe some context is in order here. When an e-commerce giant like Flipkart started its operations it were supposed to be an inventory based model which meant that the company bought products from various manufacturers/sellers, stored the materials in the warehouse and then sold the products to the customers. The government at that time , however, had taken a stand not to allow FDI in inventory based models. Owing to these regulations Flipkart shifted to a marketplace model which did not have any clear demarcation on FDI regulations. Amazon, on the other hand, entered as a markeplace company in the first place.
What is a Marketplace you ask!
Well, a marketplace is only a connect between the seller(producer) and the buyer where the marketplace company only acts as an enabler between the two. The marketplace can be used by any seller to reach out to markets they usually wouldn't be able to, leveraging on the reach of the marketplace.
In order to reap the benefits of a marketplace model the e-commerce giants came up with a quasi-inventory-led model wherein they created separate primary sellers, viz, W S Retail for Flipkart and Cloudtail India Pvt Ltd for Amazon. These quasi sellers would buy products from the manufacturers and sell to Flipkart and Amazon respectively. Now following the concept that a company is a separate legal entity, technically speaking, the e-commerce giants were buying from a seller and selling to customers, except that the seller and the marketplace vendor both probably belonged to the same guy. Having found this route around the then government regulations these companies were able to reap the benefits of FDI while technically operating as inventory based models. However, strictly speaking, these entities were Marketplace vendors.
This model aided the companies to give huge amounts of discounts as they had plenty of investments at their dispense. This led to a war between the e-commerce giants and the brick-and-mortar store owners who were not able to match the prices that the e-commerce companies were offering.
The situation became so bad that according to the projections of the Retailers Authority of India, by 2019, the e-commerce industry would be expected to increase to 19% from 2% share in total retail in 2014. The Government had to intervene to provide a level playing ground for the brick-and-mortar shop owners.
Recent Happenings
Owing to this, very recently the Government came up with two major regulations. Firstly, the Government having specifically allowed 100% FDI in e-commerce marketplace has put a cap on the sales by a single seller for any e-commerce company. This regulation entails that no one seller can account for more than 25% of the sales of any e-commerce entity. Secondly, any company that operates an e-commerce marketplace and accepts FDI cannot in any way influence the price of the commodities they sell.
However, as predatory as these regulations may seem for the e-commerce industry, there are some companies such as Snapdeal that will benefit from these regulations as they still strictly operate under a inventory based model. So, while the brick-and-mortar store owners may breathe a sigh of relief, there is a good chance that we might not get to see another Big Billion Day for a while. It will be interesting to see how the existing market players find a way around this situation and use it to their advantage.