Is Regulating E-Commerce the Way to Go?
Since sales of most categories have been flat or have declined this year, Diwali was a crucial period for the retailers to get back on track with the ongoing festivities. As per initial reports post-Diwali, the festive season did manage to benefit the trade for about 7 to 9%, it did that for only few retail sectors. While large retailers and ecommerce platforms performed well during the festive season, small traders and retailers continued to witness tepid demands.
While the traditional brick and mortar stores were suffering, Amazon and Flipkart huge business with their never-ending waves of ‘Diwali Sales’. Whenever one sale was over, there was another one waiting to start. They offered big discounts which choked the margins of small retailers. They captured easy profits in Tier II and Tier III cities, where small retailers don’t have access to all brands and consumers go online to get anything they need. So, their mantra is wider availability and discounts. This marks a change in consumption habits.
What’s the fuss all about?
Traders are blaming e-commerce companies for their poor sales, and demand that the government prevent them from offering big discounts.
E-commerce is a fast-growing sector of the Indian economy, witnessing a growth of more than 30% per annum. However, at present its size of about $24 billion is a small chunk of the total $672 billion retail industry in India. By 2021, its share is expected to reach about 7% of the total retail market from the 3% it enjoys today.
The thing to be concerned about these companies, minus their predatory pricing, is the lucrative discounts offered by their in-house brands like Amazon Basics. Calling them a marketplace is merely an understatement as they promote their own products via optimisation and discounts. From flooding the market with their ‘exclusive’ products, to becoming the sole sellers of specific branded products also gives them the entire chunk of that product’s market share.
E-commerce sales in China amounts to more than 35% of the retail market with Alibaba controlling over 50% of that segment. Unlike India, the biggest beneficiaries of the e-commerce revolution are Chinese companies. From top to bottom, the entire ecosystem is controlled by local entities.
China created behemoths like Tencent and Alibaba. Why can’t India do the same instead of being cannon fodder for Amazon and Walmart? Even Flipkart, the Indian answer to Amazon is now owned by the world’s biggest retailer, US based Walmart.
Verdict
As a nascent e-commerce market, India needs to ensure that the regulators steer the industry in a manner which benefits all. Foreign firms which have access to seemingly unlimited capital fight unfairly with local companies. Deep discounting affects the margins of local operators the most as they cannot afford to absorb losses. Further, the consumer isn’t aided by the lack of choice when local players are forced to shut shop or be sold at throwaway prices. Just this week, Shopclues, which was earlier valued at over $1 billion was sold to Singapore based Qoo10 for between $50 and $80 million.
Predatory pricing and other unfair business practices have helped online marketplaces acquire customers, while small players continue to be victims of a prolonged move to consolidate India into a duopoly (or a monopoly, if Amazon has its way). There is an urgent need to restrict the growth of these entities in order to level the playing field for Indian businesses. This will allow innovation to thrive and ensure that the next generation entrepreneur isn’t dissuaded from pursuing their dreams just because winning is not viable in a market so heavily dominated by just one or two foreign companies.
