FDI norms on e-commerce market place will benefit brick and mortar retailers: CRISIL

The new norms on foreign direct investment in e-commerce market places that restricts sales by a single vendor to 25 per cent in the market place and curb discounts will improve profitability and cash flows of brick and mortar (B&M) retailers, rating agency CRISIL ratings said on Thursday.

The biggest offline retailers in India include Future Group, which runs the offline Big Bazaar outlets, Reliance Industries and Aditya Birla Group, which runs the More stores.

"Revenue growth for B&M retailers, especially in the apparel and consumer durables segment, should improve as pricing gradually gravitates towards parity with online marketplaces. This, coupled with expectedly greater pricing power and store productivity, will provide a fillip to profitability," Anuj Sethi, director of CRISIL Ratings said in a statement.

DIPP, while defining 10 per cent foreign direct investment in market place model of e-commerce had set conditions: the market place will not source more than 25% of its sales from a single vendor or group companies, e-commerce marketplaces will not directly or indirectly influence the sale price of goods and services and shall maintain a level playing field. In addition, the rules stipulated customer satisfaction responsibility on vendors and not market places.

India's e-commerce firms registered gross merchandise value sales of $ 13.5 billion in 2015, with 93 per cent of it by three top firms -Amazon, Flipkart and Snapdeal, Morgan Stanley Research said in a report in March.

The aggressive discounting by these e-commerce firms to get more users to try their platform had hurt the profitability of B&M retailers. Facing what seemed like an existential crisis over the past couple of years, traditional retailers gamely fought back by reorienting store profiles, increasing private labels, and sharpening focus on Tier-II & -III cities thereby improving overall operating efficiency.

A better operating environment will also mean B&M retailers will continue to focus on store additions over the next 2-3 years, CRISIL said.

"The e-marketplace sector will undergo transformation in the near term to a more sustainable business model and will focus more on optimising processes (supply chain, warehousing and overall fulfilment) from a deep discounting for customer acquisition strategy," Amit Bhave, Director, CRISIL Ratings, said.


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