It's traders vs Amazon, Flipkart over online prices & a level-playing field

Online and offline retailers in India have been at loggerheads with each other for long. But the chasm appears to have widened in recent months, as the consumer slowdown gets worse and purchase baskets shrink.

Market research agency Nielsen has lowered its growth forecast for the consumer market in the October-December period to low-single digits from mid-single digits in July-September, saying sentiment remains weak.

Traditional traders, especially, small retailers, corroborate the view, saying deep discounting, online-only launches by manufacturers and a growing preference for e-commerce in the value chain has further vitiated the atmosphere, resulting in a sharp decline in business for them.

National traders body Confederation of All India Traders (CAIT) will begin an agitation this week against Amazon and Flipkart as they harden their stand against e-tailers.

“This year’s festive season has been very bad for small retailers and even larger stores across the country,” says Praveen Khandelwal, general secretary, CAIT.

“While the consumer slowdown has impacted business, what has made matters worse is the lack of a level-playing field for us. Since September-end and into the month of October, there were multiple online festivals held by e-tailers, where products were sold at deep discounts to consumers. Business has suffered as a result for traders,” says Khandelwal.

According to market research firm RedSeer, e-commerce players including Amazon and Flipkart had clocked $3 billion in gross merchandise value (of goods sold) during the six-day festive sales it ran at the start of October. By the end of October, both firms, RedSeer estimated would have doubled GMV to $6 billion, given that festive sales continued through the month on both platforms.  

Khandelwal argues that deep discounting by e-tailers has happened in violation of the foreign direct investment (FDI) rules for the sector that were implemented earlier this year. The rules stipulate that marketplace entities cannot buy more than 25 per cent from a single vendor nor can they offer products from sellers in which they hold an equity stake. They cannot manipulate product prices and offer deep discounts or push for exclusive launches.

The head of a popular electronics retail chain that has stores in Mumbai, Delhi and other parts of India says that festive sales picked up during the five-day Diwali week only, stretching from October 25-29.

“Earlier, people would come out to shop around a fortnight before Diwali. This subsequently came down to about seven days before Diwali. This year, we saw footfalls during the Diwali week. These were the last-minute shoppers who had missed out on the online sales of e-tailers. Though we were able to make the best of this rush, this trend is not good,” he says.

Experts have argued that it is impossible to turn the clock back as far as retail growth goes in India. "Let market forces decide which part of the business deserves attention,” says Harish HV, managing partner, Ecube Investment Advisors, who has observed the growth of e-commerce closely in the country, both as a consultant and investor.

“Traditional trade is a significant part of the retail market here. However, consumer preference for e-commerce has been growing in India over the last few years. Convenience has been a key reason besides price. Also, the cost incurred to set up and maintain a physical store doesn’t exist as far as an online platform is concerned. These gains are passed on to customers,” he says.

At the India Summit of the World Economic Forum last month, US Secretary of Commerce Wilbur Ross admitted during a debate on trade partnerships that e-commerce resulted in lower prices for consumers.

"If a hundred years from now, India still has as many small retailers as now, it would hold back the growth of the country immensely," he said.

But Ross’s counterpart Piyush Goyal, India’s Commerce and Industry Minister, believes small retailers require protection from large players, flush with capital from global investors and multi-national companies. Walmart paid $16 billion to acquire Flipkart last year, while Amazon has committed $5.5 billion for the India market.

“Around 120 million are dependent on small retail here. There are 50-60 million small shops across the country. We welcome all e-commerce companies to work in India as an agnostic platform. However, they cannot become platforms that engage in predatory pricing, putting small retailers out of business,” he said at the WEF summit.

Estimates by audit and consultancy firm Deloitte peg the current size of the total retail market in India at $850 billion. Of this, traditional trade is around 88 per cent, while organised or modern trade is around 9 per cent and e-commerce is around 3 per cent.

In the next three to four years, Deloitte says the total retail market in the country will touch $1.2 trillion in size, led by growth in e-commerce. From 3 per cent, e-commerce will constitute nearly 7 per cent of the total market. Traditional trade will shrink to 75 per cent, while modern trade will double to 18 per cent.

Anil Talreja, partner, Deloitte India, says online and offline retailers will have to co-exist. “Both consumers and brands are happy. I don’t see what the debate is about,” he says.

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