Are Flipkart, Amazon, et al flouting govt rules by offering discounts?

Online marketplaces are screaming discounts, again, be it Flipkart, Amazon, Snapdeal and others. Offers are available in every category imaginable online.

In a bid to provide a level-playing field, the government while allowing 100 percent FDI in e-commerce had stated that, "E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field.”



In other words, e-commerce companies were not to offer deep discounts to buyers, a strategy they had perfected in order to wrest the customers from the brick and mortar retailers.

After the rules were put in place, for the last three months or so, there indeed was a lull in discounts. But online marketeers seem to be back to their old ways, if the present spate of discounts are any indication. And the offline retailers, who had hailed the government's rule, aren't happy. These discounts, they say, are difficult to match.

The Retailers Association of India (RAI), a not-for-profit organisation, is watching the developments and has already brought it to the notice of the government, says chairman Kumar Rajagopalan. “The intent of the government was to offer a level-playing field for online and offline players and to ensure that the former did not compete with the latter. Marketplaces are here to help retailers and not compete with them. But by coming out with a discount scheme, they are doing just that,” he pointed out.

However, Abheek Singhi, retail analyst, Boston Consulting Group (BCG), counters Rajgopalan stating that discounts are being offered by both online and offline retailers during the monsoons as this is a low period for retail. “The online retailers have timed the sale with the offline retailers. So in that sense, it is a level playing field," he says.

Myntra is not a conventional `marketplace’ as it sells its own brands and also other brands. It is like a conventional departmental store like a Shoppers Stop for instance, says an analyst.

"We should wait and see what the large horizontal undertaking (read Amazon, Flipkart, Snapdeal) are up to. As long as the marketplaces themselves are not offering a discount over and above what the dealers are, then they are not violating the rule," says Singhi.

But that is a matter of semantics. The online marketplaces can pass the buck to the retailer and vice-versa. The government circular, which is clear in this matter, is being flouted if the marketplaces are offering discounts themselves. That is also because, says Rajgopalan, the online players believe that no action will be taken against them. “All that RAI can do is appeal to the government,” he says.

But who is to say that online marketplaces are flouting the law?

Anil Talreja, Partner, Deloitte Haskins & Sells believes that in today’s age and time, no marketplace will risk it by circumventing the law. “No one can violate the law. The nature of the discount and who is giving it and bearing it (discount) can be checked,” he says.

Online vs offline

Online players are rapidly gaining ground and offline players are jittery about the former’s growth. What is calculated to ascertain the former’s growth is GMV or gross merchandise volume to indicate a total sales value for merchandise sold through a particular marketplace over a time frame. Yet, GMV per se is not the exact right metric though it is a popular one.

Going by GMV figures, India’s retail market is around $500 billion while the online share was at $10 billion in 2015 and is expected to be in the reach of $18-20 billion in 2016.

China, had a retail market of around $650 billion in 2015 and is expected to be worth $10.3 trillion by 2018, compared with the $5 trillion in sales projected for North America, according to a PwC report. The overall market of retail in China is about $2 trillion.

The discount game

A discount being offered online is a tricky affair. For example, if someone who has a brand store on Amazon and decides to launch a discount and Amazon publicises it, then it is not a discount being offered by the marketplace. So within the current rules, what Amazon is doing is permissible.

On Flipkart, some brands have brand stores and if they themselves discount it, it is fine as per existing rules. Historically, the issue is how much is the brand discounting and what is the online marketplace offering on top of it, if it is.

Singhi says it is difficult to code 'discounts'. “What will you consider discounts? The ones that are end-of-season sale versus liquidation of stock sale?”

Many times, says a stylist, what is being offered in fashion, especially, is that brands sell what was in season last season. So unless there are standard stock keeping units (SKUs), there is no way to trace the anomaly. This is easy to do so with regard to consumer electronics, but when there are 1000s of SKUS in apparel, it is difficult to establish it.

Similarly, discounts offered by a brand to a store differ from another. Then, it becomes difficult to establish the base line.

Singhi says it would be interesting to watch Diwali discounts. The notification is very clear about funding of discounts. The horizontals should not fund the discount. As long as they are not doing it, they are in the clear, he says.

“My sense is that some of the brick and mortar retailers will highlight them and we will have clarity on rules and measurability,” said Singhi.

There are other ways of luring the customer. Vikas Kumar, Corporate Lawyer, says that it is possible that discounting models that are not linked to a retailer, but directly rewarding customers may become popular. For example, a marketplace may reward a customer if the individual refers a new customer. In such a model, customer behaviour is not influenced through discounted pricing of a particular good; but a direct benefit is passed to a consumer. Effectively, discounting may become directly consumer facing, he says.

Until marketplaces themselves come out clearly regarding the pattern of discounts, the offline players can only wait and watch.

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Updated Date: Jul 05, 2016 15:46:16 IST

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