 "How Flipkart's Big Billion Day turned out to be the tipping point for Indian e-tailers")
In his popular book, The Tipping Point, author Malcolm Gladwell outlines the idea of a tipping point as that “moment of critical mass, the threshold, the boiling point” after which ideas, products, messages and behaviours in our everyday lives acquire a life of their own and “spread like viruses do”.
If one has to look for parallels, Flipkart’s Big Billion Day sale on October 6 should be equivalent to a sort of a tipping point for the Indian e-commerce industry.
The advertising-fuelled, glitzy flash salepropelled online shoppinginto public consciousness like never before but unfortunately the event is now being remembered for all the wrong reasons.For one, on the sale day,India’s largest online retailer was hit bytechnical glitches. Then there were notenoughstocks to meet thedemand. The sector found itself in hot water afterauthorities also took note of the huge discounts offered inthe sale.
At the heart of the tussle is the contentionthat these websites, which definitely enjoy a cost advantage versus their brick-and-mortar counterpartsthanks to their virtual nature, may be indulging in “predatory pricing”, a practice in which a seller prices products below cost with the express intention of hurting competition, and which is not allowed by law.
The discounts offered onthe Big Billion Day, as also similar flash sales hosted around the same time by rivals Amazon and Snapdeal, were eye-popping, to say the least. Physical stores claim they do not even source their products at those levels.
But earlier, offline retailers were quick to dismiss the business strategy of their online peers (of focusing on increasing their sales and converting more people to their medium - without paying attention to profits) as a temporary move backed by easy foreign capital, and one which would fizzle out over time as dynamics of the market catch up. It is to be noted thatthe e-commerce sector forms just1 percent or$4 billionof the$500 billion Indian retail sector.
It now appears that before investors, currently lured by the fast-growing nature of their business (loss-making as they are), force them to think about turning in profits, it is the government that step in.
In the latest development, the Retailers Association of India, an umbrella body of retailers that has big boys such as Reliance Industries, Aditya Birla Group and Bharti, among others, has written to the government to look into pricing practices of e-commerce sites.
While the government has not yet announced any formal investigation specifically with respect to the charge of predatory pricing, commerce minister Nirmala Sitharam did concede, in the wake of the Big Billion Day sale, that the government had received complaints from traders against it.
E-tailers, most of whom follow the marketplace model of merely serving as an online meeting place for buyers and sellers, do have an explanation: they are not responsible for pricing practices of individual sellers and cannot be faulted for it.
But such explanations may not wash should the Competition Commission of India initiate a deeper probe. There have been reports that at least some of the discounts on products sold by Flipkart during its October 6 flash sale were borne by the firm and not the vendors. It will not be surprising if other websites too are found indulging in the practice.
Such complaints could force the government to come out with clearer rules on such practices and potentially put a curb on them - even as it means fewer discounts for end customers.
If nothing else, the bigger offline retailers are already working their clout with consumer electronics companies, to threaten the websites to back off. In recent reports, companies such as LG, Samsung and Sony have explicitly said they would not honour warranties for products sold online.
In short, the Big Billion Day sale turned out to be a tipping point for the India e-commerce sector for all good and bad reasons.
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