Flipkart's legal spat with GOQii: Predatory pricing benefits net-savvy consumers but hurts small traders, offline shoppers

GOQii, an Indian startup having 19 percent market share in the fitness wearables market, sued Flipkart last month in a Mumbai court, alleging its devices were discounted by around 70 percent to the retail price, much more than what the two sides had agreed to. GOQii’s dispute with Flipkart centres around two of its wearable devices that allow users to track exercise measurements, such as the number of steps walked, or heart ratesThe case is coming up for hearing on 7 June (today).

The petitioner has won the first round, as it were, by obtaining an order at the admission stage itself asking Flipkart to remove the impugned products from its website. Swadeshi Jagran Manch, bricks and mortar players and,  small sellers on foreign-owned e-commerce platforms have been saying precisely this---companies such as Flipkart and Amazon deeply discount some products by burning billions of dollars to lure customers onto their sites in the expectation that they will also buy other goods. For a predator, such discounts are ‘investments’ to be taken in their stride in the hope they will bear fruit soon.

The GOQii case could snowball and gain traction among others who felt done in by the predatory practices of deep-pocketed foreign e-commerce majors. The All India Online Vendors Association told Reuters in a statement that it plans to file a plea in support of the GOQii's case against Flipkart on behalf of 3,500 online sellers it represents.

GOQii avers the firm signed an agreement in September 2018 with a Flipkart unit, allowing it to sell the two GOQii devices at a price not below Rs 1,999 and Rs 1,499 after discounts but last month found Flipkart's website showing the devices on sale for Rs 999 and Rs 699. Naturally, its wholesale bricks and mortar buyers voted with their feet and cancelled orders for 5 lakh wearables as it affected the firm's brick and mortar business.

 Flipkarts legal spat with GOQii: Predatory pricing benefits net-savvy consumers but hurts small traders, offline shoppers

Representational image. Reuters

Wal-Mart could be singed if it loses the case because it has bought 77 percent stake in Flipkart for a mindboggling $16 billion a year ago. India’s e-commerce policy allows FDI only when the investment is in a marketplace model that precludes stocking of goods belonging to the sellers selling through its website as well as exclusive sales. To close the loophole that was available till recently, from 1 February 2019, foreign-owned e-commerce portals were also barred also from selling products of firms and companies in which they have made even a minuscule investment. It is this amendment that could hurt Wal-Mart and Amazon more than anything else. Indeed Wal-Mart could well have not gone ahead with its purchase of controlling stakes in Flipkart had it known that the government was about to close this escape route through subsidiary and associate companies.

GOQii’s case is one of Flipkart allegedly trying to circumvent the rigors of the marketplace model by cleverly interposing its own subsidiary or group company. GOQii’s contract was with such a group company that in turn sold through the Flipkart website. Of course, consumers have been having a field day with Flipkart and Amazon. They have been making the most of such deep discounts offered at the expense of the deep-pocketed foreign companies. They know that the party won’t last long. The ones hurt most are the bricks and mortar stores including the big ones like Reliance and Big Bazaar who cannot match the foreign firms in a slanging match of burnout. The small online sellers using Flipkart and Amazon marketplace are also outcompeted because deep discounts are offered only on select brands sold on a large scale through e-commerce platforms.

It would be in the fitness of things if the Supreme Court intervenes suo motu and orders a comprehensive hearing by the Competition Commission of India (CCI) so that the matter is settled once for and all. Predatory pricing is inimical to competition though consumers enjoy deep discounts until it lasts. It hurts the small sellers more who operate on small margins. The dictum, if you cannot beat them, join them cannot be followed by them as it is not possible for mom-pop stores to become net-savvy and sign up with e-commerce portals in a short span so as to sell through their platforms. Indeed, they would be outcompeted in the same online platform in the face of deep-discounts offered on the same product by a rival.

The truth is not all consumers are net-savvy even as it is true online purchases are growing at a scorching pace. But online purchases by consumers accounted only for 12 percent of the total retail purchases in 2017 as per a Deloitte study, which is expected to grow to 25 percent by 2021. In other words, the field is not level for small retailers on the Indian landscape as well as for the small consumers, especially the ones not yet touched by the Smartphone revolution.

(The author is a senior columnist and tweets @smurlidharan)

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Updated Date: Jun 05, 2019 14:26:32 IST