No groceries at Amazon, no replacement of products through Cloudtail; big e-tailers will wriggle their way through

  • Sellers such as Cloudtail India, Export LLC, Appario and Amazon Retail India (ARIPL) will temporarily be unavailable on the Amazon marketplace

  • The main issue with the e-commerce marketplace is the discounts offered

  • But taking away discounts from the big players do not really help the small traders

The government revised guideline for e-commerce effective 1 February is pinching consumers and e-commerce majors. It is not apparels or the gadget that you can't buy at a discount as earlier from Amazon or Flipkart that is affecting people as much as convenience items like groceries, for instance. Amazon consumers are letting their grievances heard on Twitter.

Pantry, Amazon's grocery service, has been temporarily suspended, reported Bloomberg.  Not just that, now even products bought from Cloudtail India, Appario -- Amazon's two largest sellers, won't be taken back. That was the convenience of online shopping, after all—buying products at a discount, delivered in the comforts of one's home and replaced if the customer is not happy with the purchase. However, Amazon has said that these changes are  temporary".

"Starting 1 February, 2019, FBA sellers such as Cloudtail India, Export LLC, Appario and Amazon Retail India (ARIPL) will temporarily be unavailable on the Amazon marketplace," reads a communication sent to a customer by Amazon, according to Moneycontrol.

"Customers will no longer be eligible for replacements post-January 31, 2019 11:59 pm; if they have ordered from any of these sellers," it adds. Customers get the money refunded for the products purchased depending on their case, according to the report.

In late December, the government came down heavily on online marketplaces banning them from selling products of the companies in which they have equity stakes or management control as well as getting into an agreement for exclusive deals. Like Cloudtail which is the joint venture of Amazon and Narayana Murthy's Catamaran Ventures, for instance.

"An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity," the commerce ministry said.

 No groceries at Amazon, no replacement of products through Cloudtail; big e-tailers will wriggle their way through

Representational image. Reuters.

To be fair, the e-commerce companies knew these restrictions. The government allows 100 percent FDI for those online stores that follow the marketplace model with zero inventory and provides up to 49 percent FDI for inventory-based e-commerce where the latter also sells its products.

However, the distinction became increasingly blurred in India with Amazon selling through its subsidiaries like Cloudtail and Appario and Flipkart through RetailNet and Omnitech Retail which goes against the government policy. So there should not be a room for complaint for e-commerce players when viewed from the legal perspective.

"The e-commerce players should have expected this and prepared for it. You were not allowed to have an inventory-based model," said Paula Mariwala, Executive Director at Seedfund, early-stage venture capital fund.

When rules are not followed by the government,  e-commerce majors have found it convenient to sell through subsidiaries.

The 1 February deadline was too short to be complied with by e-commerce firms, said, analysts. "The government's 1 February deadline is a major jolt to the industry," said Sanchit Vir Gogia, Chief Analyst, Founder and CEO of Greyhound Research, a technology and innovation research firm. He said that it was too short a deadline for the e-tail business to be organised.

The government is partly to blame for the situation today where the customers are unhappy about groceries and other products being taken off the e-commerce sites online, said Arvind K Singhal, chairman and managing director, Technopak Advisors,  a Delhi-based management consulting firm. Agreeing that the rules were always there, but since the government did not enforce it, it is to blame, he said.

"I would fault the government. When Flipkart was started, it came out with creative solutions to circumvent this rule. Amazon's Jeff Bezos came to India with money to invest in e-commerce. When Walmart invested in India, the Competition Commission of India gave it clearance, The Department of Industrial Policy and Promotion (DIPP) did not raise an issue over the deal. When there is no enforcement of rules, there is bound to be a sense of complacency in these players," said Singhal.

The government should have enforced the rules when investments were being made in the sector, said Satish Meena, a senior research analyst at Forrester Research. When it decided to enforce the guidelines, "it could have given some more time to the e-commerce firms. Since the rules were not followed so far, the e-commerce majors were taken aback by the deadline," he said.

There is a view is that the government has given in to the requests of small traders and traders' bodies like the Confederation of All India Traders (CAIT) with the general elections in mind.  However, the customer/consumer has been given the go-by in the rush to please traders. Any policy impacting customers should be about giving them the best deals at the best prices, but the policy by the government did not even factor the customers, analysts said. The intent was to cater to wholesalers and traders only.

The main issue with e-commerce marketplace is the discounts offered by online marketplaces. The Confederation of All India Traders (CAIT) called the discounts 'predatory pricing' which upsets market dynamics.

It claimed e-commerce marketplaces' indulged in "deep discounting and loss funding thereby violating FDI Policy 2016 of the Union government. These e-commerce companies claim to be a marketplace but mass scale public advertisements by them in the recent past is nothing but to solicit the consumers directly," the body had asked.

Small traders do not have the bandwidth to sell across the country and e-commerce marketplaces have helped them do that. Currently, there is no big player in India like Amazon or Wal-mart who can provide space to small traders on their marketplaces. "No homegrown player has the technological know-how or the financial capability to be able to beat the giants," said an analyst.

However, sector specialists and industry observers said that e-commerce majors will recover from this setback.  However, the revenues will take a hit to the tune of 25-30 percent, they said. The immediate setback will be that the scaling down of any additional incremental investment planned for the coming quarters.

The sector is poised for growth though. E-commerce market in India is expected to grow to $200 billion by 2026, according to a report by marketing research firm eMarketer. That growth is being fuelled by increasing internet and smartphone penetration. The ongoing digital transformation is expected to increase India’s total internet user base, from 445.96 million in 2017 to 829 million by 2021, according to the Indian Equity Brand Foundation (IBEF).

India is the biggest market that no e-commerce firm will want to move away. No other market presents opportunities in this sector like India. It is only a matter of time before Walmart and Amazon negotiates with the government and works out a structure that is a win-win for both -- the business and the sector.

Updated Date: Feb 05, 2019 07:21:18 IST