A Twist in the e-Tail

For retailers across India, December is the month it snows rebate-led sales. Most traders destock—clearing up inventory piles—during the yearend as part of a New Year’s bonanza that usually features 10-30 per cent discounts. The yearend gone by and the January that came right after have seemed like every other as salesmen rode the winter shopping mood, pitching deals on mobile phones, wristwatches, TVs, washing machines, air conditioners, refrigerators, jeans, apparel and shoes even as the calendar on the wall changed. [caption id=“attachment_5386741” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] And the great Indian new year haggle continues. Almost every shopper is greeted with a blackboard scribbled with chalky boasts of price markdowns. But don’t let that image mislead you. The sales spiel really masks deep anxiety among traders about their future in the retail districts nationwide. They’re anxious because the rules of the game are changing, and their businesses are on the line. In the last week of December, the government came out with a new set of rules for ecommerce companies in order to break what it believes are growing partisan relationships that online giants such as Amazon and Flipkart have struck with select vendors through exclusive contracts. Among other things, the new rules—which kick in from February 1—do not allow online retailers to offer cashback schemes to lure customers. Exclusive deals to promote brands through flash or festive season sales will also come under scrutiny. According to the new rules, a vendor will not be permitted to sell more than 25 per cent of its products on an online platform of a single e-marketplace firm, effectively eliminating the possibility of exclusive pacts. For instance, a company such as Xiaomi won’t be able to sell its Mi phones exclusively on Flipkart. This has been a popular practice over the last few years that most mobile phone companies have been adopting to push their new launches. Flipkart, for instance, has exclusive partnerships with top smartphone brands. This is like a queue of vehicles at a highway toll booth and some getting preference to jump the line and zoom ahead just because the road-builder has a special arrangement with the vehicle’s owner. But this is not just about smartphones. Such deals have been dealing deadly blows to apparel and home furnishing traders from Bhilwara (Rajasthan) to Bhubaneshwar (Odisha). Smartphones and electronic products contribute about 50 per cent to overall ecommerce sales in India followed by fashion and apparel (about 30 per cent) and home furnishings (about 9 per cent). It’s also about the future. Customers are only beginning to warm up to the convenience and the attraction of rebates and cashbacks on online grocery shopping. This, local retailers fear, could potentially stab the heart of India’s retail ecosystem—the neighbourhood kirana stores. “It always easier when the milk and daily household provisions are dropped at home early in the morning. I don’t have to call up the local grocer or make a dash to the shop in the morning to buy fresh stuff,” said Sangeeta Bhattacharyya, a Noida resident. The pinch is hurting local traders, many of who are now beginning to offer discounts to bring back footfalls. Time was when neighbourhood kirana stores were like the one-stop shop, which would organise almost every household provision at a phone call. Most kirana stores still have their set of loyal customers who place orders by the bulk at the beginning of the month, but there is a sense of nervousness about the what future beholds. “We cannot offer the level of discounts that online grocery stores are offering. They have direct deals with the brands and the manufacturers. We are now forced to offer discounts by cutting our own margins,” said Mukesh Kumar, who owns a general provisions store in Patparganj area of east Delhi. Local traders are buffeted by three constraints: high rental costs, lack of scalability because their area remains limited to a particular neighbourhood and the absence of abundant financial muscle to offer heavy discounts to match ecommerce giants who have deep pockets. Online delivery stores such as Milkbasket and Bigbasket have national operations. The sheer scale makes the average unit cost of delivery far lower than an offline trader. For instance, a neighbourhood kirana store’s employee will likely cycle down to deliver a litre of milk to a customer, but an online counterpart will aggregate the delivery time of several such customers in a concentrated area, enabling it to spread the carriage cost among several patrons. “More than discounts, it is the convenience of getting fresh things delivered at home much before the local grocer has opened shop that makes life much easier”, said Bhattacharyya. The latest policy tweak is an attempt at establishing vendor neutrality, an objective that has political as well as economic outlines. Every retail store shut, so the argument goes, means jobs lost, eroding earnings of families. For the government and the ruling Bharatiya Janata Party (BJP), which has been conventionally seen to enjoy wholesome support of the trading community, to the extent that it is often described as a party of ‘banias’, the issue concerns more than jobs or stores getting shut. It is also about votes—and 70 million of them. The new rules’ announcement, and timing of implementation are crucial. The decision came barely two weeks after the Assembly elections, where the BJP lost the three politically important heartland states—Madhya Pradesh, Chhattisgarh and Rajasthan—to the Congress. Insiders say that the policy change was based on feedback from the BJP’s ground-level workers along with a deep analysis of the election results, particularly Rajasthan, where the trading community accounts for a large vote bloc. At a statewide level, voting patterns threw up interesting trends. NOTA (None of the Above) polled 4,67,781 votes accounting for 1.3 per cent of the total. If NOTA were a party, it would have stood sixth in the number of votes cast in its favour, much ahead of established political outfits such as CPM, Nationalist Congress Party and Samajwadi Party among others. There were 14 Assembly constituencies in Rajasthan, including in some predominantly trading hubs across Bhilwara and Jaipur, where the victory margin were less than the votes polled for NOTA. The reading appears to be that the large number of NOTA votes were actually that of traders, most of who are believed to be traditional BJP supporters, who wanted a message to be conveyed that they needed the government to recognise the problem that was imperiling livelihoods. The view from the market was clear. The transnational online retail giants were rewriting the rules of the game leaving out tens of hundreds of vendors while hawking products of only a few directly to consumers at a price that a local garment or home furnishing producer cannot even imagine to match. “Home furnishings is an area where the impact has been felt the most. Footfalls in our stores have fallen sharply in the last few years with most customers preferring to shop online. If I had a tie-up with Amazon or Flipkart, I too could have been part of this universe,” said the owner of a home furnishing store in Lajpat Nagar who sources a products from Bhilwara and Jaipur. He did not wish to be identified. Over the past several months, traders have been complaining that they were being pushed out of business. The new rules appear to be the Narendra Modi government’s way of demonstrating its intent to walk the talk in their support. The Confederation of All India Traders (CAIT), led by Praveen Khandelwal, a BJP leader who contested from Chandni Chowk in the Delhi Assembly elections in the past, has led a no-holds-barred campaign against the foreign-funded ecommerce players. CAIT has, in fact, demanded that commerce players should be asked to furnish certificates about their compliance with foreign direct investment norms every fiscal. Flipkart and Amazon are now lobbying to get the deadline for the new rules extended beyond February 1 giving them enough time to refit the operational contours. While Amazon has asked for time till June, Walmart-controlled Flipkart has sought six more months arguing that the new regulation requires extensive overhauling of their business models. Local traders, clearly, see this lobbying as an attempt to hoodwink the government into further worsening the prospects of offline retailers. Khandelwal did not mince any words. Any easing on the deadline or the new rules would mean that a loss of 70 million votes for the BJP. “Major chunk of seven crore (70 million) traders will not vote for them [the BJP] because any extension or any change in the policy will run against the genuine interest of small traders,” Khandelwal said. The Swadeshi Jagran Manch, an affiliate of the BJP’s ideological fount Rashtriya Sawyamsevak Sangh, has been pressing for a clampdown has on the “predatory behaviour” of ecommerce giants. A marketplace is meant to get buyers and sellers together. The latest policy is predicated on the view that online marketplace were only bringing some sellers to the square. “We will be compelled to launch an agitation if the government doesn’t listen to us,” Khandelwal further said. The $40-billion online commerce industry is still a fraction of India’s $700-billion offline retail sector. It may still take a few years for the pie to decisively tilt online. The die, however, seems to be cast. At stake are 70 million votes. And a billion consumers.