Is it necessary to ban e-commerce marketplaces from selling exclusive brands or promoting a particular vendor?

The run up to the New Year is certainly not the way global retail giants Amazon and Walmart (who have aggressive plans for the Indian market) would have wanted it to be. The Government of India in its recent amendment to the foreign direct investment (FDI) policy for the e-commerce sector has disallowed e-commerce market places such as Amazon and Flipkart to give preferential treatment to a certain vendor or brand as well as promote businesses in which they have a stake.

The government had earlier disallowed e-commerce marketplaces to have inventory-led business models and now comes the norm of marketplaces not having exclusive rights to sell certain brands. In a country where e-commerce sales account for just 2 per cent of overall retail sales, will a marketplace having exclusive tie-ups with a brand or an entrepreneur actually impact lives of the traders at large? After all, market places are increasingly becoming sought after platforms for start-ups to distribute their products to a much wider audience, and more importantly get consumers to sample their products.

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As per the new regulation, a brand being sold exclusively on Amazon or Flipkart would no longer be allowed to do so. However, the same brand can retail out of multiple e-commerce platforms. The government's argument for the same is to protect the interest of traders and smaller retailers. But selling exclusive brands is a popular concept with many physical modern retailers too. Retail brands such as Shoppers Stop and Lifestyle have a considerable portion of their revenue coming through sale of exclusive brands. These are brands which are available only at their stores and nowhere else.

"The government has no clue what retail is about. Each time a policy comes out, it is to benefit certain lobbying entities," says Arvind Singhal, Chairman of retail consultancy, Technopak. He firmly believes that e-commerce marketplaces should be allowed to flourish so that smaller entrepreneurs can reach out to a wider audience.

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"E-commerce as of today is really small and will not impact smaller entrepreneurs," agrees Anil Talreja, Partner, Deloitte India.

Talreja, however, feels that the decision to ban deep discounting could bring about healthy competition between the smaller retailers and the e-commerce giants.

Singhal of Technopak has a contrary point of view. "If the small shopkeepers are really hurt, then there is a problem. But India doesn't have a situation like that. The big and the small are thriving and continue to do well."

According to Arvind Mendiratta, MD, Metro Cash & Carry, the smaller retailers in urban areas are definitely facing the heat of e-commerce bulk discounting. "The share of e-commerce is bigger in urban areas and I can see lot of the small traders facing the heat. This regulation will go a long way in ensuring a level playing field for the kirana stores." Mendiratta feels that banning deep discounts is a temporary relief for the kirana stores. "The government should incentivise them to get digitised. That is when there will be level a playing field," he adds.

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HUL has an exclusive Brylcreem store on Amazon, where it sells high-end male grooming products, which are not available at the traditional stores, or ITC Foods recently partnered with Big Basket to roll out new range of Sunfeast noodles. Will these kind of tie-ups be allowed going forward? The analyst community is still figuring out. But will norms such as not allowing a FDI-led marketplace to sell exclusive brands impede the next round of FDI investments in the country? It could.