New FDI e-commerce policy: You won't see heavy discounts on Amazon, Flipkart anymore

Tomorrow when you open your favourite e-commerce app, ideally you won't be seeing the discounts for which you prefer one platform over another or the 'exclusive' tags, which was a sought after strategy by most mobile phone makers for the Indian market . The press note released on December 28, 2018 by the Department of Industrial Policy and Promotion, set out a new set of rules that the e-commerce companies have to now comply with. It gave them a 60-day window period for aligning themselves to some of the most disruptive changes that have been made by the government. The most contentious issues that the press note talked about was around sourcing, exclusivity of products and pricing policy that will essentially change the way Amazon and Flipkart do business in India.

Also read: US concerned as India's e-comm FDI rules affect Amazon, Walmart

SOURCING

The new rules says that an e-commerce company with a marketplace model will not exercise control or ownership over the inventory that will be sold. It also says that if a company sources more than 25 per cent of the goods sold on its platform or any other entities it owns, such a vendor company will be deemed to be controlled by the e-commerce company. Now, with WS Retail for Flipkart and Couldtail for Amazon being such entities that fall under this clause, there is no clarity yet on how these companies will maneuver the tide. Thought the earlier regulation brought in 2016 also mandated the same, All Indian Online Vendors Association has been crying foul over this for a long time, accusing e-commerce companies are flouting the rule and continue sourcing from their own entities. However, Flipkart has been reducing its share of sourcing from WS Retail over the last few years. According to reports, WS Retail posted revenues of Rs 4,543 crores in FY18 a decline of over one and a half per cent over FY17 when the revenues stood at Rs. 4,628 crores. Before the said FDI rules, the revenues of WS Retail in FY16 was well over Rs. 13,000 crores . 

Also read: Walmart's Flipkart warns of major 'customer disruption' if new India rules not delayed

EXCLUSIVITY

The new press note also says that a market place entity will not mandate any seller to sell exclusively with their platform, essentially hitting at the root of the largest category for all e-commerce players: 'mobilephone sales'. Now, most e-commerce players prided with exclusive launches and attractive pricing for new phones on their platform to draw customers. All leading sellers such as Xiaomi, OnePlus, Motorola or Huawei had their tie-ups with one or the other platform, being their preferred destination for their products. A source familiar with Honor India operations said, "Honor has been focusing on online sales only. But for their best-selling models, which are in demand in the offline channel as well, they have been utilising Huawei's network to reach out to offline retail. In the past, Honor's focus has never been in offline retail. However, with the new FDI in e-commerce policy, Honor is focusing on expanding its partnerships and will emphasize less on Hi Honor marketplace." Interestingly, Honor View 20 launched on Wednesday was supposed to be sold on Amazon India and hihonor.com starting February 1, 2019. However, the company has just now entered into an exclusive partnership with Reliance Digital to sell the View 20 in the offline channel at Reliance Digital and My Jio Stores in 700+ cities starting February 6, 2019. And there will be no price difference between the offline and online channel.

Even offline sellers are already feeling the change, Manish Khatri, Partner at Mumbai-based Mahesh Telecom (offline store) says, "Honor, Motorola has been approaching the offline market from past few months now. But the exclusive products are not yet being given to offline and it comes only after a week or a month to offline. These brands are not so aggressive yet. However, a few companies have started launching products online and offline at the same time."

Smartphone manufacturers say that they are creating the hype by selling online first and then giving to offline later which will help in improving the sales in the offline retail.

While earlier, there used to be a price difference between offline and online, from past one year it is not about the price. It has been about the exclusive products available at a lower price compared to products offered in offline. Price was a concern only on 'big day' sales. Also in a month's time, a number of products are getting launched these days and consumers are always looking for the newly launched products. Leading Chinese manufacturer Xiaomi has been practising this for some time now. The company has been selling their products on either Amazon/Flipkart along with mi.com and their mi homes at the time of the launch. And within a week or a month, the product is available at other e-commerce platforms as well as offline retail. For instance, the recently launched  Mi LED TV 4X PRO (55) and Mi LED TV 4A PRO (43) were available via Mi.com, Flipkart and Mi Home stores for Rs. 39,999 and Rs. 22,999 respectively, starting January 15, 2019 at 12 pm and Mi Soundbar was available via Mi.com and Mi Home stores for Rs. 4,999 starting January 16, 2019 at 12 pm. These devices are not yet available on Amazon India. But most legal experts believe that the technical grey areas would be around, whether to consider the online sales platform of these companies as an effective exemption to 'exclusivity' requirement or not.

PRICING

Most important of all the press note  mandates the e-commerce marketplace to not directly or indirectly influence the pricing of the goods sold on their platforms, which technically means 'throwing discounts out of the window'. Both Amazon and Flipkart no doubt have been burning cash like no tomorrow to ensure their lead in the Indian e-commerce space. Starting tomorrow this will change and it also means the Indian consumers will not be able to shop at the cost of somebody else's money or for the cashback offers. National co- convenor of Swadeshi Jagran Manch, Ashwani Mahajan tweeted, "This has been a fight between wrongs and crimes of giant e-ommerce players, knowingly killing small players by 'burning cash' and 13 crore people sufferers who were losing their livelihood." While this is a big relief for other online vendors, who have been waiting for "a level-playing field', will this affect the consumer behaviour and online shopping pattern in India? That's something both Flipakrt and Amazon are keeping their fingers crossed for.