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March 31, 2016
Mehak Sharma, Indiaretailing.com
New Delhi, 31 March 2016
While
the new policy for foreign direct investment (FDI) in the fast-growing
e-commerce sector has been welcomed by several lobby groups and offline
retailers, experts note that a few implications of the new guidelines
could leave some online players in a fix.
The Department of
Industrial Policy and Promotion (DIPP), under the Ministry of Commerce
and Industry, on Tuesday, allowed 100 per cent FDI in online
retail of goods and services under the marketplace model, but kept the
inventory-based model of e-commerce out of its purview.
However,
two conditions attached to the approval, in particular, could exert
pressure on some e-tailers, as they will have to restructure their
businesses to comply with the law. The first being that no one company
or seller on a marketplace can now account for more than 25 per cent of
the total sales generated on the site. Second, e-commerce entities
operating a marketplace model can no longer influence the retail prices
of goods or services.
“This will ensure that the pseudo
marketplace models run by a few e-commerce companies will be forced to
rationalise their pricing and discounts,” says Craftsvilla.com Founder
& CEO, Manoj Gupta.
Commenting
on the bar on retail price manipulation, CEO Third Eyesight, Devangshu
Dutta, notes, “Buying market share through discounts is a game for the
deep-pocketed, and aggressive discounting is also now explicitly in the
Government’s cross-hairs. While the focus within e-commerce companies
had already started shifting to smaller discounts, the new policy will
force them to think harder and act quicker.”
In
addition to this, the cap on seller contribution on total sales
generated on an e-commerce marketplace site could also complicate
matters for market leaders Flipkart and Amazon, experts point out.
Sellers
like Cloudtail and WS Retail account for a major chunk of sales on
Amazon and Flipkart, respectively. While Cloudtail is a joint venture
between Amazon Asia and Infosys founder NR Narayana Murthy’s personal
investment vehicle Catamaran. WS Retail was set up by Flipkart
co-founders Sachin Bansal and Binny Bansal in 2010.
“Marketplaces
such as Amazon and Flipkart have very large shares of their business
being contributed by inventory sales from their own (‘arm’s-length’)
entities. These companies will have to rethink their business mix and
business structures to comply with the law. However, platforms that
present a diversified merchant base would certainly have a clear path
to invest further in India,” Dutta states.
Emails sent to
Flipkart regarding the impact of these implications went unanswered,
while Amazon India told Indiaretailing Bureau it is still studying the
changes and would issue a press statement soon.
Even as
e-tailers scramble to interpret and implement the new rules, investors
feel that the latest policy announcement is a breath of fresh air for
e-commerce firms that have been struggling to attract funding since the
beginning of 2016.
“E-commerce players have already raised
significant foreign funding. However, there are still many
multi-billion dollar funds yet to be injected. With regulations in
place, we can see a fresh infusion of funds in the market,”Managing
Partner, Unicorn India Ventures Anil Joshi, tells Indiaretailing.
“E-commerce
entities should now look to build a profitable ecosystem rather than
revert back to old, predictable strategies,” Joshi asserts. “Currently,
e-commerce accounts for a mere 2-3 per cent of modern retail in India
and has barely scratched the surface. There is a huge market potential
and demand, especially in tier-II and III towns that are still waiting
for these companies to make an entry.”
(Published in Indiaretailing.com)
