Flipkart, Amazon discounts hurt offline trade; govt inaction worries traders

Amid the festival season, the retail industry and small scale businesses across the country face a new low. With online giants offering predatory pricing, traders who expect bumper sales during festival seasons seem to face hurdles.

Besides, the market slump due to economic slowdown and the ‘unethical’ trade practices by leading e-commerce players dampened the festive spirit.

Recently, a group of traders in Chittorgarh, Rajasthan, took to the streets to protest against the e-commerce giants. Last week, the Akhil Bhartiya Udyog Vyapar Mandal locked down the Flipkart godown. These incidents show the frustrations of brick and mortar retailers who are ready to fight tooth and nail against the e-commerce marketplaces like Amazon and Flipkart.

Even after several complaints and representations made by the trade bodies over the years, the US-based e-commerce giant Walmart which owns Flipkart and Amazon offered discounts ranging from 20% to 80% on various products during the festival season. Apart from operating in metro cities, these giants also expanded their presence in smaller towns and cities, which contributed to a large part of their sales.

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The trade bodies like Confederation of All India Traders Association (CAIT) and Swadeshi Jagran Manch, an RSS affiliate, that represents 70 million traders across the country, raised the issue to Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal over alleged predatory pricing by e-commerce giants Flipkart and Amazon.

They accused that apart from indulging in predatory pricing and giving deep discounting, these giants also engaged in unfair business practices like a violation of the Foreign Direct Investment (FDI) policy of the government and the Competition Act.

Similarly, many offline retailers and chain stores like Vasanth & Co, Girias and Pai International also complained about a dip of 30% to 50% in the current year sales.

CAIT alleged that large brands in mobile, Fast-Moving Consumer Goods (FMCG), electronics, electrical appliances, footwear, garments, and other sectors and different banks were equally responsible for the distortion of prices of different products on online portals.

According to Praveen Khandelwal, secretary-general, CAIT, “It is apparent that these e-commerce companies and big brands were exploiting the market. The big brand companies have separate price policies for both the online and offline market which is a clear violation of the Competition Act.”

The e-commerce companies, which follow the deep discounting practice for the last five years to attract customers on to the platform, clocked a gross-merchandise value (GMV) of USD 3 billion (approximately ₹20,000 crore) just during the weeklong festive sale in early October, claims industry estimates.

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GMV is overall sales clocked by e-commerce player. It excludes discounts, returns, cancellations and cashbacks on products sold.

Khandelwal added that the retail trade in India generates an annual business of ₹45 lakh crore, out of which, about ₹6 lakh crore worth of sales was between Navaratri and Diwali. “Even if we consider market slump and cash crunch affecting 20% of our sales, the predatory pricing by e-commerce companies drove the sales away to a large extent,” he adds.

The customers expect cheaper prices and will always compare and demand a similar price even when they walk into offline stores. However, for the offline traders, there’s no profit margin if they sell at the cost offered by online players. After widespread protest last year, ahead of the Lok Sabha election in April-May 2019, the Union government had notified the draft e-commerce rules effective February to protect the vendors who formed a large chunk of its vote bank.

According to the e-commerce rules introduced in February, the companies are not permitted to have different agreements for the vendors in a similar circumstance, not sign an exclusivity contract with vendors, or promote products as exclusives sales while also not host products of companies in which they have a stake beyond a certain limit.

But these big players like Amazon and Flipkart offered a discount through their preferred sellers like Cloudtail, Appario, and OmniTech Retail, while also not charge any commission for deeply discounted products sold on their platforms.

For instance, a 4-seater dining table costing ₹31,000 was offered on Amazon at a discounted price of ₹6,000 during the limited hour sale of 1 hour. The same product was made available half the price during the rest of the period of festival sale that ended on October 25. Besides, some of the banks offered a cashback of 10%-15% on the overall purchase amount.

The Commerce Minister Piyush Goyal, after receiving complaints from the trade bodies had sent notices to the e-commerce companies to adhere to the rules. He also sent a list of questionnaires pertaining to the trade practices and alleged violations by them.

The All India Online Vendors Association (AIOVA), which has about 3,500 members selling products on various online platforms including Flipkart and Amazon claims that less than 100 members benefit from the online platforms due to their unfair practices.

The association, which had complained multiple times to various ministries, now say that they have given up hope that the government will act against the e-commerce giants.

Kush Agarwal of AIOVA says, “The government sees the e-commerce industry controlled by foreign companies as FDI potential and fails to take cognisance of issues raised by sellers on these platforms. They are getting an undue benefit and we have lost hope that this government will act against them.” However, Flipkart and Amazon declined to comment.

(This is the first of a three-part series. Over the next two days, The Federal will talk about other aspects of e-commerce.)