India’s top two online marketplaces, Amazon and Flipkart, have seen as much as a third of sales volume disappear on their platforms since the new foreign investment rules in e-commerce came into effect three days ago, people privy to the matter told ET.
The new regulations bar some of the business practices that foreign-funded e-commerce companies followed, such as having a stake in companies that sold products on their platforms. The rules categorise sellers who drive more than 25% of their overall sales from a single marketplace as entities of that marketplace and bar them, too.
Since Friday, the platforms have pulled product listings from their joint-venture and preferred sellers, and capped inventory, leading to fewer selections, higher prices and longer-than-usual delivery time.
In an emailed response to ET’s questions, an Amazon spokesperson said: “All sellers make their own independent decisions of what to list and when and we cannot comment on that.” Flipkart did not comment on ET’s queries.
According to analysts ET spoke to, prior to the change in the FDI rules, both Amazon and Flipkart drove more than half the sales on their platforms either through captive sellers, like Cloudtail and Appario for Amazon, or indirectly through their wholesale units.
Their business-to-business units — Amazon Wholesale and Flipkart India — were suppliers to the e-tailers’ preferred vendors. A Barclays report in November estimated sales by Amazon’s B2B arm in FY18 at $1.9 billion, and that by Flipkart unit at $3.3 billion.
“Restructuring at both companies is on as we speak,” said a person aware of the changes. The impact of the new rules on these companies is much more than that from the introduction of goods and services tax which had impacted the whole retail economy, he said.
Since Friday, Amazon’s private labels like Symbol, Myx, Solimo and Basics are unavailable as they are sold exclusively by Cloudtail and Appario, both partly owned by Amazon. The e-commerce giant also delisted products sold by Shoppers Stop, in which it had taken a 5% stake in September 2017.
“In the case of Amazon, what they are seeing is more of a drop in value than in units because Cloudtail did a bulk of the phones and appliances sales which are typically high priced compared to other categories,” said a person tracking the sector.
Flipkart had started moving away from driving sales through its preferred in-house seller, WS Retail, two years back. Instead, the Walmart-backed company bulked up sales from third-party sellers who bought directly from its wholesale arm. It continues to sell products through these alpha sellers such as RetailNet, SuperComNet, India Flash Mart, Omnitech Retail and Trunet Commerce.
“Discount on some key electronics products are not being offered. There’s no discount on the iPhone, Pixel and some other high-end computers as well which has caused a drop in GMV. Even other bulk-selling items currently don’t have discounts on them,” said another person who tracks the sector, in regard to why Flipkart had witnessed a sales drop in the past few days.
Some of the small sellers ET spoke to, represented by the All India Online Vendors Association (AIOVA), said they had not seen any upside or downside in sales post the implementation of the new rules. “Smaller sellers haven’t seen any change in sales. While Amazon has voluntarily shut down Cloudtail and Appario, Flipkart hasn’t made any such changes,” a member of AIOVA said.
There are several sellers who have a large offline presence and who will agree to sell products on behalf of these companies for a small margin without any equity ownership, said a person, explaining a possible workaround. “Companies are working around forging these partnerships,” he said, adding that the Department of Industrial Policy and Promotion would give them a grace period of a couple of weeks to make changes to the supply chain before start taking action.
The above mentioned AIOVA member said they have seen new sellers propping up selling the same products as Cloudtail and Appario, and at the same prices as the captive sellers. While the legal structures of these new sellers aren’t known, he said they were violating Point 9 of Press Note 2, which explicitly said marketplaces must ensure that they provided a level playing field for all sellers.
“We are going to give the government two weeks’ time to take action against these companies and if they don’t, we will file a writ petition in the high court demanding them to take action. It’s not just about ensuring Amazon and Flipkart do not have equity in some sellers, it’s to ensure that there’s a level playing field for everyone,” the AIOVA member said.
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