The Indian e-commerce industry is booming thanks to lucrative discounts and exclusive partnerships secured by various retailers. However, the biggest obstacle to the continued success of the segment in India may come from within as several brick and mortar retailers have formed a coalition that aims to curtail the benefits offered by e-tailers.
Retailers take the fight to e-tailers
The issue began earlier this year, when retailers began questioning the heavy discounts offered by e-commerce stores, which in turn was cannibalizing sales from offline channels. The retailers took up the matter with the hardware vendors directly and were able to convince brands like Lenovo against selling their wares online. Lenovo (HKG:0992) even had a notice on its website stating that its products were to be purchased only from its official site or from its offline distributors. The brand’s managing director for India, Amar Babu, said that the goal was to establish price normalcy. “We are trying to weed out unhygienic practices to create a healthy environment between online and offline markets,” he is quoted as saying.
Even Samsung (KRX:005935) was said to be swayed, and is rumored to be considering going offline in the country. While there hasn’t been any official confirmation from the South Korean vendor yet, going offline may offer a solution to declining sales. Sony (NYSE:SNE) is also joining the fray and is advising users to buy from its own authorized stores. LG (KRX:066570), meanwhile issued a statement announcing that it has the right to withhold warranties for products purchased from online stores other than its official website in the country. Canon (TYO:7751) has taken a different route, and is said to be considering offering a unique set of products for online sales.
As for retailers, a new body called the All India Mobile Retailers’ Association, which claims to represent over 10,000 brick and mortar retailers, has been created to look into the pricing practices carried out by online vendors.
E-commerce stores go exclusive
The main issue with online stores is that the stores themselves have no control of the pricing. Stores like Amazon and Flipkart follow a marketplace model, which means that the third party sellers effectively have full control over how much price they can set on a product.
The result is that when it comes to mobiles – the biggest selling category in e-commerce in India – stores offer discounts up to Rs. 3,000 ($50) from what is available offline, not including the freebies that come bundled with purchases. The sellers that were selling the wares procured the goods at a wholesale price, which is noticeably lesser than what the consumer pays for a device. This is how they were able to mark down the price of a handset and still gain a profit. The offline stores were not able to follow suit due to the overhead costs from stocking a device in a brick-and-mortar store.
While offline retailers have sought to get products removed from e-commerce stores, sites like Flipkart (BOM:514215) and Amazon (NASDAQ: AMZN) have formed collaborations of their own. Flipkart in particular was able to secure exclusive partnerships with Motorola and Xiaomi, which saw the site become the only authorized location to get products from either vendor in the country. Amazon has not been as successful, although it did manage to get exclusive rights to the Xbox One in India. Along with exclusive deals, the sites regularly run deals and offers, although a recent deal by Flipkart resulted in further tension between offline and online vendors.
Big Billion Day
While the idea behind Flipkart’s Big Billion Day sale held on October 6 was admirable, the execution was far from it. For one day only, the site offered heavy discounts on over 10,000 products across all categories, and ran hourly deals that saw prices of products slashed by as much as 80%. However, the site failed to load for most of the day, and products were sold out in under five seconds of going on sale. That’s not to say the retailer did not do a lot of business. Flipkart claimed that it sold goods worth over $100 million in just 10 hours.
The sales figure is the only good thing to come out of what is being termed a debacle, as both consumers and vendors have lodged complaints against Flipkart for the sale. Consumers mentioned that the site was misleading in the offers it quoted, while hardware vendors said that they did not authorize the heavy discounts that were posted during the sale. Sony’s Indian sales head Sunil Nayyar was particularly vehement about the practice, stating that, “the online sale war of Monday (Big Billion Day) was really disappointing and alarming. This is not the way we have agreed to do business as partners. We have decided to handle online discounts now with an iron hand and will ensure Sony is not involved again and there is a fair play for all channels.”
A complaint has been filed earlier this week with the Competition Commission of India to further investigate the issue, and to look into the discounts that were offered by all e-commerce sites during the festive season, which ran the length of October.
At the end of the day, it is clear that the disagreement comes with the disparity in pricing. Offline retailers want to be able to maintain their markups, and since they’re in the majority for now, they have enough clout to influence the decisions of the manufacturers. It is frustrating to see vendors fighting over discounts and seeking measures to curtail such practices, which in fact benefit consumers. One of the reasons for the massive growth of the e-commerce segment was the discounted prices from offline channels, and although it looks like retailers will be successful in cutting down on what they call “unsustainable pricing”, it is not hard to see that it is they who will lose out in the end and more and more consumers start buying online.
