Online discounts, offline biz woes

Come February, India will have in place new e-commerce norms which are expected to rein in deep discounts that e-tailers offer regularly to lure customers. In the last week of December, the central government announced contours of the new e-commerce norms which included changes related to foreign direct investment (FDI) in online commerce. As per the policy outlines, online sellers are also not allowed to sell products from the companies in which they have a stake. Further, such players can’t enter exclusive sales deals with seller companies.

These new policy initiatives assume significance in the wake of persistent demand from traders across the country that e-tailers should be reined in. The Confederation of All India Traders (CAIT), which represents interests of brick-and-mortar traders, has consistently been voicing its concerns over the growing influence of online sales and the existential threats small traders were facing from it. It also alleged that global players were using e-commerce route to enter multi-brand retail sector into which FDI is currently not allowed.

Its fears are right in some way. India's ecommerce market place is in the hands of two American biggies. Walmart, the world's biggest retailer with roots in the US, acquired India's Flipkart for a whopping $16 billion last year. Amazon India, Flipkart's arch rival, is owned by US-based Amazon founded by Jeff Bezos, the world's richest man. Both Amazon and Flipkart between them command a combined market share of 80 per cent. This clearly shows who are the kings in the country’s online space. And their influence is set to increase further.

As per a Morgan Stanley study, India is likely to witness 50 per cent jump in online shoppers by 2026 from 60 million in 2016. The increased use of smartphones is fuelling this growth. Thanks to Reliance Jio’s cheap data services, the number of smartphone users are now close to 337 million. This number is projected to touch 490.9 million by the end of 2022, according to eMarketer, research firm.

Brick-and-mortar players say the future of lakhs of traders and scores of employees who work in their outlets will be in peril if the online companies like well-funded Amazon and Flipkart are given free run in the country. It is a fact that steep discounts and deals being offered by them bring cheers to the customers. But the e-tailers are using discounts as bait to wean away customers from the offline outlets. It is very unlikely that they will continue the discounts forever.

Further, CAIT alleges prices of products are still higher despite discount offered on them by e-tailers and consumers will stand to benefit even without discounts. In this context, through the new policy norms, the central government should strike a balance and see that all stakeholders including customers and traders would emerge as winners. And ecommerce should get it due as well.