[Photograph by 422737 under Creative Commons]
[More on this: An FAQ based on some of the reader comments to this article.]
The Press Note No. 3 (2016 Series) is just two-and-a-half pages long, written in the usual dry style of government notices. Except this time it is short, sharp and crisp, and thus, less likely subject to misinterpretation.
I’ll get to the specifics of the policy in a bit. But one thing is clear: if, and that’s a big if, the new e-commerce policy is implemented in letter and spirit, March 29, 2016, will be recounted as the day India’s internet landscape changed from a free-for-all swinging match enacted by a jugalbandi of global venture capitalists (VCs) and e-commerce giants to a more sane market with a clearer set of rules.
March 29, 2016, will be recounted as the day India’s internet landscape changed
The clarity took a while to emerge. Especially since the tussle between offline retailers (which include some of the biggest business houses in India including Reliance, Future Group and AB Birla Group) and online players (like Flipkart, Snapdeal and Amazon) has been playing out for more than a few years now. It all finally culminated in a ruling by the Delhi High Court on November 20, 2015, which in turn, set in motion the events that led to this Press Note.
At the core of it, the public battle between online and offline retailers centred around the pricing strategies adopted by the online players. More specifically, whether it was legal to offer prices lower than those decided by brand owners and the fact that these players were operating beyond the pale of any regulation. Much water has flown under the bridge, and I will refrain from wading into the details of complaints filed at the Competition Commission of India and the attendant war of words in media over supposedly anti-competitive moves by hyper-funded online players.
The moot point: what could this policy mean for the future of both online and offline retailing in India?
Online marketplaces are a good place to start with. In the past 10 years, a staggering $7 billion has been pumped into online marketplaces in India. With the possible exception of telecom, no other sector in India has seen that pace and scale of funding. And remember, these funds have been “expensed” by the online firms with little to show in terms of permanent infrastructure, in contrast to “investments” that you see in other sectors which create capital assets that are productive for several years. In other words, these online marketplaces have vaporised several billion dollars in their hunt for market share.
I am no retail expert—and many brains will create scenarios and test how much online players can stretch the interpretation of the clauses in the new policy. This is an attempt to decipher what the government has enacted into law. (Editor’s note: Since our understanding could well evolve as we gain more clarity on the new set of regulations, we may need to update some of the interpretations. Feel free to contribute to the comments section below and we’d be happy to add a few new useful perspectives in the days to come.)
You can read the Press Note here. It’s a quick read and worth the education. The points below apply to marketplaces that have raised or propose to raise Foreign Direct Investment (FDI). Inventory-led models have been disallowed from raising FDI and I am leaving out single-brand retailers and Indian manufacturers such as brands like Cottonworld or Fabindia who have been specifically permitted to use e-commerce for sales.
Power restored to buyers and sellers
In essence, the government has said:
- If you claim to be a marketplace, then behave like one.
- That a marketplace is simply a platform where buyers meet sellers using technology and the role of the marketplace platform should be limited to facilitating the transaction.
- The marketplace should not influence the terms of the transaction—buyers and sellers should carry it out at their own risk and reward. The seller should be liable for product quality and warranty.
- The marketplace may offer facilitation in terms of payments, warehousing, logistics and help buyers match with sellers. Its role should be limited to that.
- Discounts, offers or inducements of any kind have to be offered solely by the seller, and will not be layered on “directly or indirectly” by the online marketplace. The inclusion of the word “indirectly” means that “folks, let’s not get clever about it and create some nice loyalty point programme, bundle streaming movies or free delivery and subvert the law”.
- No single seller can be more than 25% of the marketplace revenue. However, this single seller can be a group company of the marketplace and since it could influence such a seller, this restriction does not allow more than 25% of its revenues from such a group company. This 25% limit is a boon actually as you will realise when you read ahead.
- Online marketplace are rendering a service to the sellers and they should charge them for such services. That should dictate the economics of these models.
Thus, a marketplace like Amazon, Flipkart or Snapdeal may invest in brand building, attracting customers, building vendors, showcasing products and indulging in all kinds of marketing on “behalf” of the sellers, but they cannot offer any inducements to the customers to buy that the seller has not explicitly agreed to give itself.
In effect, they’ve levelled the playing field between offline retail and online retail—and stopped any deviant behaviour by online players who were using capital to distort pricing and induce customers.
Sellers now have control over their own destiny and if they choose to offer different prices online and offline, that is their prerogative.
Sellers now have control over their own destiny. [It is up to them to] offer different prices online and offline.
How this will impact India’s online economy
- Every rupee spent by an Indian online—whether on products, services or digital goods—is governed by the new law.
- Impacts all VCs and global players, anywhere in the world, who play or wish to play in India’s internet economy.
- The days of “my investor has a fatter cheque-book than yours” are over.
- Well run, lean online businesses will win; as will offline.
This is NOT price control
Several industry experts have jumped up and declared that the government is interfering with the pricing of goods in the industry and this is a form of pricing control. I disagree.
Online retailers were supposed create efficiencies and pass them on to customers, create new markets, and develop vendors. They were supposed to use the power of technology, analytics and access to millions of Indians on smartphones to cut wastage, reduce inventory losses and create super-efficient, super-lean businesses. They were supposed to open under-served markets and truly take brands to markets that were hard to reach—and facilitate creation of super-brands in India.
But all we’ve seen is an abominable level of price-cutting, unprecedented media blitzes, wastage and inefficiencies that would boggle a rational mind. This caused massive collateral damage to offline players and brands who lost control over their pricing. These are not minor pricing anomalies—these are price distortions that are hard to stomach for brand owners.
This artificial price war in this race-to-death (or as VCs politely put it, last-man-standing) by online players is not a recipe for developing a market—it’s a recipe for destroying one.
VCs saw a nascent modern retail market taking birth in India—suffering from high rentals, sub-scale operations, inefficient supply chain infrastructure and high cost of attracting customers. And they went in for the kill. Organised retail penetration is under 10% in India; in comparison, organised retail has over 85% share in the US and in China it is above 20% (the overall retail market in China is 10 times the size of India’s). Our malls have barely penetrated Tier 1 and Tier 2 cities and they are already failing and turning into ghost malls. The VCs saw this weakness and decided to press a pillow over their faces. Retailers have struggled over the past three years—they have almost gone on a permanent discount mode and have struggled to keep up with the insidious assault by online players. Brand owners lost control over their brands. They were lulled into believing that they could get additional revenues by joining online platforms—and proclaiming themselves to have a multi-channel presence. Instead, all they got was a few percentage points of extra sale through e-commerce channels, but lost significant value when their brands ended up being put on deep discounts and commoditised.
So, no, it’s not pricing control. It’s more like an anti-dumping law has been imposed to stop the blatant abuse of business tactics by online players. As I see it, it is nothing more than a narrowing of the range of distortion that venture capital has done to our economy—the sums of money are meaningful to hurt our economy. This just brings in a bit more balance and then leaves the market to its mechanisms again.
It’s more like an anti-dumping law has been imposed to stop the blatant abuse of business tactics by online players
This is NOT regressive
Why are we calling this a regressive move? Why are we assuming that sellers and brand owners will not want to find a way to reach the billions of Indians on smartphones? In effect, this law takes away any apprehensions a brand may have about going online.
As a supplier, I will always tend to adjust my pricing for a certain channel, keeping in mind the costs associated with that channel. So, by that logic, as long as I have control over what price the marketplace actually tags on my product, I will use online marketplaces to open new markets, reach out to customers and create value for my brand.
If the online channel presently has a higher cost structure (since it competes with legacy kirana costs in several categories), as a brand owner, I will happily offer a higher margin to the intermediary (the marketplace) to ensure that I have salience on these platforms. After all, an online marketplace channelizes millions of consumers every day—much more than any retail bricks-and-mortar format. In fact, now that I have certainty of control over my price and positioning—I can design “internet only” brand/product extensions. This can be a win-win—for both brands and online marketplaces.
Now that I have certainty of control over my price, I can design “internet only” brand/product extensions
Distortion by Demand Creation
Let’s step back a bit and look at how an internet marketplace works. It functions by matching demand and supply between buyers and sellers who transact on a platform. A successful marketplace is one that creates demand and supply at such scale that a “network effect” of sorts clicks into place. It then becomes a default destination for demand and hence the best place for suppliers to find their customers and vice versa.
The first challenge in building a successful marketplace and hitting network effect is to inspire demand. This can be done in two ways:
1) By creating a brand and services that consumers trust and providing the best “lubricants” that the market needs. We’ve seen Indian e-commerce players do a spectacular job creating a nationwide logistics network, easy returns, cash-on-delivery and try-and-buy services. And we saw this sector go from zero to near $20 billion in gross merchandise value (GMV) in the past 10 years.
2) By “bribing” customers with artificially low prices to buy on the platform— and changing their behaviour using cash-backs or other means to buy their loyalty. This method is usually easier and needs only capital. More the capital, better the chances of hitting network effect and out-running competition. It is the hunt for the elusive “network effect” which can propel these marketplaces into self-sustaining giant flywheels of supply and demand that drives these decisions.
What happened in our markets, especially over the past two years, is that online players, fuelled by capital, drove this second method of demand creation to irrational levels—leading to massive upheaval in pricing and functioning of the market.
The government has now said that this “bribe the customer” behaviour has to pass the test of reason. The intermediary (the marketplace) was distorting the market—not the owner of the brand or the seller. With the new law, it has made it clear that the marketplace is an agent of the seller. The seller may choose to discount his/her goods for the customer via the platform. But the platform on its own accord cannot create an artificial price. So in essence, there is no price control. If you as a seller choose to discount your product by 80% or create any other incentives, you are completely free to do so.
In a sense, the government has put a limit on the range of distortions that online players can create. For instance, a friend went to the showroom of one the world’s best audio speaker brands and saw the price tag for a unit at Rs 28,000. He scanned the barcode and saw the same unit at an effective price of Rs 16,000 on an online platform. The salesman looked at him helplessly and told him to buy it online since he could do nothing about the discount that the marketplace was offering.
So what are the likely implications as we go forward? I’ve tried to list out a few here and welcome additions to this list:
- The range of price distortion will narrow down from the 20-30% we are seeing in certain categories. It will come down to between 5-10%. Clearly, sellers will have to offer discount online in order to woo customers to buy goods without touching or feeling them – so a natural online discount will persist.
- Brands will create different price points in different markets. If your physical bricks-and-mortar distribution does not reach Raipur, you will offer incentives to the consumers based there (that’s easily doable in the marketplaces). Online platforms will serve their purpose and take brands to hitherto under-served markets. Price control now goes back to the originator—the retailer or the manufacturer. Overstock (unsold inventory) will start getting liquidated online without creating confusion among customers as it does today.
- My hypothesis is that mid to large brand owners will have to rejig their commercial models. Here’s why. While online retailers were indulging in deep discounting, brand owners could assuage their offline channel partners (who account for 90% of their revenues) by arguing that they had no control over online prices. In other words, they could bury their heads in the sand and ignore the current state of disequilibrium. In the new scheme of things, they will have no such option. They will have to accede to the demands of their dominant offline channels.
- The rationalisation of prices of big brands creates new opportunities for private label and internet-only brands, which can create selling points with complete freedom as they don’t have to keep any offline retail channel conflicts in mind. They will now be able to offer an alternative to branded products and will work in conjunction with marketplaces to set prices for their goods and drive demand. This will drive creation of several online-only brands.
- Loyalty and cash-back and such incentives will continue, except now they will have to pass trade-norm tests. For example, It is normal for offline brands to give 5% back to customers via loyalty programmes. I don’t think anyone will grudge similar range incentives for the marketplaces.
- Online platforms will focus on becoming lean and efficient to survive. There is no other way. That’s how Amazon did it in the US. That’s how e-commerce players in India will have to do it. There is no choice. The days of the offering free-lunches, and hiring fat-paycheque-silicon-valley-import managers are numbered. Marketplaces will focus on using the power of data, reviews and ratings. They will use algorithms to win and not their balance sheets. We’ll witness a bout of innovation in retailing in India—mobile-driven, customer-centric and soon using VR (virtual reality) to give a showroom experience at home.
- Expect growth to slow for the e-commerce majors for a few months, as they restructure to face the new reality their costs. Layoffs and downrounds (downround is a round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the company by earlier investors) are inevitable and will start now. Eventually though, we’ll see a healthier industry. Make no mistake. The internet is a better way to work. It saves cost, adds convenience, lowers inventory and cuts out wastage. Yet it has to be operated leanly. The current winner-takes-all push has led to bloated organisations and wasteful practices. In a way, the founders’ attention, which was directed at building a public profile and fund-raising, will now completely shift inwards, towards a differentiated customer experience and driving cost efficiencies. It is unlikely that initial public offers (IPOs) will be on anyone’s mind for a while. Perhaps investment bankers to these firms can go on a vacation.
- However, all is not lost. E-commerce companies needn’t jettison their entire deep discounting strategy. There is still room for e-commerce companies to create deep discount categories to woo customers and even try elements of subscription-commerce to create loyalty and lock in. After all, the new rules allow e-commerce firms some flexibility to use a group company supplier model, as long as it does not exceed 25% of sales. A group company can create private label products which can be offered at great prices. This is a formula used by bricks-and-mortar modern retail for decades. They woo you into the outlets using the strength of the brands they offer and then push their own private label brands which are placed right next to the bestsellers. I am sure there are many more creative ideas on how this loophole will get used. Marketplaces need not fret – the 25% rule has given them a significant head start.
Marketplaces will focus on data, reviews and ratings. They will use algorithms to win and not their balance sheets.
- On the brighter side, this move may have also strengthened the moats of the existing e-commerce giants. If you evaluated the market from Alibaba’s perspective on a day before this policy pronouncement, it would be simple. Why should I pay a $10-15 billion valuation to buy-out Flipkart when I can just give away maybe just 4B$ billion dollars to woo the 40M customers that Flipkart has? This is exactly what Paytm did when it started the extreme cash-back model of selling goods. The make-or-buy decision takes on another dimension now – it will no longer be simple to start from scratch and build. A big investment appetite will not be the sole determinant of success. Instead, you will have to build by creating true brand preference, which is a longer and riskier bet. (One question that comes to mind: do the same rules apply to an Indian marketplace? Or will we see a marketplace promoted by indian conglomerates or retailers pose a threat to the incumbents who have to comply with this policy since they have raised foreign investment?)
- Malls will make a comeback. The battered bricks-and-mortar retailers will get a fresh breath of life—and you’ll see malls that create a blend of food, retailing and entertainment draw customers back into their cool air-conditioned environs. We will see more innovation in bricks-and-mortar retailing. They had just stopped investing due the uncertainty created by online pricing.
- If the game shifts to efficiency and lean ways of working, the global majors like Amazon and Alibaba will have a clear advantage. They know the business and have the technology and payment platforms and their costs are defrayed across global operations. In one of my earlier articles, I had spoken about why the lack of a sustainable lock-in will erode value. Any e-commerce player that gives away money to consumers in the belief that capital will create the winner, will need to seriously question their assumptions.
Malls will make a comeback. The battered bricks-and-mortar retailers will get a fresh breath of life
Online retailing is great for an under-penetrated market like India. It creates new markets, creates jobs and moves our economy ahead. Most online retail in India is additive—consumers are spending more because the choices have increased and are not just substituting offline purchasing with online. People who did not have access are now the new consumers in the ecosystem. It’s accelerating the growth of India’s domestic consumer economy. In theory, it was supposed to overcome our physical infrastructure limitations and was supposed to be the most efficient format of retailing. Now it will have to be so in practice. That's the only way the players will survive.
Offline retailers: Don't say “Yahoo” yet. Most of you run as inefficiently as the platforms you point fingers at. The reason you don’t make profits is your own inefficiencies and if you don’t use this pause in the battle to invest in your digital avatars, you will still lose the war. These marketplaces will become super-efficient—now that they will be capital starved, and they have the tools to remain the gatekeepers to every purchase decision. Consumers will research online before they make a buying decision and the marketplaces will own that path—so your future is not as secure as you may think this regulation makes it. You will have to innovate constantly to keep pace.
I foresee a better future. It will no longer be a few winners who have had the luck to be hyper funded, but the real, well-run businesses that will win. As they should. Now starts another phase of this battle. A little more balanced—a little more rational—a little less subject to vagaries of funding versus efficiency of building good solid business. May the best folks win.
It will no longer be a few winners who had the luck to be hyper funded, but the well-run businesses that will win
Author’s Note: The policy impacts every firm trying to do business online in India. Whether you sell products, services, tickets or subscriptions, VC-funded businesses face a new paradigm.
In this piece, I have tried to evaluate the implications of the policy on the giant e-commerce marketplaces that will have to change strategy with immediate effect. This is also expected to have an impact on the profitability and survival of offline retailers or indeed every offline business, since if you don’t face an online competitor today, you soon will.
The policy also covers sale of services and digital goods and thus covers businesses like Ola, Uber and even online travel agents like MakeMyTrip and Yatra who sell digital goods. Online grocery chains like BigBasket too are governed by this policy—they have large single-seller/inventory-based models and will probably have to be reworked almost entirely. The implications for these businesses are massive—it could hamper their ability to build scale by directly incentivising customers. These business segments in services and digital goods are the subject of another debate. However, the broad principles discussed in this article should apply. Do comment in the thread below to take this discussion forward.
Q: Will online discounts stop?
No, online discounts will continue. For two reasons: One, sellers will compete on the platforms, e.g., will Samsung just give up online sales to Micromax or Oppo and not compete online? Two, the 25% “group company supplier” norm will allow platforms to sell their own private brands at a discounted price. Suppliers will also enter into online-exclusive deals like the over 15 smartphones models we see on Flipkart even today.
Q: Is this policy foolproof?
The single biggest issue the government has to clarify is whether a marketplace can enter into opaque contracts with any sellers and find ways of influencing prices indirectly by compensating these sellers with marketing commissions or kickbacks.
For example, can a seller on Flipkart or Amazon buy a Sony TV at Rs 50,000 and sell it on the marketplace at Rs 25,000 and get the difference compensated through another route? Could this be a route for the “group company” seller? Will this backdoor be left open?
Q: Does the regulation hurt online businesses?
Online firms have natural advantages: instant national reach, personalisation, ability to segment markets and consumers, higher depth and width of categories. For example, Big Bazaar is unlikely to succeed at selling cars, bikes or insurance, but Flipkart can. Technology and innovation are the weapons for winning, not under-cutting and price distortion. I don’t see anything but a temporary dampener on their growth rates.
India is the only market of its size and scale that is fully accessible to foreign capital—Google, Facebook, Twitter, WhatsApp already control almost all of our internet traffic. But we need to calibrate their actions when they can hurt our ecosystems. Else why do we protest net-neutrality? Similarly, every global e-commerce player is driving their stake in the ground here and pouring billions. Should their actions be calibrated?
Q: Is the policy comprehensive?
No, I think it has several lacunae. For example, if an Indian investor acquires Flipkart or Snapdeal, they seem to have no restrictions at all. We need to level the ground for domestic marketplaces and rationalise policy on single and multi-brand retail. Whenever regulation lags a market there are bound to be gaps. Plus lobbies play their role. Our retail deregulation has been patchy at best and we need clarity on the path ahead.
Q: Will domestic offline players have an unfair advantage if they go online?
I don’t think it will be as easy for a bricks-and-mortar retailer to win online. Online retailing requires an entirely different mindset and skills. One look at the online sites and apps of the current incumbents will tell you they are years behind on even getting the basics right. So while the threat of well-funded domestic players looks imminent, I think more is being made out of it by the folks who are crying “protectionism”. The regulation will evolve by the time they become a real threat.
Offline retail is already in a losing battle—this “unnatural” pummelling by online was just destroying the sector. The policy gives them a breather and some manoeuvring room to get customers back into stores.
Other articles by Haresh Chawla on this subject:
Mariana Feged on Jul 20, 2016 9:22 a.m. said
Thank Haresh for the great article! I have a question: if today marketplaces represent nearly 90% of online sales, what do you think their share will be in 2020? Will single brand shops blossom and balance the eTailing play field?
Pradeep Kashyap on Apr 06, 2016 9:32 a.m. said
Fantastic .. ! Article ..
Sandeep P Todi on Apr 04, 2016 4:23 p.m. said
Amazing breadth you have covered in analysing the impact of PN3 on ecommerce Haresh. Leaving aside the Government's intent for a moment, one wonders how on earth is the Government going to monitor and enforce these guidelines. Nearly impossible and any ham handed attempt to do so will either take the form of inspector raj or else would encourage a whistle blower culture.
Prateek Agarwal on Apr 04, 2016 3:26 a.m. said
Hi Haresh - this is a great articulation of thoughts around the new policy proposed by the govt. I was wondering if this comes across as a progressive decision, only in context of the price influence that Indian marketplaces were able to leverage owing to high external capital moats? Would this not appear as an unhealthy economic regulation if Flipkart, PayTM et all had built their businesses in a judicious and differenciated manner.
Sanjay Laddha on Apr 03, 2016 6:45 p.m. said
Congrats on coming up with a Concise article with a 360 degree view of the new regulations.I am wondering what would happen to the mind boggling valuations game being played by marketplace unicorns.Its a welcome move which would reduce the distortions between offline vs online retailing,and would lead to healthy retail footprint.
Shri Harsha K on Apr 03, 2016 8:58 a.m. said
Haresh, very well articulated
My take: Way forward the differentiators of e-commerce players will be
User Interface & User Experience of Portal/App.
Sai Chintala on Apr 03, 2016 6:50 a.m. said
Well written Haresh. Its a good read. Thanks for this wonderful article. I think its time for the offline retailers to opt for their own digital platforms to reach out to customers.
Haresh Chawla on Apr 03, 2016 5:37 a.m. said
Hi Aditya - thanks! My other posts are right here on foundingfuel.com - :) cheers
Haresh Chawla on Apr 03, 2016 5:36 a.m. said
Hi Nihar, Agreed - we may wish away all forms of regulation and let capital run amok - but countries and their markets evolve in a context. Online has natural advantages - of depth, discovery, of creating new categories (they now sell cars, bikes, tractors and homes on these marketplaces!) - and it will become a bigger driver of consumption in India than offline. The govt has curtailed the unnatural advantage these folks have been using.
Haresh Chawla on Apr 03, 2016 5:31 a.m. said
Hi Pankaj, Discounts will continue - for two reasons. One - due to natural competition between sellers on the platform e.g. will Samsung just give up online sales on these platforms to Micromax or Oppo and not try to match their online offerings? Two - the 25% group vendor leeway will squarely allow platforms to support vendors/products that are under their price control. The intent of the regulation is to allow suppliers to compete on prices "on the platform" and not "compete with the platform". The govt doesn't have any intention to advise prices - and it shouldn't. Is the regulation perfect, probably not - it leaves room for domestic players to play an unfair game - and other lacunae. Presumably, it will evolve.
Haresh Chawla on Apr 03, 2016 5:30 a.m. said
Hi Naimish, I don't think this is levelling the playing field much - this is just restricting unnatural behaviour. And do I think these regulations could have been drafted better - absolutely - these have been done in a bit of a hurry in response to a High Court order. I think the marketplace norm should apply to domestic capital too. On the other fronts, I guess our regulations have to evolve alongwith the market. And they will.
Haresh Chawla on Apr 03, 2016 5:27 a.m. said
Hi Carlos, I agree with you - we have an overdose of capitalism on one side and cronies on the other - however, online retail has significant natural advantages over offline - thus it will always keep offline prices in check. You will always be able to scan the bar code of a product and click and order while you are in the shop :)
Aditya Varma on Apr 03, 2016 4:42 a.m. said
Brilliantly written article..
You did not miss a facet of online space...
Would love to read more????????
Nihar Mamtura on Apr 03, 2016 2:51 a.m. said
It was high time the Govt intervened to stop this Online business from making offline go bust. There are 100s of thousands of jobs at stake. Not just in retail but many others which indirectly depend on brick & mortar retail. I think anyone complaining about their discounts being discontinued is being selfish. If one thinks from a larger perspective it is no good for the economy and will come to bite the consumer in some form over a period of time. It was high time this extremely flawed business model was reined in by the government. Kudos for doing it & now ensure the intent is executed well.
Pankaj Kasana on Apr 02, 2016 5:37 p.m. said
Pardon the naivety of my comment, but as a layman, I see this blow to e-commerce players as a blow to end consumer. I may not possess the analytical insight to look through the potential changes this policy will effect to Indian Marketplace but I for sure know that the deep discount I was enjoying are going to vanish. The moot question is, why should I, as a customer, give two hoots to where, how and why VCs are burning their money? I don't care if e-commerce companies bleed to death or offline retailers shut their shops, as long as products/services are cheaply and conveniently available to me. As a beneficiary of these disruptive market tactics, or whatever you name them, why should I rejoice this move if I have to shell out more out of my pocket just because some brick-mortar guy is unable to compete in this mad rush. Enlighten me!
Carlos Stevie on Apr 02, 2016 5:34 p.m. said
Mostly agree with you.
I am as much scared, of the pricing power these giants will gain in the future, as I am of Indian politicians.
But tell me one thing, I strongly feel the offline / physical retail stores over-price the products. Yes, They don't sell beyond MRP. But, Isn't MRP itself far higher than the actual cost of production ?
They may have justifications for this. But, as a customer do I need to be bothered about their inefficiencies and thereby over-pricing most products ?
Naimish Dave on Apr 02, 2016 5:24 p.m. said
Hi Haresh. Interesting viewpoint and I like your positive take on the matter. I guess ultimately the industry will need to adapt and make the best of what the government serves up. You clearly support the proposed changes as a means to level the playing ground for offline and online retailers. However, I hope you agree that there could have been more positive ways to do this - like allowing FDI in multibrand retail too, and thus giving offline retailers a chance to attract capital the same way that online market places have done. The danger facing offline retail is greatly exaggerated - modern retail is still nascent in India and given the late development of this sector, we are seeing various channels evolving at the same time. So what is wrong if we leapfrog the offline modern retail development and move to online? It is obvious that all channels will co-exist in future as each have their unique proposition, and VC money is not inexhaustible to keep funding discounts online. The current PN3 is a step towards protectionism and shields the inefficiencies of the offline retailers.
Haresh Chawla on Apr 02, 2016 4:22 p.m. said
Hi Srinivas - I don't think it will be as easy for a brick and mortar retailer to win online as you suggest. Online requires an entirely different mindset and skills. One look at the online sites and apps of the current incumbents will tell you they are years behind on even getting the basics right. So while the threat of well-funded domestic player is clear & present - I think more is being made out of it by the folks who are crying "protectionism" - the regulation will evolve by the time they are a threat. The Government is hardly going to let Foreign investment in India suffer on account of this skew in regulation.
Haresh Chawla on Apr 02, 2016 2:05 p.m. said
Ketharaman, organised retail is barely 10-12 years old in its current form in India, and it's been suffering for the past 5 - so you'll have to give them a little leeway.
However, I could not agree with you more - online retailing has NATURAL advantages - they give more choices, they can deliver great prices, they can create markets for new categories (imagine bikes and homes are being sold online) and in the past few years they've managed to get several things right. And that will continue. You and I seem to be in the minority though when it comes to believing that we WILL have a happy ending, and that this regulation has less to do with hurting online players and more to do with resuscitating offline. The current law will go through its pain and evolve with the market.
Haresh Chawla on Apr 02, 2016 2:00 p.m. said
Ketharaman, There is no "hit" due the new laws - the only thing that's happened that regulation has taken away the bat with which they were pummelling offline players and suppliers. Private label or "non-mrp" products at great prices will work online - why not- most online consumers are deal seekers, and will buy.
As far as the group company issue goes- need to understand how the policy makers will view it - but clearly if you offer third-party products at great prices you are playing with a supplier price point - you can't sell a Sony TV at half the price just because your group company is the single-vendor group company. That will rail against the spirit of the regulation - and Sony will be well within its rights to protest.