The changes in e-commerce rules in India are giving much pain to Amazon and Walmart. But they are slowly and surely navigating their way ahead.
- Amazon and Walmart (through Flipkart) are facing major short-term disruption after the implementation of the new e-commerce rules.
- Nevertheless, both companies have reiterated their continued commitment to the Indian market.
- The companies are reducing their stake in seller entities, and could adopt a ‘Best Friends’ strategy.
- They also seem open to giving up on exclusivity, even as they look for other ways to provide deep discounts.
The changes in e-commerce rules in India announced on February 1 changed the game significantly for foreign e-commerce firms. The changes had reverberations across the globe – right to the headquarters of Amazon and Walmart.
PricewaterCoopers has estimated that the changes in rules could lead to
a drop in e-commerce sales by around US$ 46 billion by 2022. A few days after the announcement, Morgan Stanley had warned that Walmart may leave India after the changes in the e-commerce policy. It estimated that the changes could increase Flipkart’s losses by 20-25%. Walmart CEO Doug McMillan commented during the company’s fourth quarter earnings call:
“In terms of the regulatory environment, we were disappointed in the recent change in law and the lack of consultation… But the team has worked to ensure that we’re in compliance with the new rules. We hope for a collaborative regulatory process going forward, which results in a level playing field.”
He also added that the company is still bullish about India’s retail landscape and the opportunities it provides for e-commerce firms. Both Walmart and Amazon have taken a hit due to the rules, but they are now slowly adapting to the changes.
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Within days, both companies removed thousands of products from their online platforms. In the case of Amazon, most of these were sold by Cloudtail (JV with N R Narayana Murthy’s Catmaran Group) and Appario Retail (JV with Ashok Patni Group).
Cloudtail has accounted for over 40% of Amazon’s sales in India in some months and was also the seller for Pantry, its grocery delivery service.
Amazon is taking more measures to demonstrate a commitment to equality as opposed to being biased towards some sellers. It has reduced commissions by 35%-50% to open doors for more independent sellers. The company also plans to push private labels like Presto, which sells products like Harpic, Lizol and Prill at heavy discounts.
Amazon has also brought back Cloudtail after a week, by changing the shareholding structure and reducing its ownership from 100% to 24%. Earlier it was offering sellers services like logistics, etc, but now Amazon may change it to a subscription model. Through this method, it can also continue its previous policies of deep discounting. Archana Tewary, Partner, J. Sagar Associates, commented:
“We have seen them thinking of possibly offering subscription service. For instance, sellers who subscribe to that service voluntarily will get better terms of listing their products for offering them at more competitive pricing. Also, companies can help sellers through offerings like discounts on logistics cost etc. So there are certain thoughts on how to do it.”
E-commerce firms may also have a ‘Best Friends’ agreement with entities, which will allow them to continue supporting them while pulling in other parties to take up stakes.
Furthermore, both Amazon and Flipkart are adopting a diversified approach in terms of sellers. They have appointed more smaller sellers for some hot selling smartphones and electronics. Amazon has cut down on its commissions to attract more such sellers. These sellers are also providing similar or better discounts than the large entities like Cloudtail, Appario and OmniTech Retail.
This is in response to the policy that prevents these e-commerce firms from having over 25% of their purchases from a marketplace entity. For instance, Xiaomi Redmi 6 Pro (64GB) was earlier sold exclusively by Appario, but is now also being sold by Meera Enterprises.
For OnePlus phones, Cloudtail was the preferred seller before February 1, but now there are others including Rocket Kommerce, Darshita Electronics and #GreenMobiles. Similarly for Flipkart, a number of smaller sellers like Vision Star, IndiFlashMart and Flashtech Retail are on the platform for smartphones of RealMe, Xiaomi, Vivo, Honor and Motorola.
Flipkart is also adding a layer of B2B entities called alpha sellers who will act as intermediaries between its wholesale entity Flipkart India and its major online sellers.
- The new e-commerce rules have hit Amazon and Flipkart hard, and could affect sales in the short term.
- Both companies
are disappointedthat the rules were changed without proper consultationwith them.
- By reducing their stakes in major seller entities and changing to a subscription model, these firms are looking to bypass the restrictions.
- The companies are also trying to change perceptions of bias by partnering with more sellers, especially for bestselling products.
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