American E-commerce shines bright in the sky while on the ground Retail India stares at a Dark Diwali.
- Pre-Diwali festive shopping is traditionally one of the most lucrative times of the year for offline retailers in India.
- In 2019, while Amazon and Walmart’s Flipkart saw combined sales of Rs. 19,000 crore on the pre-Diwali festive weekend, offline sales slumped by almost 50 percent on average.
- Trade Unions are seeing red and raising concerns about an alleged nexus of E-commerce companies, retail giants and banks which is resulting in price distortion.
From elite Shopping Hubs to Tier-2 Bazaars, the Indian retail market was once a vigorous, dynamic and fast-growing industry. Ahead of Diwali, offline retail in India stares at slow demise as the America-backed Indian e-commerce industry gently pushes retail to lower and lower sales.
It isn’t just about the diminishing footfall in the offline shopping landscape which is flooded by low margin retailers. The gradual evolution of the e-commerce model and convenience to consumers have also transformed the shopping behavior of the Indian customer.
With softening FDI rules, global e-commerce giants Amazon and Walmart have penetrated deeper and deeper into the Indian market.
The bigger scale of investments gives them an advantage over the fragmented retail supply chain of small-time store owners. With business models of predatory pricing and acquisition tactics, e-commerce players are manipulating the Indian market.
Furthermore, the added convenience from e-commerce and customer-centric features like doorstep-delivery, deep discounting and touch and feel before buying leaves hardly any room for traditional retail to compete.
Dark Diwali for Offline Retail in India as E-commerce shines bright
Recent India’s Diwali sale from E-commerce Amazon and Flipkart saw both companies sell retail stocks worth Rs. 19,000 crore combined in just four days. On the contrary, the CEO of a global fashion retailer stated that the brand saw sales drop by almost 25% compared on the same weekend.
The pre-Diwali weekend has been one of the most lucrative times for offline retailers in India historically. But in 2019, the showing for retail has been incredibly dismal. Mobile phone sales saw a decline of almost 60 percent. FMCG, consumer durables, gift items, and electronics sales have dropped 35 percent.
Electrical appliances, kitchen tools, and computer product sales at offline retailers have dropped 30 percent. Furnishing goods and decorative items saw a drop of 25 percent whereas footwear stood at 20 percent and building hardware at 15 percent.
India Retail Trade Unions in Angst against E-commerce
Trade Unions are seeing red and raising concerns about the unchecked exploits of e-commerce giants. Confederation of All India Traders (CAIT)’s Sunil Kumar Jain said that offline retail in India is already fearing a dreaded scenario with sales expected to decrease by 50 percent this Diwali festive season due to “unethical business” by e-commerce firms.
CAIT has urged the government to intervene and save the struggling offline retailers. The body also demanded a ‘high-level inquiry’ by a Group of Ministers (GoM) to probe the “unholy nexus” of e-commerce firms. Jain alleged that banks were also a part of this unethical concoction. Furthermore, he claims that these large companies that own brands and banks come together to cause price distortion.
The government is also observing Walmart-owned Flipkart and Amazon, to see if the giants are indulging in alleged predatory pricing. CAIT said that it’s apparent that the large ‘brand-owning’ companies are also exploiting the offline market, ‘hand in glove with e-commerce companies’.
CAIT is seeking an appointment with Indian PM Modi to apprise him of the “unholy nexus” and seek remedial measures.
It claims they have a ‘separate price policy’ for both the online and offline markets, which stands in is a ‘clear violation of the Competition Act’. Furthermore, trader angst is fueled by Banks who are readily giving cashback offers and various discounts for e-commerce purchases through their credit/debit cards.
Transforming the behavior of the Indian customer
The Indian market has a traditionally lower purchasing power compared to most developed nations. However, the sheer volume of buyers puts it on a different pedestal for global corporations.
So, instead of relying on big-ticket purchases, they are luring the Indian consumer to buy more through massive discounts. Backed by unending resources gives American e-commerce giants an infallible advantage.
In this scenario, there’s also little that small offline retailers working on margins can do. They depend on today’s profits to buy tomorrow’s stock. However, leave the small ones aside, even the large retail chains are struggling. A senior executive at a ZARA store in New Delhi said that only 50% of the customers entered their store. The rest focused more on window shopping.
Controlling buying trends
So, formidable American controlled e-commerce giants Amazon and Flipkart (owned by Walmart) have deep penetration in the Indian market. Moreover, vast inventories, and massive supply chains, and varieties of products turn the tables on vulnerable offline retailers.
Amazon and Flipkart have captured the market and control such giant shares that they now manipulate customers through mass-communicated messaging of deep discounts and global changing fashion trends.
From FMCG to electronics and furniture, Amazon and Flipkart have monopolized sales across categories. India is already the world’s third-largest consumer economy on course to $400 billion by 2025. However, this increase in market economics is heavily moving towards e-commerce.
Manipulating the market: Is e-commerce the only option?
Before the e-commerce revolution, India witnessed a retail-chain revolution. Several domestic players set up big brands in the early 2000s. Brands such as Lifestyle, Pantaloons, Big Bazaar, Vijay Sales, Croma, Reliance Trends, and many more came up. They made substantial investments, highly trained sales staff, and vast premises.
Today, retail chains have had to change their models too, caught in the collateral damage from the success of e-commerce.
Brands are trying to deliver products online to their customers through their own websites. Moreover, they provide EMI facilities and Credit facilities similar to e-commerce to make up for lost ground.
On the other hand, unorganized retailers, also called traditional retailers, are the small Kirana stores, general stores, corner stores, etc. They have been the traditional buying platforms for billions of Indians, vital to the foundation stone of Indian retail markets. However, the never before shopping experience with the convenience of one-day deliveries, return policies, massive discounts, have taken the faithful customer base away from them.
- Small-time offline traders are already fearing a decrease by 50 percent this Diwali festive season due to “unethical business” by e-commerce firms.
- They claim that the ‘Unholy Nexus’ is using a ‘separate price policy’ for both the online and offline markets, which is a ‘clear violation of the Competition Act’.
- Trader’s body CAIT is seeking an appointment with Indian PM Modi to apprise him of the “unholy nexus” and seek remedial measures.