Amazon or Big Bazaar, Indians want low prices. Online retail must be a level playing field
OOnline retailing is one of the few sectors to have well done even during the Covid-19 pandemic. Consumers’ love of convenience and value for money offers the industry’s double-digit growth. It adds thousands of jobs directly and indirectly in logistics and manufacturing in an otherwise sluggish labor market. The online retail industry is also helping thousands of small sellers overcome the limitations of local small markets by turning them into pan-Indian and / or global sellers. This adds to India’s exports.
Yet not everyone is happy, especially offline retailers.
Online retail platforms are the subject of five major criticisms. First, the massive discounts they offer are killing offline retail, including neighborhood grocery stores. Second, they give preferential treatment to big sellers. Third, they cross-sell and aggressively push private labels. Fourth, they exploit small sellers by charging high fees while expecting them to give big discounts to customers. And fifth, they often find a way around (e-commerce) regulations to continue engaging in all four practices.
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It’s a cost-conscious market economy
Online sellers rely on discounts and price drops, which hurts offline stores selling clothing, groceries, or cellphones. But so are offline retailers. In a cost-conscious market economy like ours, where customers want more for less, discounts, price cuts or cash back will be used to drive sales, whether it’s retail, telecommunications services or digital wallets. Most online shoppers love discounts – the bigger the better. This is why online marketplaces such as Amazon and Flipkart or offline retailers such as Big Bazaar, DMart or Reliance Retail hold D-Day sales or flash sales. Those who buy from DMart stores (offline or online) know that no other seller, including Amazon, Bigbasket, Flipkart, or JioMart, can match them on the prices of the grocery store.
Thus, it is difficult to understand why India’s e-commerce rules distinguish foreign online marketplaces but not domestic online and offline retailers, who rely on similar marketing tactics to increase their sales. It’s not that only Amazon and Flipkart discounts are hurting the prospects of mom-and-pop stores and not Big Bazaar or JioMart. In addition, India’s retail market is value nearly $ 900 billion, of which online retailers account for only about 5 percent.
In its current avatar, online retailing is mostly about lower prices and higher (sales) volumes. This may cause Amazon or Flipkart to rely on a few select vendors with capabilities to grow and attract large numbers of customers online using attractive merchandise prices that smaller vendors may not offer. Unlike JioMart, for example, foreign companies Amazon and Flipkart cannot own inventory, which is necessary to control prices through wholesale sourcing and thus negotiate lower prices. – due to faulty India e-commerce regulations which only apply to overseas retailers.
In an extremely competitive market, not only online platforms but many industries including banks are doing cross-selling such as auto loans to their credit card customers. Likewise, an online retailer may try to sell shoe polish to someone who has purchased shoes. The customer can accept or refuse such offers. It may not be ethical, but it is common practice.
Likewise, private labels could be an attempt to fill gaps in sourcing, or offering low-priced products to cost-conscious buyers. Sometimes the threat of pushing private labels through online marketplaces with their unmatched network power is used to extract lower prices from sellers of branded consumer goods, who would otherwise resist the pressure to cut prices and reduce prices. accept lower margins. Yet not all customers take the bait. This is why the share of private labels Amazon’s or Flipkart’s gross merchandise value (GMV) does not exceed 5 to 10 percent. In addition, offline retailers such as Reliance retail have also use private labels.
Being commercial enterprises, online marketplaces often charge 30 to 35 percent of the value of the commodity as a “fee” to recover their expenses, yet none of them make any real profit. Obviously, most of the earnings are appropriated by online customers and not by online platforms.
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Politics must provide a level playing field
Foreign-owned online marketplaces often find a way around, so goes the accusation. While this is not a good thing, the fact is India’s e-commerce regulations are too stringent and changing frequently influenced by lobbies. At the same time, they neglect consumers and discriminate foreign players. Online customers demand too much – they want lower prices, fast delivery, and reverse pickup. It’s not an easy market, but online gamers are in for future growth and profitability.
In addition, it should be mentioned that our desi online and offline retailers are not as virtuous as they might claim. We never discuss the shame with which many of our kiranas or neighborhood pharmacies steal from customers, especially in emergencies, or how they treat their customers. Rajus or Chhotus. Trading primarily in cash, they often dodge taxes. Likewise, before the arrival of online gamers, offline cell phone sellers had a margin of up to 25 percent. Obviously, they won’t be happy that customers get better deals online.
Online retail sales are mainly about attractive prices. Thus, asking e-commerce players not to influence prices is impractical, especially if this directive does not apply to local players, in particular physical stores. We need to have the same rules for foreign and domestic players, and for offline and online retail. Instead of micromanagement, we need a stable political regime to encourage investment, national added value and job creation.
One of the recent ad the draft rules want online sellers to clearly suggest made-in-India alternatives. If it can be applied to all kinds of online and offline retailers, it will help customers make informed choices and support the government’s “Make in India” initiative.
Given recently passed agricultural laws, it is also time to consider adopting FDI in multi-brand retailing. This will reduce the farm-to-fork price gap, encourage agri-food processing, and create thousands of jobs in post-harvest supply chains. The lack of jobs remains India’s biggest macroeconomic challenge with the potential to turn our demographic advantage into a demographic catastrophe and derail our consumption-based growth model. It requires sound politics instead of trying to please one lobby or the other.
The author is CEO and Chief Economist of Indonomics Consulting Private Limited. He tweets @RiteshEconomist. Opinions are personal.
(Edited by Prashant Dixit)
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