BENGALURU : The battle between e-commerce platforms and offline retailers has now come out in the open with the latter registering a major victory recently as the Supreme Court gave a go-ahead to the anti-trust investigation against the e-tailers — Amazon and Flipkart. At the root of this dispute is some of the alleged anti-competitive practices adopted by these e-commerce platforms, which according to offline retailers are killing their business.
“Lakhs of jobs have been displaced as the marketplaces indulge in anti-competitive practices including exclusive tie-ups with manufacturers/ brands, deep discounting, preferential treatment of sellers etc, says Arvinder Khurana, National President, All India Mobile Retailers Association, who had petitioned the Competition Commission of India last year to start a probe into the alleged anti-competitive practices of e-tailers like Amazon, Flikart.
Khurana said that he has presented documented evidence before CCI elaborating how manufacturers deny permission to retailers to sell specific models of phones or selling on their own websites since they are under agreements with the marketplaces.
The recent Supreme Court verdict in favour of the retailers which allows the CCI to probe into the business models offers some relief, however, the retailer associations and trader bodies are demanding a regulatory body to oversee the functioning of the e-commerce companies. “It is a common practice now — there has been no decline in the number of exclusive brand launches, sales events even if the scrutiny is increasing,” he noted. Also under scrutiny are some of the top sellers on these platforms.
Curious case of alpha sellers
Ever since their inception in India, the e-commerce companies are often accused of promoting a section of sellers, prioritising them on search indices, charging less commissions, commonly called alpha sellers.
Confederation of All India Traders (CAIT) General Secretary Praveen Khandelwal believes that these sellers are in fact subsidiaries of marketplaces and are bifurcated to evade the laws of the land. The internet commerce firms deny these allegations. But, a deeper look into the financials of some most popular seller firms reveals astonishing growth.
WS Retail, one of the top sellers of Flipkart, and Cloudtail and Appario on Amazon are long believed to be subsidiaries of these companies, driving more than 60% of the overall sales on the platforms.
Post the government scrutiny, WS Retail cut its ties with Flipkart a few years back. Its revenues dropped to Rs 2.9 crore in 2019-20 from Rs 13,500 crore in 2015-16.
Cloudtail, in which Amazon holds 24% stake along with Narayan Murthy’s Catamaran Ventures (76%), saw its revenue increase from Rs 1,140 crore in 2014-15 to Rs 11,400 crore in 2019-20.Amazon India head Amit Agarwal is also a board member in Cloudtail. After the scrutiny from regulators and the government, Amazon and Catamaran Ventures recently announced that Cloudtail India will cease operations from May 2022.
Another Amazon seller at the heart of controversy is Appario Retail, which is a subsidiary of Frontzio, a JV of Amazon and Patni group. A former executive of Amazon — Amandeep Lohan — is the CEO of Appario Retail.The seller firm’s revenues jumped to Rs 9,929 crore in 2019-20 from Rs 755 crore in 2017-18.Earnings before Income, Tax, Depreciation Amortization (EBIDTA) of top 3 sellers on Amazon, Flipkart have soared by 60-160% during FY20, as per the information sourced from data intelligence platform Tofler.
“Even after all the scrutiny, we fear that instead of 10 sellers, these big companies may rope in hundred odd retailers from smaller entities, which again hits the offline retail business,” Khurana said. A detailed questionnaire sent to Amazon and Flipkart did not elicit any response. However, both these firms have maintained that they are open to scrutiny and will cooperate with the investigations being undertaken by the CCI and ED.
Govt’s tough talk
On the regulations end, the Indian government has woken up to the anti-trust cases like her counterparts in the United States, Europe, and opened investigations.The Chief Justice of India recently commented that in fact big companies like Amazon and Flipkart should voluntarily submit to these investigations, if they feel they don’t violate the laws of the land. Union commerce minister Piyush Goyal minced no words in criticising the big firms. His popular remark in 2020 was that Amazon is doing no favour to India by investing $1 billion when world’s richest man Jeff Bezos announced growth plans for world’s second largest internet market.
Recently, Goyal hit out at one of the largest business conglomerates of India, Tata Group, who as per sources, objected to the fresh amendments to the e-commerce rules, especially prohibiting the marketplace from selling goods of their related entities. Sources in the Department of Promotion of Industry and Internal trade told this publication that exercising over-control on the inventories, sales of goods is a point of contention, which is prohibited under the current laws. “Exhibiting certain amount of control on goods/ inventories on marketplace will expose the marketplace to several restrictions and in some cases where the control is overwhelming like many common board of directors or a major shareholding pattern, the company ceases to be a marketplace altogether and that is where the investigations come in,” a top source which has tracked both Amazon and Flipkart said.
Both Amazon and Flipkart are being probed by the ED for the violation of the Foreign Direct Investment and Foreign Exchange Management rules. Rukshad Davar, Partner - Head M&A Practice, Majmudar & Partners, said that e-commerce entities have been scrutinised for innovative ownership structures and providing benefits to specific sellers. “The draft amendments to the Consumer Protection (E-Commerce) Rules, 2020 propose to regulate such practices. The extensive changes proposed will help in creating a level-playing field and curbing the circumventing practices adopted by e-commerce entities in India,” Davar said.