E-tail Hammers Retail
When Flipkart, India’s most popular e-commerce site, embarked on a discount sale of monumental proportions on October 6, the attention it received only underscored what many have known for a long time — that online retail has arrived on the big stage, in style. The other fact that emerged wasn’t as widely known. The fledgling online retail sector, forming less than 1 per cent of the total retail market in India, now has the muscle to make the rest bleed.
Flipkart, and its main competitor Snapdeal, each made around Rs 600 crore on Monday. Flipkart saw over a billion hits and Snapdeal reportedly sold a smartphone every 6 seconds, a laptop every 20 seconds, a tablet every 30 seconds, a saree every 30 seconds and a pair of footwear every 10 seconds, in what was the biggest day for e-commerce in India.
The rest of the sector though, is not doing as well. In what is probably a first in recent history, brick and mortar (B&M) retailers across the top 10 biggest cities in the country saw sales dropping during the festive season. Sources who did not wish to be named said Chennai’s own Poorvika and UniverCell have also seen severe declines in sales for this period. And the decrease is substantial — as much as 15-20 per cent. The figure stands in stark contrast to the 25-30 per cent increase in sales that these retailers actually see during the same period every year.
According to former sales head of Apple Inc and current mediator between traders and manufacturers on the issue, Adarsh Shashtri, effects on B&M retail chain and single stores are unquestionable. “Several B&M retailers and multi-brand outlets in the top 10 markets in the country have said that they are bleeding,” he said. “They have lost almost 30-40 per cent of sales this season and the reason is that a large chunk of their customers opted to go online this year.”
And why not? Flipkart offered discounts of more than 60 per cent for some products last Monday and other leading online retailers like Snapdeal gave their own discounts. And discounts through the year are quite common in top e-commerce sites. While the eventual benefit is to the customer, industry experts say that this state of affairs is unsustainable in the long term and hits offline retailers badly.
“A traditional store cannot afford to shell out these kind of discounts because of their operational costs and volumes. The volume of sales that goes through an online marketplace, which is what most e-commerce sites are, mean that sellers on those sites source their products at a lower rate from the manufacturer,” pointed out Satish Das, CEO of Grabmore.in.
But manufacturers are denying that they supply online retailers at severely truncated prices. “If they are not, how can online retailers sell products at the prices they have been doing?” countered Shashtri. The lack of transparency, according to him and several trade bodies in the country, can only be solved by the institution of a regulatory framework for retail in India.
“Neither the Centre, the State government or even the Competition Council of India (CCI) has taken cognizance of this sector before. They have to now,” he told the Express.
The lack of a well established regulatory framework is surprising considering the size of the sector in India. Retail is a $520 billion industry employing over 1.5 crore people. And the impact that a segment that forms less than 2 per cent, at most, of the sector could have on them should be looked at, according to industry representatives.
The outcry against Monday’s issue-ridden sale though has finally drawn the attention of the government to the unregulated predator that online retail is growing into.
Minister of State for Commerce and Industry Nirmala Sitharaman has declared that the Central government would look into complaints made by traders against online retailers and the Confederation of All India Traders is now threatening legal action at the Supreme Court and demanding that the CCI take note.
Manufacturers have also reacted strongly to what they now recognise as a reduction in their brand values. Big brands in the electronics and apparel sectors, including LG, Sony, Canon, Madura Garments and several others, have already started imposing stricter rules on their online sellers. The fact remains that even with more regulations and tighter monitoring, online retail is here to stay. The sector has seen exponential growth over the last five years and the increasing penetration of internet connectivity in the country will only ensure that online retail continues to grow. Whether it grows as a fair competitor or an unregulated predator, though, remains to be seen.