The department of industrial policy and promotion (DIPP)
has said it will not extend the February 1 timeline for the updated ecommerce
policy, dealing a big blow to US-based retail giants Amazon
and Walmart (which last year spent $16 billion to buy a 77% stake in
Amazon and Flipkart, which account for 75-80% of the online retail
business in India and rely on a handful of large sellers for a majority of
sales, had intensely lobbied for an extension. While Amazon had sought a
four-month extension, Flipkart had requested the government for about
six months to comply with the new rules. Smaller players like Snapdeal
and ShopClues, who rely on just smaller sellers, had requested no
extension in deadline, as the policy split the industry. Analysts tracking the space said companies could see about 10% of their
sales taking a hit in the short term.
A Barclays analyst note said, “We believe that these changes could materially slow down growth for Amazon India (potentially
from ~40% GMV growth to something well below, possibly closer to ~0%), while increasing losses as the company has to
reassess and adjust all parts of its operations and redesign numerous systems to ensure compliance.”
The move will force Amazon India and Flipkart to restructure their operations. Amazon has 49% stake in two seller entities,
Cloudtail ( joint venture with Narayana Murthy’s investment firm Catamaran) and Appario Retail ( joint venture with Ashok Patni family office). Under the new norms, online retailers are not allowed to own stake in sellers.
Following the DIPP announcement, TOI found Amazon had already started making several products unavailable on its platform
that were sold by Cloudtail. The same products that were being sold around 5pm in the evening via Cloudtail were unavailable
in the night. TOI has screenshots of the same.
Similarly, Amazon’s private label Symbol, too, was being removed from the platform. According to an industry source, similar
changes are expected on a wider scale starting on Friday. Flipkart’s private labels were still available on its platform at the time
of filing this story.
“Amazon is in talks with both Patnis and Catamaran to restructure and sell their holdings,” said one industry executive. Both
Amazon and Flipkart, beyond their alpha sellers like Cloudtail or OmniTech Retail, have 40,000-50,000 active sellers, who also
contribute significantly to driving high volumes of sale for these companies.
These sellers, who operate on different scales, have their own staff for their day-to-day operations. They, too, will see an impact
on their overall sales as new rules put a restriction on sourcing, pricing and exclusivity arrangements by e-tailers. Amazon
claims to have over 4 lakh registered sellers, while Flipkart has over 1 lakh.
“We will continue to look to engage with the government to seek clarifications that help us decide our future course of action,”
an Amazon spokeswoman said. A Snapdeal spokesperson said, “Adherence to rule of law will allow India to create a genuine
and robust e-commerce sector, which will ensure lasting gains for both buyers and sellers.”
Content Credit: Times Of India
Sourced from https://timesofindia.indiatimes.com/companies/big-blow-to-e-tail-biggies-as-policy-deadline-stays/articleshow/67782909.cms