Desi Davids brace for global Goliaths in e-commerce biz

The possibility of a pure monopoly or duopoly in the e-commerce space due to the presence of international biggies such as Amazon and Walmart, has become a concern for Indian retailers who seemed to have received the short end of the deal.

Just when it seemed that the retailers had begun adapting to the organised format of the marketplace and to the disruptive force of e-commerce, the double standards of the government concerning the treatment meted out to them have stuck out like a sore thumb, according to a top official from the Retailers Association of India (RAI), the unified voice of the industry.

Kumar Rajagopalan, CEO, RAI, has a range of concerns – one of them happens to be if the deal would genuinely bring in FDI? And whether the “ethical” Walmart would be subject to the laws of the land? The latter is in context of the deep discounting (10 to 15 per cent) that the e-tailers have been carrying out for some time now. 

Speaking about the south, Rajagopalan said strong brands that have been built over 30-60 years have been impacted by the challenge of deep discounting. 

Though the government has encouraged MNCs to enter the sector claiming it would create a thriving retail ecosystem, domestic retailers counter that this move is devoid of a vision for a level playing field. The capabilities of Indian retailers were never in question. But it is their ability to showcase volume and attain scale that has been a bone of contention. “We accept e-commerce is here to stay. However, local laws prohibit retailers from being thoroughly competitive,” he laments. 

A meeting with the Commerce Minister a few weeks ago did not yield a positive outcome, Rajagopalan regrets, and adds the ministry is “unwilling” to listen as the perception is that the MNCs are not flouting any norms. Domestic retailers are unable to pump in huge investments, given the paucity of funds. Whereas, MNCs have flexed their muscles by marking their presence in multi-brand/partnership formats. 

According to N Chandramouli, CEO, TRA Research, “The Walmart-Flipkart deal will be a disrupter in online retail in India. Walmart’s partnership and investment in Chinese online store, JD.com is the model that they will probably be replicating in India as well (with Flipkart). That partnership in China has turned the apple-cart for Amazon. This new partnership with Flipkart has the potential to do the same to Amazon in India.”

The partnership of the two giants, Walmart and Flipkart, will provide a new model by creating a mixed on-ground-online ecosystem that will be difficult to replicate. Not only will Flipkart get access to nearly 2,000 of Walmart’s products exclusively, but Walmart will also get the well-established e-tailing delivery system that Flipkart has sharpened over the years, giving it nation-wide logistics support. 

“We are also likely to see another disruption that will come with the partnership. Due to Walmart’s strong base in grocery, this entity is also likely to go aggressive on selling grocery products online. Apart from giving Amazon a run for its money in this segment, online grocery retailers like Bigbasket, Grofers are likely to face the brunt of it,” Chandramouli adds.

Sunil Sanklecha, Founder-Managing Partner, Nuts n Spices, believes the proposed deal between Walmart and Flipkart would result in consolidation and shake off Amazon’s monopoly.

“E-tailing is still not sustainable as it is meant only for companies with deep pockets. In the four years that we steered our online business, we incurred a loss of 10-15 per cent per transaction as the F&B sector has a mismatch in the value-versus-volume game. For instance, the delivery of a Rs 1,500 online order for a Mumbai customer, would incur a logistics cost of Rs 400, impacting profitability. High-value items with lesser weight such as mobile phones work better in this business,” he notes.

The government seems to have shut its eyes on the issue of MNCs leveraging private labels to their advantage and any attempt to reason out is met with a response that it is the market force that will dictate the fortunes and growth trajectory of retailers, an industry insider affirms. “Consolidation was bound to happen in e-retail. The only question is whether an Indian group or an overseas company would do it. SMEs would now need to restructure to survive,” says VP Harris, MD, Witco.