E-Commerce FDI Policy May Not Stop Discounting by Marketplaces: Ind-Ra

The recently introduced e-commerce policy is unlikely to change the discounting model of online marketplaces in the near-term, says India Ratings and Research (Ind-Ra).

According to the ratings agency, further clarity is essential for the successful regulation of the sector, implementation of the policy and achieving the desired objective to bring about a level playing field between offline and online marketplaces.

Ind-Ra also said the traditional offline retailers are unlikely to benefit as the policy is directed towards defining and limiting the scope of operations of e-commerce business.

The policy aims to define and ring fence the marketplace operation activity of e-commerce players (e-tailers) and to distinguish the scope of marketplace and inventory based model as the Foreign Direct Investment (FDI) allowed for both the models is different, the report said.

The new guideline prohibits marketplace e-tailers from ownership of goods, and they can only act as facilitators between buyers and sellers and not influence the selling price of the goods.

This has been done “to discourage the deep discounting strategy adopted by e-tailers”, but in the absence of additional clarity on policy, adherence for the same will remain a challenge, Ind-Ra said.

The e-tailers can continue to exploit the loopholes or adopt innovative strategies to extend deep discounts, till a stringent framework to prohibit and bring a level playing field with offline retailers is put in place, it added.

The cap of 25 percent for an e-tailer’s sale from a single vendor or group company can impact the top-line of the e-commerce firms and those with concentrated vendors will have to undergo significant restructuring of their business model, it said.

Amazon Seller Services Private Limited and Flipkart India generate major portion of their sales from joint venture vendors, namely Cloudtail India and WS Retail Services respectively, it added.

To mitigate the impact of the same, Ind-Ra believes that e-tailers may adopt multiple vendor strategy which will enable them to have control over pricing. Ind-Ra also said the policy is a step towards safeguarding customer interest by introducing additional disclosures.

“With no influence in pricing and no ownership of the product, the e-tailers might go for backward/forward integration and strengthen their presence in the entire value chain including warehousing, shipment and logistics, among others,” Ind-Ra noted.

E-tailers may focus extensively on customer convenience by extending value added services, payment flexibility, concessional shipment and delivery, it added.