Traditional Retailers Hit Hard By Amazon, Flipkart’s Aggressive Pricing Tactics: CAIT Secretary General

Recently, Union Minister of Commerce, Piyush Goyal said that predatory pricing and deep discounting along with loss funding by global ecommerce giants in India are leading to disruption in the Indian retail industry. These are also in contravention of stipulated FDI norms for ecommerce sector. Similarly, the Competition Commission of India (CCI) has recently flagged up collusion of ecommerce giants like Amazon, & Flipkart with brands like Samsung, Xiomi for exclusive product launches. In an interview with the Bizz Buzz, Confederation of All India Traders (CAIT)’s Secretary General, Praveen Khandelwal said that the government should impose FDI rules stringently to check the flouting of norms by foreign ecommerce firms. He also said that due to such violations, thousands of retailers have already closed shops, leading to several job losses. According to Khandelwal, there should be a level playing field for all players in the market place for smooth progress of Indian retail industry

The Competition Commission of India (CCI) recently highlighted collusion of ecommerce giants like Amazon, & Flipkart with brands like Samsung, Xiomi for exclusive product launches. In which way, such launches are contravening the existing e-commerce rules?

The Competition Commission of India (CCI) has highlighted concerns about collusion between e-commerce giants like Amazon and Flipkart with brands such as Samsung and Xiaomi for exclusive product launches. These exclusive launches violate existing e-commerce rules in several ways:

Anti-competitive Practices: Exclusive deals between e-commerce platforms and brands prevent other retailers, especially small and traditional ones, from accessing these products. This distorts competition, as only one or two platforms control product availability, restricting consumer choice and market access for other sellers.

Violation of FDI Guidelines: India’s Foreign Direct Investment (FDI) policy for e-commerce prohibits platforms from influencing prices and requires a level playing field for all sellers. Exclusive tie-ups lead to deep discounting and preferential treatment, which contravenes these rules by effectively allowing the platforms to influence the pricing and distribution of products.

Unfair Pricing: The practice of launching products exclusively on platforms like Amazon and Flipkart, coupled with heavy discounts and cashback offers through partnerships with banks, leads to artificially lower prices, which traditional retailers cannot match. This undermines the principle of fair competition and disadvantages offline retailers.

Do you think, such launches will lead to market dominance?

Yes, such launches can lead to monopolistic tendencies, where a few platforms dominate the market for certain high-demand products, reducing the scope for new or smaller players to compete. This can ultimately hurt consumers by reducing long-term competition. By engaging in these exclusive agreements, e-commerce platforms and brands are seen to be bypassing key regulations meant to foster a competitive, open marketplace.

What steps should be taken for halting such exclusive product launches?

To halt exclusive product launches that violate e-commerce regulations and harm competition, several steps can be taken by regulatory bodies, the government, and other stakeholders. Firstly, the government should enforce existing Foreign Direct Investment (FDI) policies more rigorously. E-commerce platforms must be monitored to ensure compliance with the guidelines that prohibit exclusive deals and pricing influence. Any violation should result in penalties or restrictions on their operations.

Moreover, CCI should take proactive measures to prevent collusion between e-commerce platforms and brands. Investigations into anti-competitive practices should be conducted more frequently, and companies found guilty of forming cartels should face heavy fines and corrective measures.

How can the government ensure equal access for retailers?

E-commerce platforms should be mandated to offer equal access to all sellers, ensuring that no seller or product gets preferential treatment. Exclusive launches or deals that limit access to products for traditional retailers should be banned, promoting a level playing field for all market participants.

Discounts have been a contentious issue. Should there be a cap on discounts provided by platforms and brands?

A ceiling on the extent of discounts and cashback offers for exclusive products should be imposed, especially when they are tied to bank partnerships. This will reduce the ability of e-commerce platforms to attract customers solely through deep discounting that traditional retailers cannot match. Moreover, platforms should be required to disclose the terms of agreements with brands and manufacturers. Regulatory bodies can review these agreements to ensure that they do not lead to market dominance or violate competition laws.

What is its impact on retailers? What kind of business loss is incurred by them?

The impact of exclusive product launches by e-commerce platforms on traditional retailers is significant and multifaceted. Here’s how it affects retailers and the types of business losses they incur:

Limited Access to Popular Products: Traditional retailers lose access to high-demand products that are exclusively available on platforms like Amazon and Flipkart. Popular items such as smartphones or electronics from brands like Samsung and Xiaomi are only available online, driving customers away from brick-and-mortar stores.

Revenue Decline: The inability to stock popular products leads to reduced foot traffic in physical stores, directly affecting sales volumes and profit margins. This results in substantial revenue loss for retailers.

Erosion of Margins: Retailers may feel pressured to lower their prices to compete with online platforms, eroding their already thin profit margins and forcing them to sell products at near-cost or even at a loss.

Unfair Price Competition: E-commerce platforms offer deep discounts and cashback offers through exclusive deals with banks and manufacturers. Traditional retailers cannot match these prices due to their higher operational costs (rent, staff salaries, etc.), leading to lost sales.

Does it lead to supply chain disruption for small retailers?

Yes. Retailers who cannot offer the latest products due to exclusive online launches are often left with older or less popular stock, which becomes harder to sell. This leads to overstocking and tying up of working capital. Similarly, supplier relationship gets broken. Exclusive online deals can damage relationships between retailers and manufacturers, as traditional retailers feel sidelined when manufacturers prioritize online platforms for key product launches.

Apart from these issues, customer base erosion also happens. Exclusive online deals and lower prices drive customers to purchase products online, causing traditional retailers to lose long-term customers. As more consumers get accustomed to shopping online for exclusive launches, retailers find it harder to retain their customer base.

Many customers may prefer to shop online for specific brands due to discounts, abandoning their local retailers who are unable to offer the same deals or product selection.

What is the impact on employment due to such practices?

As retailers face losses or are forced to shut down, there is a direct impact on employment. Many small and medium-sized businesses, which are major employers in the retail sector, may reduce staff or shut down entirely, leading to significant job losses in the sector. Prolonged revenue losses, shrinking margins, and the inability to compete with exclusive online launches have forced many small retailers to shut down. According to industry reports, tens of thousands of small traders have already closed their businesses due to the growing dominance of online platforms.