US retailer Walmart has told Indian officials that its local Flipkart business faces the risk of significant disruption if stricter rules governing foreign investment in e-commerce are not delayed by six months, Reuters reported on January 29 citing an unnamed source.
As the revised FDI laws force Flipkart and Amazon to cede control of inventory sold on their platforms, the two firms could look at compensating for loss this with an increased focus on private labels, something which could have the added benefit of yielding higher margins. The rules, which kick in on Friday, do not allow e-commerce sites to "exercise ownership or control over the inventory" of sellers.
According to a quick estimate, more than 400,000 items that account for almost a 3rd of Amazon's $6 billion in annual sales in India will probably disappear at least temporarily from the company's service in India. While India allows 100-percent foreign investment in such retail operations, the new rules bar Amazon from selling any products from entities in which it owns a stake.
Over the last few weeks, both Amazon and Flipkart had been extensively lobbying - directly as well as through associations and trade bodies - with government officials seeking an extension in deadline.
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It is estimated that this arrangement can wipe out almost 4 lakh products from Amazon India and Flipkart could lose nearly 25% of its sales revenue! In the new policy, the Commerce Ministry also noted that the online retail firms will not directly or indirectly influence sale price of goods and services and will maintain level playing field. Moreover, the US-based e-commerce giant hasn't asked them to list the product. Experts feel eBay's relaunch is among the hundreds of online marketplaces that could enter India's online market, especially ones that suffered or shut shop due to the deep discounting strategy offered by heavily funded online platforms. It also prohibits them from making deals with sellers that grants the marketplace exclusivity rights on the product.
Industry experts pointed out that many partnerships between these e-commerce giants and their sellers are being tweaked to ensure that the online marketplaces are in compliance with the new rules. The e-commerce market in India has more than tripled since 2015, powered by smartphone penetration and favorable demographics with a median age of 28.
This is a problem for Amazon, which had been picking up stakes in offline Indian retailers to boost its market share.
This creates a barrier for India's Shopper's Stop to sell on Amazon India, as Amazon's investment arm has a minority stake in the department store chain. While the brands that were sold exclusively on the site are still unavailable for purchase, others like Echo that are also sold by third parties have returned. They must provide services such as warehousing, logistics and advertising to all sellers in a fair manner.