India’s new FDI rules have created sticky situations for leading eCommerce brands in the country.
While the Online commerce in the country is tipped to surpass $100 billion per year by 2022, up from $35 billion today, there is a new googly that might derail this growth. Amazon and Flipkart, two of the biggest eCommerce retailers in India are facing difficult situations for some products, deliveries and offers. Amazon has been forced to pull an estimated 400,000 products in India after new regulations limiting e-commerce businesses went into force in the country from Feb 1. They cannot, under the new laws, have equity stake in sellers businesses, which earlier allowed them to push exclusive deals. So many brands have disappeared form the site. Amazon’s FireTV stick deliveries, for instance, have been delayed.
First announced at the end of 2018, the new regulation imposes a ban on exclusive sales, prevents retailers from selling products on platforms that are listed as investors and applies restrictions on discounts and cashback promotions. As a result, several thousand products have vanished from their eComm platforms. Even with the tweaking, the customer will be impacted- prices will not be rock bottom now and delivery times will also change according to availability of products. It could mean almost 50% to 60% of the business coming under the new law for both these brands. Before 2016 when the FDI laws changed, they had almost 70-80% business being driven by resellers. But as the noose became tighter, their fraction fell to between 50-60%. But now, even that will need to be adjusted.
This news spell trouble for these two brands, because they had a restructuring after the 2016 ruling prevented it from owning inventory. At that point, Amazon restricted its system so that its own products were offered by entities that it jointly owned with local partners. However, the newest regulation forbids it from working with organizations that it has ownership of. This has resulted in Amazon having to pull away as many as 400,000 products from sale in India, according to news reports across the world. The impact on Flipkart will be massive too, since it may need to pull away almost 25% of its products, according to analysts consulting firm Technopak.
The brands have asked for 4-6 months to change their backend business model, make changes and move in new brands to ensure their customers and product lines don’t suffer.
In the aftermath, more than a dozen small, fringe sellers are exiting or suspending their accounts on Amazon, because they are not in a position to manage logistics and order deliveries on their own. Most of these sellers sold products through Amazon-owned Cloudtail and Appario, the companies that helped in fulfilling orders. With the new FDI ruling, these services have stopped, and since there are no clear guidelines from Amazon on next steps, these businesses need to stop selling on the platform.