Flipkart, Amazon need to downsize sellers

BENGALURU/NEW DELHI: The government’s directive on e-commerce will force Flipkart and Amazon to reduce the dominance of certain sellers on their platforms. The directive says no vendor or their group companies can account for more than 25% of the overall sales on a platform. In addition, the new policy has come as a big blow to Amazon that has been actively lobbying for FDI in inventory-based model of e-commerce. The policy does not allow FDI in this model.

WS Retail on Flipkart’s platform and Cloudtail on Amazon account for substantial shares of sales. The exact shares have not been publicly disclosed, but both are believed to have shares of well over 25%. In addition, Amazon with more than $100 billion in revenues, will have to do without the inventory-based model that gives it a huge competitive advantage in other markets since it allows the company to buy goods in bulk at a cheaper rate and pass on the savings to consumers. Currently, along with Flipkart and others, it follows the online marketplace model here that allows independent sellers to sell directly to consumers on its website.

WS Retail’s turnover tripled to over Rs 10,000 crore in 2014-15, compared to the year before. WS Retail sells a range of products, from shoes to home appliances and electronics. Cloudtail India, a company backed by N R Narayana Murthy’s Catamaran Ventures, has become the largest seller on Amazon India’s platform and some media reports have said it generates nearly 40% of sales on the platform.

Vivek K Chandy, partner in law firm J Sagar Associates, said the new norms could affect marketplace e-commerce entities which have only a few vendors.

Vivek Gupta, partner in BMR Advisors, said, “While permitting 100% FDI in marketplace models, the government wants to ensure that marketplaces do not start acting like retailers. And hence, the policy contains safeguards, limiting their role to being facilitators rather than actual sellers — these restrictions include casting no influence on pricing, playing no role as regards warranty and limiting dominant position for a single seller on the platform.”

IT industry body Nasscom said containing sales of a vendor to only 25% of the sales in the marketplace may prove to be restrictive, more so if the vendor sells high-value items. “The industry might face difficulties in case of sale of electronic items, where a vendor maybe offering exclusive access to certain items or discounts,” it said.