Sunday, June 12, 2016
Is The Local Kirana Store Under Threat From The ECommerce Industry?
Looking back at the evolution process, e-commerce was introduced in India through shopping sites like Rediff, Indiatimes, Sify and HomeShop18 in the early 2000s. However, they failed to gain widespread recognition amongst the Indian masses due to their limited range of products and payment options. With advancement in technology and growing manpower, e-shopping has gained significant success and popularity in the last couple of years. But there is a major policy gap, which needs to be addressed.
A major controversy surrounding the industry is the competitive threat it poses to the brick-and-mortar retail industry. The Indian e-commerce industry is characterised by its ‘marketplace model’ in which online portals do not have ownership of the goods being sold. E-commerce companies are carrying out B2B activities where they are not directly doing business with consumers but rather acting as facilitators or middlemen between the retailer and the consumer. The retailer lists its products on the e-commerce website, the consumer chooses from the website and places an order. The roles of e-commerce firms end once they inform the retailer about the placed order. From here the retailer takes over and carries on with the delivery.
A petition was filed by the Retailers Association of India (RAI) and the All India Footwear Manufacturers and Retailers Association (AIFMRA) arguing that e-commerce companies have been acting like retailers which is in violation of the current FDI norms. Confederation of All India Traders (CAIT) further questions how these e-commerce platforms offer such massive discounts when they have no inventory at their disposal. AIFRMA in their Delhi HC petition argued that e-commerce marketplaces in India operate as retailers since the payment, delivery, returns and refund are all handled by these companies.
The Kerala High Court had admitted a petition from the Mobile Retailers’ Association that accused e-commerce firms including Amazon, Flipkart, and Snapdeal of FDI violations, alleging that e-commerce firms enter into exclusive bulk deals with manufacturers to sell their Mobile phones only on their respective websites and nowhere else. Such strategies would wipe out traditional sellers.
Though there have been reports that Flipkart may have to pay a penalty of Rs.1, 400 crores, no such action was taken in the end, despite evidences. This points to a certain amount of policy capture where e-commerce groups are being protected.
Competition Commission of India (CCI) has also given a clean chit to all e-commerce firms. The reason it cited for the favourable judgement was the fact that e-commerce sector is still a growing market and holds only 5% share in the entire retail sector and therefore, it cannot be a threat to its competitors.
The study was conducted in 3 cities: Hyderabad, Kolkata and Bangalore. A total of 150 small retailers and traders were surveyed. The objective was to gauge the impact of the advent of e-commerce on the sales and profits of these traders.
The results for the change in revenue and profits for the year 2014-15 have been shown in official records.
The same results were also captured for the year 2015-16. Here 2015-16 refers to the period April 2015 to December 2015. The results for the final quarter of the financial year 2016 could not be captured since the survey was undertaken in the month of December-January of the same year. The results for this period have been illustrated in the graphs below:
The above figures show that the number of traders who experienced a negative impact of the growth of e-commerce were outnumbered by those who were not.
Besides the quantitative survey, conversations with some of the cooperating traders provided further insights into the ground realities of the market competition structure between online and offline retail traders. The overall traders’ perception was that e-commerce had actually increased the footfalls in their business. Though there has been no cost reductions or competition advantage as such, some traders admitted that competition from the e-commerce industry has helped their business. Consumers check prices and product catalogues online, then look up the same product offline. Provided price negotiations are fair, this results in the product being sold. The consumer may also end up purchasing other products that they may come across in this process. Thus, competition has enhanced the footfall of the retail outlets, thus giving their business a boost.
The survey also posed questions about whether or not the traders were interested in joining hands with e-commerce firms to expand their business further. The results of this has been illustrated below:
It may be noteworthy to mention that the traders willing to collaborate with e-commerce firms include those who considered e-commerce to be a threat as well as others who gained from the increased competition.
It can thus be concluded that at present the e-commerce industry is not that big a threat to the small retailers. On the contrary, it has opened up newer domains to expand into.
From the analysis of the various facets of the industry, two broad conclusions can be arrived at.
There is an information gap between the industry and all other players of the society. The current structure of self-regulation is not the solution to this problem. This can only be rectified through the establishment of a trustworthy and reliable regulatory institution. The regulatory body would act as a mediator that would instil confidence of the society on the e-commerce industry.
There is also a need to amend the FDI policy. The policy should be designed in a manner that would encourage foreign investments while also encouraging e-commerce collaborations with local traders.
The above concept of a collaborative retail sector could be implemented through tax exemptions on online-offline collaboration in the initial years or other incentive-based policies. This investment could take the form of sourcing another domestic firm or investing in ancillary sectors such as logistics, warehousing, etc. These policies would counter-balance the increased dependence on foreign countries with improvements in domestic infrastructure.
This two-phase policy of restructuring the industry would help integrate the retail sector and enable optimal growth of the industry, and the economy as a whole.
Posted by Ahssan Innlive