Retail News MUMBAI|BANGALORE: Dozens of small brick-and-mortar retailers have banded together to seek protection from e-commerce companies, which they say are undercutting them with predatory pricing. The retailers, mostly from Bangalore – home base for Flipkart, India’s largest e-tailer – have written to the Competition Commission of India, complaining that their online counterparts are selling goods below cost and skirting Indian laws on foreign direct investment in retail.
Hari Rastogi, a Bangalore-based seller of electronic goods who is galvanising support among traditional retailers, argues online commerce firms are gambling that they will capture market share by selling below cost during the initial years. Moreover, in his letter to CCI, he questioned the legality of operations by foreign-funded online retailers. “When venture capital funding is not allowed in e-commerce, these companies are registering offices in Singapore and routing the money in for the same business,” he wrote on October 20.
India allows 51% FDI in multi-brand retail stores, but does not allow overseas investors to participate in online retail.
Rastogi started the protest movement by setting up a website – wewillact.com – and is drumming up support among a wider group of retailers. The website gives details of more than a score retailers in Bangalore, and claims support of “1,000+” retailers who are seeking to protect their “right to survive and grow”.
Unrest among physical retailers is not unusual – in the US, for example, electronics retail chain Circuit City’s bankruptcy has often been blamed on Amazon, the world’s largest online retailer.
Market research and advisory firm Technopak estimates the Indian retail market to be worth around $490 billion now and projected to grow at an average 6% annually to reach $865 billion by 2023. Specifically, online retailing is estimated to grow from $1 billion, or about 0.2% of overall market, to $56 billion, or 6.5% of the total market, over the same period.
In India, online retailers such as Flipkart, Snapdeal, Jabong and Myntra have raised thousands of crores from foreign funds as they stake out their turfs in a rapidly expanding market. Flipkart alone has raised over half-a-billion dollars ( Rs 3,400 crore).
But the funding has also attracted attention from the government. About a year ago, the Enforcement Directorate scrutinised Flipkart’s books to check for compliance with foreign investment rules. While the law permits online retailers with foreign investment to carry out business-to-business transactions, it does not allow a business-to-consumer model.
In the recent past, online retailers have split their businesses into the technology platform that can receive international funding and the actual retail business, which cannot receive the funding.
But Rastogi is unwilling to accept that this solves anything. “They are obviously not using funding just for their platform but to sell products below cost prices and run businesses in losses to kill competitors and physical retailers.”
On the other hand, Flipkart founder Sachin Bansal said the e-commerce marketplace gives small retailers an opportunity to market both in India and overseas. “Being a marketplace, small retailers are constantly in touch with us. This is an inclusive business model which benefits not only customers but sellers/retailers as well.”
Bansal was referring to the marketplace model that most online retailers have adopted. Instead of stocking inventory themselves, they allow consumers to choose from a list of products from multiple retailers.
While they are growing fast, India’s online retailers are yet to turn a profit. They spend thousands of crore to keep prices low and acquire large numbers of customers, a strategy perfected by Amazon in the US.
“How can I compete with someone who doesn’t want to make a profit and gets foreign money? Who can compete against them? This is not right. They are selling below cost and it is hurting small retailers like me,” said Chandrashekhar Raju, who owns Raju Electro Centre in Bangalore and supports the Wewillact movement.
Arvind Singhal, chairman of Technopak, was of the view that the industry is going through a transformation and retailers will have to accept this and live with it. “Over the next few years, more and more people are going to buy things online and offline retailers will find it challenging,” he said.
Source : economictimes.indiatimes