E-commerce retailers likely to seek extension of deadline for new rules
Large e-commerce marketplaces could approach the government seeking an extension of the February 1 deadline as compliance with the recent changes would require at least 4-5 months at the operational level, according to multiple sources. A senior executive at one of the big e-commerce companies said at least 4-5 months would be needed for players to re-work the operational aspects and February 1 deadline does not provide adequate time.
The rules were announced on December 26, giving companies just a month to execute these changes, which in many cases would require re-working existing partnerships and even, overhauling business models, the executive added. Another official said companies are studying the recently announced amendments in detail and are likely to approach the government in coming weeks. These representatives did not wish to be identified as the matter is sensitive. Emails sent to Amazon and Flipkart did not elicit any response.
The government's move to tighten norms has hit Amazon and Flipkart the hardest as the new regulations bar online marketplaces with foreign investment to sell products of companies where they hold stakes as well as ban exclusive marketing arrangements. Another provision states that the inventory of a vendor will be seen as controlled by a marketplace, if over 25 per cent of the vendor's purchases is from the marketplace entity, including the latter's wholesale unit.
The move is aimed at ensuring that the marketplace entity or its related companies cannot control inventory under the FDI rules. Another industry watcher pointed out that clarity is required on this provision as it would be difficult to find out whether a vendor is, indeed, in compliance. The executive explained that the vendor may not be willing to share the books and accounts with the marketplace and in such a scenario, the latter will find it difficult to determine if the rules are being adhered to.
The government, on Thursday, had clarified that private labels were not banned from being sold on e-commerce marketplaces. One of the big players, however, stated that private labels are a small component of the business and that the government needs to address the larger issues at hand. Private labels -- often sold at lower prices -- allow e-commerce companies to control quality and even offers better margins than big, established brands. Over the last few years, e-commerce players have introduced private labels across a variety of categories including apparel, home furnishing and grocery.
Overall, the amendment of the e-commerce norms has drawn a mixed reaction. While Flipkart had suggested that government should follow a consultative process in framing rules that have long-term implications, Amazon had said it has "always operated in compliance with the laws of the land" and is evaluating the new guidelines "to engage as necessary with the government to gain clarity". The US-India Strategic Partnership Forum (USISPF) had dubbed the rules as "regressive" and said the changes would harm consumers, create unpredictability and have a negative impact on the growth of fledgeling online retail in India.
The Forum had also asserted that "it is not the government's business to micromanage businesses" and alleged that the amendments announced came out without any consultation and are akin to changing rules in the middle of the game. Smaller players such as ShopClues and Snapdeal had, however, welcomed the move saying the development will "close the back door" that has been "blatantly exploited" by larger companies and provide a level playing field for all.
ShopClues CEO and Co-Founder Sanjay Sethi said the introduction of these new norms is an acknowledgement that "all the major foreign players have been consistently violating the spirit of the policy from day one". Snapdeal Co-Founder and CEO Kunal Bahl said these changes would enable a level playing field for all sellers, helping them leverage the reach of e-commerce.
Traders' body CAIT had asked the government to ensure a level playing field for all traders and not bring any changes that could give an upper hand to big players in the sector. According to the current policy, 100 per cent FDI is permitted in marketplace e-commerce activities. It is prohibited in the inventory-based model.
(With inputs from agencies.)