By 2034 India will become the second largest e-commerce market in the world. According to the India Brand Equity Foundation (IBEF), it is expected to cross the US$ 200 billion mark by 2027. The country's e-commerce revenue is projected to increase from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at 51% per annum, the highest in the world. The sector witnessed 21 private equity and venture capital deals worth US$ 2.1 billion in 2017 and 40 deals worth US$ 1,129 million in the first half of 2018.
What makes the Indian E-commerce market tick?
This market is dominated by large e-commerce players like Flipkart and Amazon. And these market places are in turn dominated by sellers that are closely linked to the platforms. Backed by the platforms these sellers accounted for almost Rs 12000 cr in sales in FY 2017-18. But much more crucial are the smaller sellers, these include everything from SMEs to even women homemakers. According to Zinnov, 2 mn women homemakers across the country registered $9 bn gross sales by selling apparels and lifestyle products. These resellers are set to grab 5.4% of the market added the report. But the picture is far from rosy.
Trouble in Paradise
The problems faced by the sellers are many. Let's begin with the discount model. It is understood that discounts are something that is great at attracting customers. But the problems begin when sellers, who are backed by big money, offer discounts that can just not be matched by smaller players. Sellers have to compete at pricing and most do not have the luxury to offer competitive discounts. There is also a provision whereby the platforms offer discounts on products selected seemingly at random. But little is known of the algorithm that selects these products and their sellers. Then comes the Return policy. A customer can return any product - no questions asked. But the seller is the one who has to pay for the logistics and these costs often outweigh the cost of the product. It should be noted that the average return rate for e-commerce in India is 30%. To make matters worse the bigger players have the advantage of a returns policy that is much more lenient. Each platform comes with its own unique set of compliances, regulations for commissions, cataloguing costs, terms for reconciliation and even tax formats. Cataloguing products can be a headache. Each platform asks for specific types of images for the products. These can vary widely in terms of backdrop, resolution, and size. A seller had to cough up around Rs 3 lakh as cataloguing costs on a platform for thousands of SKUs, and all this without generating even a single sale. Different platforms charge different rates of commission for the same product and these change at the whims of the platform. Traders often lose as much as 30-40% of their profits in commissions, while the bigger players are charged commissions at a lower rate. This preferential treatment allows them to offer large discounts. Ask any trader, the reconciliation of accounts will come up as a major irritant. In general, depending on the platform, the process takes from 15 to 30 days. In practice, reconciliation has been known to take as many as 3 months. This constricts much-needed cash flow for small players. There is, therefore, a palpable lack of trust on part of small traders That's not all, the bigger players are reportedly approaching smaller sellers. Cloudtail is allegedly offering better prices to sellers as compared to the e-commerce platforms for the same products. This can lead to the creation of an artificial monopoly for the marketplace, something that in the long run, cannot be good for the consumers as well. It is just not humanly possible for a small trader to muster the resources required to function in such an ecosystem. The result is that most entrants in the field are forced to flee within months. As for bigger players, it should be noted that not many Indian corporates dare venture into the e-commerce marketplace.
No wrong without a remedy
All is not lost. The draft e-commerce policy is a welcome step, though it could do with more provisions that further level the playing field. To begin with, let the rules that govern e-commerce marketplaces be uniform. Let the authorities and e-commerce platforms come up with specific deadlines for reconciliation. As with the Real Estate (Regulation and Development) Act, 2016, let a specified rate of interest be charged on delays in payment. Let the cataloguing system and commission structures be uniform Let there be a return policy that protects not just the consumers but also the sellers. At the very least it should be ensured that sellers are not penalized for the whims of the consumer. India is the fastest growing e-commerce market in the world. Increasing connectivity is not just bringing in more consumers but also more sellers. And the survival of these sellers is crucial to the success of India's e-commerce story. It is only fair, I should think, that we protect not just the interests of the consumers but also the sellers.
Anil Agarwal is the Executive Director with Annie Electronic Systems Pvt. Ltd, a leading e-commerce company.