Fight to the finish
Brick-and-mortar stores in India wage war against e-commerce platforms and large chains that have proliferated under relaxed foreign investment rules.
“[Physical] retailers are given much fewer discounts than the e-commerce sites and foreign-invested stores. This is unethical” PRAKASH MURTHY All India Consumer Product Distributors Federation
Jugal Kishore Vaishnave is dejected. A distributor of fast-moving consumer goods (FMCG) in Rajasthan, he’s threatening to quit the business because his profit margins have shrunk dramatically since the arrival of e-commerce sites and big retail chains. The media business might offer a better chance to make some money, he says. “We recently made a short film on street children for 500,000 rupees (US$7,170) and sold it for 800,000 rupees. Filmmaking is much more lucrative than FMCG distribution. Even e-commerce platforms like Amazon buy such films,” said Mr Vaishnave, who heads the local chapter of the All India Consumer Product Distributors Federation (AICPDF) and also owns JK Jaipur News, a media outlet in Jaipur, the state capital. Mr Vaishnave is not alone. According to estimates, many of the estimated 40 million small and medium brickand-mortar retailers and distributors in India have suffered huge losses since big online portals and superstores owned by multinationals and large Indian companies began expanding aggressively in the country. Mobile device retailers in particular have been completely crushed by e-commerce sites that offer huge discounts, cash back, gifts and better specifications on different brands of smartphones. The online platforms have registered so much growth that many new smartphone models are now being launched only online. The All India Mobile Retailers Association (AIMRA) which represents about 25,000 sellers, has threatened to stop stocking the handsets of companies that offer different prices to online stores. P Ganeshram, head of the AIMRA in the southern state of Tamil Nadu, said the conventional mobile phone retail trade was almost dead. “Mobile retailers are suffering frequent payment defaults. They are not able to even meet their expenses and are forced to sell at a loss due to rebates and freebies offered by e-commerce sites,” he told Asia Focus. Brick-and-mortar retailers and distributors also accuse e-commerce sites and large retail chains of colluding with manufacturers. “[Physical] retailers are given much fewer discounts than the e-commerce sites and foreign-invested stores. This is unethical,” said Prakash Murthy, head of the AICPDF in Hyderabad. He alleges that large stores that have licences only for “window selling” are taking orders online as well. As a result, other retailers are losing their top-level consumers. Under pressure from brick-andmortar retailers who are considered a significant voting bloc for the ruling Bharatiya Janata Party, the Narendra Modi government last month tweaked its foreign direct investment (FDI) policy to stop predatory pricing and deep discounting. Effective from Feb 1, online traders will be barred from giving preferential treatment to particular vendors and brands and promoting businesses in which they have a stake. The policy also bars exclusive launches of products in a single marketplace. But neither the retail stores nor the superstore chains and online markets are happy with the changes. The former also want a ban on private labelling and branding, while the latter want the Feb 1 deadline to be pushed forward by at least a few months to give them time to comply. Devender Aggrawal, national vice-president of the All India Distributors Association, charges the big chains with engaging in malpractice to increase their sales. “Direct brands are only meant for B2B (business-to-business) sales,” he said. “But a wholesale store in North Delhi misuses it to sell its goods to individual customers.” He also accused the e-commerce players of selling at a loss with an aim to capture the market. “Once brickand-mortar stores are finished and they have a monopoly over the Indian market, they will charge inflated prices,” he told Asia Focus. The Confederation of All India Traders (CAIT) has opposed extending the Feb 1 deadline for big chains and e-commerce sites to comply with the new rules. It has also sought a clarification on whether private labelling or branding is allowed in e-commerce under the FDI policy. Praveen Khandelwal, secretary-general of the CAIT, said the demand for an extension was a ploy on the part of the e-commerce companies to continue with predatory pricing, deep discounting and exclusivity. A manager with a superstore chain in Jaipur rebutted the allegations of the smaller stores. He said his chain was able to sell at lower prices as it bought in bulk directly from companies and managed inventory efficiently to avoid having large stockpiles. He said his company followed a very strong value system and did not engage in any unfair practices. An Amazon India spokesperson also issued a statement saying: “With more than 400,000 small and medium businesses in our marketplace enabling customer choice to buy anything online, we remain committed to a long-term investment in our vision of transforming how India buys and sells and generating significant direct and indirect employment. “We have always operated in compliance with the laws of the land and are evaluating the new (FDI) guidelines to gain clarity so that we remain true to our commitment.” Meanwhile, Amazon has been buying stakes in some physical retailers in India, in the event that it might want to develop more of a brick-and-mortar presence in the future.