As is the case with any big economic reform, the new 100% FDI policy could bring major changes in how ecommerce companies function.
Etailers will have to change its Business Model
Now that there is a clear distinction between marketplace and inventory ecommerce model, the companies operating on both will have to pick one side. The 100% FDI rule applies to marketplace format and not to inventory-led. Not to forget the 25% sales cap from a single seller.
Therefore, companies with their own sellers like Flipkart (WS Retail), Jabong (Xerion Retail), Myntra (Vector e-commerce), and Amazon (Cloudtail) will have to change their business structure in order to adhere to the new regulations. There’s no room for ambiguity anymore, which will curb etailers from generating most sales and funding discounts via one (their own) seller.
“The new regulations leave less room for firms to flout law through alternate structures. The clear definition of e-commerce marketplace, inventory led business and the 25% sale norm will stop companies from disguising their businesses under marketplace model while they are doing inventory led business,” rightly stated Angshuman Bhattacharya, MD at Alvarez & Marsal India.
Biyani advises BigBasket to pack up
While marketplaces and fashion etailers are advised to restructure their set-up, Future Group’s CEO Kishore Biyani has gone one step ahead and declared that online grocery leader Big Basket should shut its operations.
He said, “As we speak, Bigbasket’s inventory-led model has become totally illegal as per latest government notifications. They don’t have any seller and directly sell to the consumers.”
Biyani always had a bone to pick with online players. Remember this Future Group’s campaign that mocked Flipkart, Amazon, Snapdeal?
His grouse: the heavy discounting trend started by etailers is destroying the traditional retail industry. “It’s all about money. The e-commerce guys have money to experiment – I don’t have this kind of money to blow,” Biyani had said in one of his interviews.
Coming back to the fate of inventory-led ecommerce companies like Big Basket, Zivame, Jabong, experts believe that there’s no need to panic. “Even these guidelines would not be considered as final and there will be more revisions. This was not meant to be a punitive measure but to bring more clarity. The government is not going to enforce this from tomorrow,” shared Mohan Kumar, partner at Norwest Venture Partners.