Ecommerce leaders are treading cautiously before announcing any sale events. Reason? They don’t want to penalized for breaking any rules that came into effect after 100% FDI policy.
A person aware of this development disclosed,
“E-commerce marketplaces don’t want to attract the ire of regulators and offline retailers right now. The government has just announced new regulations and it will be very embarrassing for them if online retailers continue as if nothing has happened. So, to avoid angering the regulators, Flipkart, Amazon and Snapdeal have put sales and advertising of sales events on hold. Now, the most important thing for them is to be ready with sales for the festive season.”
Pulling plug on discounts
As per the latest FDI directive,
Etailers can’t directly or indirectly influence product prices
25% cap on sales from a single seller
The above two conditions prohibits online marketplaces from offering huge discounts and sponsoring big sale events, which they are so used to doing. Those who refuse to comply, DIPP’s warning is clear,
“If you violate the conditions, you run the risk of (falling foul of the law). We will take care of how to deal with it.”
The decision to keep sales on hold is a temporary one. Discounts and online shopping go hand-in-hand. A festive season without lucrative deals is incomplete. Therefore, discounts won’t stop but etailers need time to restructure their business.
The main concern is to be ready before 2016’s festive season kicks in.
Angshuman Bhattacharya, MD at Alvarez and Marsal India explained how ecommerce biggies are trying to find a way to offer volume discounts without landing in a legal soup. He elucidated,
“E-commerce marketplaces are trying to understand their position with DIPP (department of industrial policy and promotion). They want to take a safe position for now and eventually emerge with mechanisms where they can provide incentives to the customers. Days of discounting are not over but these firms are definitely vetting out their legal positions when it comes to discounts.”
Time to find new ways?
The whole point of this new directive is to discourage mindless discounts and create a profitable retail environment for both, offline and online players. Agreed, the retail industry can’t survive without the occasional & seasonal offers. However, making it a norm doesn’t benefit anyone.
Ecommerce companies have been saying for a long time that discount-driven model isn’t practical and it needs to go. Losses running in thousands of crores are a result of spending precious funds on deals.
So isn’t this the right time to think of innovative ways to drive sales and move over discounts?