Flipkart in trouble? Complaint filed with CCI

Complaint

Offline traders are not happy with Flipkart in particular and online marketplaces in general. An industry body, the Confederation of All-India Traders (CAIT), has lodged a complaint with the fair trade regulator Competition Commission of India (CCI), who has registered a preliminary investigation against Flipkart for predatory pricing and may initiate an in-depth probe in case the Competition Act is found to be violated. CAIT has urged the Commerce and Industry Ministry, too, to monitor and regulate e-commerce, as well as investigate how the massive discounts are being offered online.

Why are they unhappy with Flipkart?

Not just on their Big Billion Day, but even on ordinary days, Flipkart offers electronics etc. at a price that’s far more attractive to customers, thereby taking business away from offline stores. Traders also allege that Flipkart, and other marketplaces govern pricing and hence are able to offer heavy discounts. Hari Rastogi, who is the crusader of the protest against marketplaces, said he isn’t against e-commerce, which is understandable because he runs a website himself, laptopwale.com. His website prices laptops higher than Snapdeal or Flipkart do, however these marketplaces don’t have stock of the same models of laptops that laptopwale has. The marketplaces instead have variants of that model at a much lower price.

Hari Rastogi has set up a webpage that voices the traders’ displeasure, “We do not oppose the online retail format or any legal business format but we strongly oppose the unethical business practices of 2-3 big online retailers who are selling in losses to capture the market. For these big online retailers and their investors it is just GAMBLING but for millions of  retailers it’s a matter of their BREAD AND BUTTER.(sic)” This website goes on to express their opinion about the e-marketplaces:

It even calls for action, urging offline sellers and manufacturers to cause damage to and register their discontent with the e-marketplaces.

How are prices lower online?

Since e-marketplaces do not have to bear the same amount of cost of operations as their offline counterparts, their margins are increased. Besides, MRP or Maximum Retail Price is the upper limit that the government imposes on sellers – they are free to reduce it to any amount they like since there is no concept of Minimum Selling Price. Additionally, e-marketplaces look at promotional discounts as part of their marketing costs, which makes it a more acceptable expense. However, often the discounts are an illusion or merely an attractive slashing of the inflated selling price, which can help lure some customers, not all.

Ironically, brick and mortar sellers also have varying pricing, and the amount of discount they offer to their loyal or preferred customers depends entirely on their whim and fancy. On the other hand, certain offline sellers inflate the price for products that are in demand, knowing that they will sell anyway.

What is the general sentiment?

Ecommerce universe is not an easy place to be. With hazy tax laws, blurry FDI regulations and fierce competition, marketplaces have plenty and more on their plate to handle. This list is a small reflection of the state of things as it shows which e-players had to pack up leave too soon! One may argue that most marketplaces operate on a loss and that is the reason for their discounted prices, can one ignore departmental stores like Reliance Fresh, Dmart, Big Bazar etc. which offer consumables on a much lower price than retail shops? Since Indian online retail space is about 8% of all retail, brick and mortar shops still have a large consumer base. Amidst all of these extreme opinions, there are  consumers, especially online buying enthusiasts, who are of the opinion that in the end it is the survival of the fittest, and that finally the offline retailers are being penalized for having provided, in the past, substandard service for an inflated price.

Does history say anything?

This is not the first instance of unrest among physical retailers. The USA has seen it – Amazon has been blamed for electronics retail chain Circuit City’s bankruptcy.

CCI was established in 2003 in order to prevent activities that have a negative effect on competition in India. In a previous case of Ashish Ahuja vs. Snapdeal and ScanDisk, the CCI had found Snapdeal to be operating purely as a marketplace, and that it was not engaged in purchase and sale. Gautam Shahi, senior associate at law firm J Sagar, remarked that if it’s the vendors who offer products at a low cost and the marketplace does not govern the pricing, it won’t qualify as a case of predatory pricing.

Arvind Singhal, chairman of Technopak, remarked that ecommerce in India is in its transformational phase – retailers have no choice but to accept this. “Over the next few years, more and more people are going to buy things online and offline retailers will find it challenging,” he said.