Online bonanza for buyers leaves traditional retailers weeping

It is bonanza time for consumers with online marketplaces offering unbelievably low prices and throwing in freebies for branded products. But brick-and-mortar retailers are a worried lot as they cannot match these discounts.

Flipkart, Amazon and Snapdeal have announced festive sales from 1 to 5 October. Snapdeal and Flipkart claimed lakhs of transactions on their platforms on the first of the five-day discount sales on Sunday. Amazon, which started its five-day special sale on 1 October, said it has seen six-fold growth over its regular business. It has claimed to have sold one lakh product units in first 30 minutes, and 15 lakh units in first 12 hours on first day of its 'Great Festival Day' sale.

Snapdeal, in a statement, said, "Nearly 11 lakh buyers from over 2,800 cities and towns across India bought in the first 16 hours of the sale. The sale which started at midnight with 180 orders being booked per second got bigger during the day as buyers used the national holiday to explore a plethora of attractive deals." It said that based on the trends from the first day of the sale reflect sales volume jumping to six times the average volume by 4 pm on day one.

Regular vendors are looking grimly at the unfolding scenario. Where is the level playing field, they ask. Some of them, who spoke to Firstpost, said they have begun diversifying to de-risk their business given the narrow margins online business offers.

Department of Industrial Policy and Promotion (DIPP) rules prohibit online marketplaces from offering discounts and cap total sales originating from a group company or one vendor at 25 per cent. The guidelines also state that marketplaces cannot influence pricing.

But that is exactly what these marketplaces are attempting to do by advertising through multiple channels and offering discounts and freebies. One thing though is not clear: who is offering the discount? The marketplace or the brands?

The way the online marketplaces are doing business does not augur well for small vendors. "They (small vendors) are being impacted with these discount offers which will ultimately will kill their businesses," says Kishore Biyani, group chief executive of Future Group. He says that it is time the government realised that its guidelines are being blatantly violated.

If the role of the marketplace is only to facilitate sellers and buyers, why is the marketplace placing advertisements and calling attention to its wares? However, marketplaces have their own sellers - like Flipkart has its own seller in WS Retail, and Amazon has Cloudtail, a joint venture between Amazon.com Inc and Narayana Murthy's Catamaran Ventures.

Online vendors say that they have been asked by the ecommerce firms to sell their products at prices prevailing a month ago. ''I was asked to put my products on sale at 31 August prices on Flipkart for the month of October. How fair is it? But what do we do? There is no one to address these issues. Though I have had over 1,000 orders from Flipkart for my products, none of these orders have been released yet,'' says a vendor from the All India Vendor Online Association (AIVOA). He alleges that ''Flipkart's WS Retail will supply the same product at lesser rates."

The vendor, who refused to be quoted for this article, claimed that when online marketplaces ask vendors like him to lower their price, the marketplaces can do that as they are confident of getting branded products that will be able to replace unknown players like this vendor, for instance. ''Vendors like me are bleeding. These are slaughterhouses where the ones who can lower prices further will be welcomed,'' he says.

Even with regard to the alleged flouting of DIPP rules by online marketplaces, there is no authority, points out a vendor, to pull up such players or for vendors to come and complain about them.

In a rush to get maximum traction on to their websites, the marketplace models are ensuring that they are able to get hold of as many sellers as they can and do not mind burning their fingers in this race, says an analyst.

If brands are able to offer products at a stiff discount online, then it should be able to offer the same offline. However, that is not the case. ''This only goes on to show that marketplaces have a direct control over inventory,'' points out Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT), adding that sales and discounts online is an apt case for the government to investigate how marketplaces are operating.

On their part, online vendors want the government to set up a Retail Regulatory Authority to monitor and regulate retail trade in the country.

In 2009, a parliamentary standing committee headed by Murli Manohar Joshi had recommended the setting up of a regulatory authority that could stop unfair practices of big retailers, but nothing much has happened on that recommendation since, points out Khandelwal.