Tough time ahead for Amazon, Flipkart-Walmart dominance of India's e-tail?

In a closed-door meeting with the government last month, senior officials of Reliance Industries, India's largest brick-and-mortar retailer (with over 12,000 stores), sided with small retailers against e-tail biggies Amazon and Flipkart-Walmart combine. They exhorted the government to put in place tighter norms to create a level playing filed for sellers. They said India needed special regulations to ensure 'non-discriminatory' treatment of sellers on marketplace websites.

This may be the first time a corporate powerhouse like Reliance has spoken about it, but this discussion about global ecommerce marketplaces such as Amazon and Walmart preferring to select large sellers over the smaller ones has been on for several years.

In fact, back in 2016, the government clarified that no seller could have more than 25% of its sales on an ecommerce platform. In 2019, the government also disallowed the ecommerce platforms from owning significant stakes in seller firms, following which Amazon reduced its stake in Prione, the parent of Cloudtail (one of its largest sellers) to 24%. Last year, Amazon also announced that it would be shutting down Cloudtail in 2022. However, earlier this year the American e-commerce giant announced that it would be acquiring the share of Catamaran Ventures (owned by Infosys co-founder, NR Narayan Murthy) which owned a 51% stake in Prione, while Amazon owned 49% subject to regulatory approval.

If Amazon were to buy out the Catamaran stake it would own 100% of Prione, which is against regulations. The regulations don’t allow global marketplaces to own stakes in seller companies. As global biggies are looking for grey areas to capitalise upon, Indian retail industry experts believe that domestic retailers will oppose them. “Amazon and Walmart own 90% of the ecommerce market. Despite Reliance and Tata making aggressive moves in this space, they are a minority,” points out the former MD of a leading Indian retail company.

Neither Amazon nor Walmart have this kind of a market share even in their home country. China, for instance, is completely dominated by Alibaba and other Chinese retailers. “The Indian conglomerates are going to do whatever it takes to corner the American retailers. Their narrative about giving sellers a level-playing ground is actually a strategy to oust the global biggies,” agrees the head of a leading consulting company. While the policy didn’t allow FDI in physical retail, foreign companies were allowed to set up ecommerce marketplaces. While Walmart acquired Flipkart, Amazon set up a fully-owned Indian subsidiary. Ecommerce in India is synonymous with Amazon and Flipkart.

Policymakers have been doing their bit to make these firms comply with Indian laws. However, both Amazon and Walmart have found ways of finding gaps. They obviously don’t want to let go of India’s 1.3 billion market opportunity. Global ecommerce marketplaces are not allowed to own private brands in any category barring food. While neither Amazon or Flipkart would admit, they do give preferential treatment to certain brands, which the industry claims are their own. Search for home care, personal care, white goods or any other category the ecommerce giants will first throw options of a range of not so well-known brands. These brands are good quality and are cheaper than the better-known ones so the consumer loves them.

“Amazon and Flipkart have a stake in these brands so they push them harder,” claims a senior retail expert. He wonders how the regulatory bodies have not caught these discrepancies. “Tatas and Tesco have a JV for Star Bazaar. As far as I know the government doesn’t allow FDI in multi-brand retail,” he further points out.

In fact, both Amazon and Walmart through their investment arms have also picked up stakes in various Indian companies. While Flipkart has a minority share in Aditya Birla Fashion, Amazon has invested in grocery retail chain, More and Future Group. “I wonder how the Competition Commission allowed this deal to go through in the first place,” says a senior retail expert.

Are regulators ignoring these discrepancies? The department for promotion of industry and internal trade (DPIIT) which is a part of the ministry of commerce and industry is building an open network for digital commerce (ONDC), to curb digital monopolies and standardise the onboarding of retailers on ecommerce sites. Will that help in democratising digital commerce? Well, that's yet to happen.

Globally, a lot of direct-to-consumer brands have opted out of Amazon and Walmart as they felt that their brands were not getting their due. They say that retailing on the platforms is expensive as they have to pay a fortune to ensure their brands are visible and most importantly, they have no control over customer data.

Lack of access to customer data is what a lot of Indian brands are complaining about too. The other issue is the commission they have to pay, which is upwards of 40% and in addition to that they also have to pay for advertising. In fact, many of them are trying to strengthen their own D2C presence. The truth, however, is that none of them can survive without being present on Amazon and Flipkart. The duo has a 90% market share of the Indian e-commerce market.

Indian retail biggies such as Reliance and Tata Group which are late entrants in the ecommerce space are clearly in a hurry to make it big and could be finding Amazon and Flipkart to be a hindrance. “They are using lack of level playing field for suppliers as an excuse to oust Amazon and Flipkart,” claims a retail industry expert.

The average Indian consumer loves to shop on Amazon and Flipkart, the industry at large is increasingly considering them to be an eyesore. Will the American marketplaces be able to hold their ground in India in the long-term?