BENGALURU: The impact of the implementation of the new foreign direct investment (FDI) rules for e-commerce companies was clearly visible on Friday, as large online retailers led by Amazon India started pulling down products from their respective marketplaces that were sourced through their biggest sellers in which they owned stakes.
Products from anchor sellers such as Cloudtail and Appario, which used to form a major chunk of Amazon India’s sales, were almost invisible and were replaced by other vendors. Amazon also effectively pulled the plug on its grocery offering in India, just before the regulations took effect.
“We noticed that several product listings (sold by Cloudtail and Appario) on Amazon India were removed," said one analyst, tracking the e-commerce space. “However, some of the these products were getting re-listed through another seller."
The overall impact on the Indian e-commerce market is being pegged at a reduction of 5-6% of the earlier estimates for 2019, depending on how quickly the companies bounce back.
According to Forrester Research, the Indian e-commerce market for 2019 was estimated to be around $34 billion, up from $26 billion 2018.
While a similar impact was not visible on the Flipkart website, experts say, the bigger concern for the homegrown player would be to ensure that its anchor sellers, which usually source products from Flipkart’s wholesale arm, do not cross the 25% threshold.
“The problem is how to confirm that a certain seller is not buying more than 25% of its sales from the wholesale arm," said a Flipkart executive, requesting anonymity.
Flipkart-owned fashion platform Myntra continued sell its private labels including HRX, in which it holds a 51% stake. Similarly, Flipkart’s products also continued to display discounts despite the FDI rules stating that marketplaces cannot influence the price of products.
Last one month was nothing short of tense for Amazon India and Flipkart as the companies continued to hope that the DIPP would provide a deadline extension for e-commerce companies to comply with. The Press Note 2 had come out in December with stringent guidelines and a one month deadline for the companies to be in compliance by February 1.
A Flipkart spokesperson said, “We are disappointed that the government has decided to implement the regulation changes at such haste, but we are committed to doing everything we can to be compliant with the new rules."
Amazon India and Myntra did not respond to queries seeking comment on the impact of FDI guidelines.
However, during an earnings call, Amazon CFO Brian Olsavsky spoke about how they are evaluating the current situation but also underlined the impact of the FDI guidelines on price and selection for customers and sellers.
“Our main issue and our main concern is trying to minimize the impact to our customers and sellers in India," he said. “We've built our business around price, selection and convenience. We don't think the changes help in those dimensions for both the customers in India and also the sellers."