New Delhi: India’s new foreign direct investment (FDI) guidelines for e-commerce companies could bring respite to brick-and-mortar stores that have, over the years, struggled to keep up with steep discounting and promotions offered by internet retailers.
On 26 December, the government restricted e-commerce firms from entering into exclusive deals with sellers and barred them from selling goods of companies in which they have a stake. The guidelines took effect on 1 February.
As heavily funded e-commerce portals offered generous deals, offline retailers were forced to stretch sales periods, sell their goods online, and offer steep discounts.
The new norms for FDI in e-commerce could help keep deep discounting in check for now, and even help reduce sales period that have over the years stretched to three to four weeks per season, said retailers.
“The new guidelines will help bring about some kind of a price control in the market," said Vasanth Kumar, managing director, Lifestyle International that runs a chain of departmental stores in the country.
In the past two-to-three years, said Kumar, owing to the popularity of e-commerce as a channel, “our own industry has faced pressure on offtake of inventory and the number of sales weeks have been expanded to six weeks per season. With the new rules, we hope the end of season sale duration to come down," he said.
Kumar Rajagopalan, CEO, Retailers Association of India, said under the new rules, marketplaces are not allowed to influence pricing.
“Hopefully this will make sure brands have control over their pricing both offline and online," he said, adding that while discounts won’t come down dramatically, brands can finally take full responsibility for prices. This will “ensure a level playing field", he added.
“In next three-to-four months, discounts on e-commerce will be sharply lower even though they (e-commerce firms) are trying to work their business model around the rules," said Abneesh Roy, analyst at Mumbai-based brokerage firm Edelweiss Securities.
“This regulation will lead to some cut down on time-frame of sales in next few quarters, say by one or two weeks," he added.
Roy, however, said retailers will have to wait and watch over the next few months if the guidelines continue to be fully implemented, especially as online retailers find new ways to work around the guidelines.
The new rules to create a level-playing field could impact sales worth ₹35,000 crore to ₹40,000 crore at the country’s top online retailers, according to estimates by ratings firm Crisil. Even as e-commerce firms assess their losses, physical retailers are expected to lap up ₹10,000 to ₹12,000 crore in top line in FY20, Crisil noted.
However, even as physical retailers stand to benefit from the new rules, some retailers with excessive exposure to online sales are likely to be impacted, said Edelweiss’s Roy.
Brick and mortar apparel and electronic retailers which have entered into exclusive merchandise deals with online retailers to push sales, are now looking at the new guidelines.
“The new FDI regulations, imposing equity and inventory restrictions on e-commerce platforms, are likely to have some impact on our e-commerce revenues in the short term," said Rajendra J. Gandhi, chairman and managing director, Stove Kraft Ltd that sells kitchenware products under the Pigeon brand.
“However, this will be offset to a large extent as the new FDI regulations are meant to provide impetus to our traditional distribution models," he added.
Meanwhile, departmental store chain Shoppers Stop, in which Amazon picked up a minority stake in 2017, said it is reviewing the revised policy guidelines in line with the new rules that restrict sale of goods from companies where e-commerce firms have stakes.
In the interim, the retailer’s products have been delisted from Amazon’s website.
“While we have taken the necessary steps to comply with Press Note 2, we continue to await further clarity from DIPP. We have other synergies with Amazon which we continue to work on within the ambit of policy guidelines, to ensure our customers get the best experience," a company spokesperson said over email.