100% FDI in e-commerce marketplaces: Days of huge online discounts may soon end

NEW DELHI/ BENGALURU: The next time you turn online for a big discount, chances are, you will come away empty-handed. The government’s new e-commerce policy that has opened the gates for 100% foreign direct investment (FDI) in B2C online marketplace, restricts e-commerce companies from directly or indirectly influencing the sale price of goods on online marketplaces.

This could mean, no more jaw-dropping discounts on smartphones or televisions — or at least, online prices will be on a par with what your neighbourhood retailer offers. “This was needed. They will now not only stop giving huge discounts but also perhaps not advertise openly about big sale days. This will call for change of business model,” said Kishore Biyani, CEO of Future Group that runs the country’s largest brick-and-mortar retail company.

E-commerce companies here have been using discounts to lure consumers to shop online. In the process, apart from burning hundreds of millions of dollars of investor money and racking up huge losses, they have given offline retailers a run for their money.

For instance, till last year, Alibaba-backed e-commerce company Paytm was burning around $15 million a month to offer discounts and expand operations. “They have been using interest-free investor money for predatory pricing,” said Praveen Khandelwal, secretary general for Confederation of All India Traders (CAIT), an umbrella body for small traders. “How can we compete against them by borrowing money from banks at more than 12% interest?” Online marketplaces such as Flipkart created ripples in the domestic retail industry last year with its sales days such as `Big Billion Days’ that saw the Bengaluru-based company sell around a million products in 10 hours and rake in around Rs 651 crore in just 19 hours.

Earlier, companies such as Samsung and Sony, among others, were trying to work their way around discounting on online sites. Samsung even witnessed a large number of its brick-and-mortar retailers coming together to stage a protest against predatory pricing of the company’s products online. “The deep discounts not only soured our relationship with our partners but also did not help our brand image,” said a senior Samsung India executive.
Despite new dos and don’ts, experts said e-tailers will find their way around these restrictions. “There can be a lot of ways in which you can reward the customer apart from offering direct discounts. For instance, you can offer schemes and cashbacks,” said Amarjeet Singh, partner-tax, KPMG India

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