GoI’s new rules on ecommerce marketplace make it all but impossible for big players like Amazon India and Walmart-owned Flipkart to offer attractive discounts and cashbacks, principally because supply chain, logistics will undergo a radical shift.
What role do supply chain, logistics play in discounts, cashback
Wholesale companies owned by Amazon (Amazon Wholesale) and Flipkart (Flipkart India Pvt Ltd) purchase branded goods in bulk at cheap rates from manufacturers. These products are then sold on Amazon’s and Flipkart’s marketplaces through select sellers offering discounts and cashback.
Select sellers for Amazon are those companies where the ecommerce giant or one of its group companies have an equity stake and the seller buys its products from the wholesale company. For example, Cloudtail, owned 100% by Prione Business Services, is a 49-51 joint venture between Amazon and Narayan Murthy’s Catamaran India. There are several such companies.
Select sellers for Flipkart are called preferred sellers and they buy all their products from Flipkart’s wholesale company.
On Amazon India and Flipkart, select sellers roughly account for 70%-80% of their marketplace sales.
That Amazon’s and Flipkart’s wholesale units are a key part of their competitive pricing sales model is clear from their business numbers.
Amazon Wholesale registered a revenue jump of 73% to Rs 12,224 crore in FY17-18. Flipkart India Pvt Ltd posted a 40% increase in revenue to Rs 21,000 crore in the same period.
How will new rules change this model
All select sellers that have equity participation from the ecommerce marketplace or its group companies are barred from selling. This means, for example, Cloudtail can’t be a seller in Amazon, unless Amazon ends its equity participation.
Also, Amazon’s Global Store, which is an Amazon entity, may not be able to have a presence on Amazon India’s marketplace.
There’s a 25% cap by value on any seller buying products from Amazon’s or Flipkart’s wholly-owned wholesale companies. This affects select sellers in both marketplaces in terms of their discounting ability because sourcing 75% of products from other sources will likely increase cost.
On cashbacks, rules ask for “fair” and “non-discriminatory” selling practices. This may mean select sellers on Amazon and Flipkart cannot individually offer cashbacks.
Online only exclusive deals between any brand and a marketplace has been banned. This means Flipkart-Xiaomi kind of deals, where Xiaomi smartphones were sold at heavy discounts only on Flipkart, will not be possible.
Services like Amazon Fulfilled and Flipkart Assured that offer superfast delivery to consumers and are available to sellers only if they meet certain conditions, may also be deemed discriminatory.
The development was reported by ETRetail.com