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Online Festive Discounts Not-So-Festive for Sellers Anymore?

Shruti Menon

The online sales which kicked off this festive season were somewhat less festive this Independence Day, as e-commerce companies were forced to work around curbs on offering discounts. This was the first big ticket sale this year after the government’s regulation on discounts and 25 percent cap on sales from a group company or one vendor for online market places.
Wooing Buyers
Despite the government’s diktat, almost all e-commerce portals offered a range of discounts on their websites and mobile apps. Amazon’s Great Indian Sale and Fashion Freedom Sale locked horns with Flipkart’s Freedom Sale and Snapdeal’s Wish for India. But all the major players unanimously told BloombergQuint that this time around, discounts were offered by their sellers. 

Quote:The discounts were offered by thousands of brands and sellers and for more details you should reach out to them. We cannot answer on their behalf.

Amazon Spokesperson in an email response

[Image: bloombergquint%2F2016-08%2F2d466a14-e878...4&fm=pjpeg]
On August 15, Snapdeal offered discounts up to 70 percent on a range of products, including hourly deals on electronics, fashion, home and daily needs products. Saurabh Bansal, Snapdeal’s Vice President of Category Management said in an email response that discounts were offered by their sellers.

Quote:Sellers on Snapdeal are offering great deals as part of the Wish for India sale. The sharpest spike in sales was witnessed on Day 1 in Electronics & Home, including for home appliances. 

Saurabh Bansal, Vice President- Category Management, Snapdeal

Flipkart’s Freedom Sale between August 10 -12, ran a marathon of deals on fashion, furniture, home appliances, mobiles and laptops. The e-commerce portal did not respond to BloombergQuint’s specific email query on who is offering the discounts for its Freedom Sale.
Online Vendors See Red
As the Independence Day sales wound to a close, e-commerce players faced the ire of online vendors who said they had to bear the cost of discounts themselves. Before the government’s FDI regulation in March 2016, e-commerce companies would bear all discounts themselves and would often pay sellers more than what they’d collect from the customers in a bid to grow rapidly, a spokesperson of the All India Online Vendors Association, who did not want to be named, told BloombergQuint. But the situation has now changed.

Quote:Earlier, e-commerce marketplaces were burning money from their pocket by giving discounts. Often they used to pay sellers more than what they collected from the buyer - the difference was offered as discounts. A major marketplace now claims unofficially that they had to resort to such tactics in order to grow at a fast pace. When investments stopped coming in, marketplaces started focusing on profitability, hence discounts got limited to only few products and exclusive launches.

Spokesperson, All India Online Vendors Association

So how do online marketplaces incentivise sellers to bear the burden of discounts? Often, sellers are lured by the promise of greater visibility, but suffer inevitable losses. Sellers are told “it is a part and parcel of scaling up business,” the AIOVA spokesperson, said in a telephone interview. With the latest regulation, e-tailers have an excuse to pass on the entire cost of discounts to the seller, he added.
Sellers are also coerced to give out discounts, the spokesperson alleged, but several pleas for regulations to protect vendors have gone unheard.

Quote:Many sellers are forced to give discounts in order to scale up their business. But they may or may not earn a buck after giving these discounts. Sadly, there are no regulations at all. Our association has been striving and lobbying for a regulatory body on the lines of RBI, IRDA, Trai etc. We had even discussed this matter when we met Jayant Sinha, former MoS Finance. We are trying to secure an appointment with Nirmala Sitharaman and the DIPP. 

Spokesperson, All India Online Vendors Association

Traders’ Body up in Arms
Earlier, the Confederation of All India Traders had filed a complaint against the e-commerce giants Amazon, Flipkart and Snapdeal before the Department of Industrial Policy and Promotion, for ‘blatantly violating’ rules and publishing ads in newspapers and other online websites about their ‘mega sale’. National General Secretary of CAIT, Praveen Khandelwal demanded that the DIPP stay the operations of these portals.
“The government of India had issued guidelines on March 29, under which it was imperative for the e-commerce portals not to indulge in any activities influencing prices directly or indirectly. They have clearly violated this diktat. They have circumvented the law and provisions by giving out ads about discounts,” Praveen Khandelwal, National General Secretary, CAIT said in a phone interview to BloombergQuint.
DIPP’s Caveat
The Department of Policy and Promotion had warned e-commerce portals in April to refrain from looking for loopholes and doling out discounts. But a senior DIPP official, said on the condition of anonymity that the department only formulates rules and enforcement does not lie with the department as the “position of law is clear.”
“The power lies with Enforcement Directorate. Whatever complaints come to DIPP are forwarded to the Reserve Bank of India and ED to take appropriate action under FEMA (Foreign Exchange Management Act),” the official said.
DIPP officials met e-commerce companies on August 12 and officials present at that meeting indicated that these portals are likely to issue a clarification soon. The clarification, they said, would highlight how sellers and manufacturers are doling out discounts and not the e-commerce portals, as claimed by the traders’ body.
Analysts’ Take
Though the discount game is still alive, analysts and industry experts told BloombergQuint, that e-commerce portals will have to tread carefully. Some of that caution was evident in the Independence Day sales this time around.
“In the aftermath of the regulation, the discount percentage has gone considerably down. Sellers are now truly giving temporary discounts. While last year, there were discounts of about 60-70 percent, going forward this year, there will be a substantial difference,” according to Ashish Jhalani, founder of eTailing India, a body of entrepreneurs and startup founders.
It’s possible that these portals would keep deals alive through ‘buy one-get one’ offers to avoid influencing prices, but in doing so, they may be risking their reputation, said Anil Talreja, Partner, Deloitte said in a telephonic interview.

Quote:One really doesn’t know who is bearing the cost for these discounts. It has to be the supplier, otherwise, apart from running into licenses and penalty issues, these websites would run the risk of putting their reputation at stake if they violate the rule. 

Anil Talreja, Partner, Deloitte

Multiple phone calls made to WS Retail and Cloudtail India Pvt Ltd., the biggest vendors of Flipkart and Amazon respectively, failed to elicit a response.

BloombergQuint -

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