Amazon, Flipkart squeezed by new rules

Have you been wondering what happened to your favorite products online, well we are here to provide an answer. Products have been disappearing in alarming numbers from virtual shelves online. This is due to the new regulatory regime rolled out by the Indian Government. Amazon has had to suspend its key alpha sellers Cloudtail and Appario. Alpha Sellers are basically those sellers which buy products wholesale and then sell to the marketplace. They are the linchpin in the online retailers discount strategy. Ever wondered how Amazon and Flipkart provided products at dirt cheap prices or sold products at eye popping discounts during Festive sales. Well Alpha Sellers are the answer.

Online marketplaces are barred from owning stakes in sellers whose products they sell on their platforms-as somewhere down the line online retailers are likely to push their preffered products to the consumer. Amazon owns several private labels whose products it had to pull. Private labels such as Solimo, Amazon Basic,Myx,Symbol,RjCo all of them owned by Amazon have disappeared overnight. Flipkart however owes no such stakes in any private entities.

Both Amazon and Flipkart have sought an extension to better understand the impact the new rules are likely to have on their business ventures but such overtures fell on deaf years. The Department of Industrial Policy and Promotion has said in its website that no such extension will be granted after due consideration.

Another rule which stipulates that any vendor purchasing 25{5183627f5ab5e478a378d862bd47bf67c79b640f838c75b2ea072c4667c57572} or more in products from an online entity is considered to be under control of said entity. Vendors selling on Amazon and Flipkart cannot buy more than 25{5183627f5ab5e478a378d862bd47bf67c79b640f838c75b2ea072c4667c57572} of their stock from their wholesale subsidiaries. Companies are forbidden from having any exclusive tie ups with any one online retailer. This is likely to effect companies like One Plus and Xiaomi who have had exclusivity agreements with Amazon to sell their flagship products in the past.In a statement One Plus has stated that it had no such agreement with Amazon in the past and will continue to sell its product on Amazon regardless.

Flipkart and Amazon combined control 70{5183627f5ab5e478a378d862bd47bf67c79b640f838c75b2ea072c4667c57572} of the online marketplace in India. This is a huge setback for them. Amazon has recently invested five billion dollars in its India operation and has pledged to invest more. In its recent earnings report Amazon cited the rules change in India as cause for concern for its long term profits. Nevertheless the company has said in a statement that it remains comitted to its plans for India and sees India as crucial to its future profitability.

Flipkart on the other hand rised eyebrows by coughing up a whooping 16 billion dollars to acquire a majority stake in Amazon regional rival Flipkart last year. The new rules will hamper discounting capability and put te brakes on its growth.

To be sure not everyone is dreading the new rules, India’s small retailers are all cheering the changes bought in by the government. They have been squeezed by big online retailers in the past seeing their profits shrink as they were unable to kkep up with their hefty discounts. The Confederation of All India Traders welcomed the changes and had threated political reprucussions were the new regulatory rollout were to be delayed any further.

Its not only small retailers who are thrilled by these new rules. India’s richest man Mukesh Ambani was likely very pleased with the governments new initiatives. Amabani who harbors ambitions to become India’s very own Jack Ma will see this as an oppurtunity to capture a significant chunk of the market from well funded Global rivals. He has launched plans to combine Reliances consumer offerings into a hybrid online to offline commerce platform.

Reliance’s consumer offerings include telecom where Ambani’s very own Jio has forced many rivals to either merge or go bankrupt. The list of victims include Aircel and his Reliance Communications owned his own brother. Rcom filed for bankruptcy only yesterday. And its assets are likely to be acquired by his brother. It also offers media, enetertainment and retail as well as an higly anticipated foray into fibre to home broadband that has rivals nervous and shoring up their operations to weather the incoming onslaught.

Ambani has revealed the opening act of his business strategy- offering a shopping platform 1.2 million local store owners in Gujarat. As it branches out the company will enlist more local shops to double as distribution and delivery centers for products availaible on its online platform.

The governments timing in bringing in the new norms couldn’t be more ominous. Fresh off its humiliating defeats in the latest state elections, the Modi Government is looking to shore up support among small business owners, a key part of their traditional voting bloc, who are still furious over the governments note ban adventure and clumsy roll out of the GST tax. It’s a shame that online retailers should pay the price for Modi’s sins but if the new rules give India’s small business owner a well needed boost and makes the online marketplace more competetitive for everyone. Then hey we are all for it. Consumers however are likely to feel the pain due the governments latest move as prices are likely to rise.

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