Moneycontrol Bureau
In his popular book, The Tipping Point, author Malcolm Gladwell outlines the idea of a tipping point as that “moment of critical mass, the threshold, the boiling point” after which ideas, products, messages and behaviours in our everyday lives acquire a life of their own and “spread like viruses do”.
If one has to look for parallels, Flipkart’s Big Billion Day sale on October 6 should be equivalent to a sort of a tipping point for the Indian ecommerce industry.
The advertising-fuelled, glitzy flash sale -- in which the India’s largest online retailer gained for more noteriety than fame as its website encountered technical glitches and it did not have adequate stocks to cover demand – propelled the ecommerce sector into public consciousness like it had never been before, but it also ensured the it ran into hot waters with authorities, a development which could decisively trigger a wider wave of lashback against such firms.
At heart of the tussle is whether these websites, which enjoy a definite cost advantage versus brick-and-mortar stores thanks to their virtual nature, indulge in “predatory pricing”, a practice in which a seller prices products below cost with the express intention of hurting competition, and which is not allowed by law.
During the Big Billion Day run by Flipkart, as also similar flash sales hosted around the same time by rivals Amazon and Snapdeal, there were several products that were priced at eye-popping discounts, and at levels physical stores claim they do not even source their products.
But earlier, offline retailers were quick to dismiss the business strategy of their online peers (of focusing on increasing their sales and converting more people to their medium – without paying attention to profits) as a temporary move backed by easy foreign capital, and one which would fizzle out over time as dynamics of the market catch up. (The ecommerce sector still notches up less than 1 percent of sales – USD 4 billion – compared to the USD 500 billion Indian retail sector.)
It now appears that before investors, currently lured by the fast-growing nature of their business (lossmaking as they are), force them to think about turning in profits, it is the government that will do so.
In the latest development, the Retailers Association of India, an umbrella body of retailers that has big boys such as Reliance Industries, Aditya Birla Group and Bharti, among others, has written to the government to look into pricing practices of ecommerce sites.
While the government has not yet announced any formal investigation specifically with respect to the charge of predatory pricing, commerce minister Nirmala Sitharam did concede, in the wake of the Big Billion Day sale, that the government had received complaints from traders against it.
E-tailers, most of whom follow the marketplace model of merely serving as a online meeting place for buyers and sellers, do have an explanation: that they are not responsible for pricing practices of individual sellers and cannot be faulted for it.
But such explanations may not wash should the Competition Commission of India initiate a deeper probe. There have been reports that at least some of the discounts on products sold by Flipkart during its October 6 flash sale were borne by the firm and not the vendors. It will not be surprising if other websites too are found indulging in the practice.
Such complaints could force the government to come out with clearer rules on such practices and potentially put a curb on them – even as it means fewer discounts for end customers.
If nothing else, the bigger offline retailers are already working their clout with consumer electronics companies, to threaten the websites to back off. In recent reports, companies such as LG, Samsung and Sony have explicitly said they would not honour warranties for products sold online.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
