Flipkart stops sellers from changing prices of items in alleged violation of FDI policy

Flipkart might be preventing price changes as a strategy to force sellers to pass on the benefits of lower commissions in its new rate card to consumers

Many sellers on Flipkart have not been able to change the prices of their listings on the e-commerce platform over the last one month, after the Walmart-owned online marketplace changed its rate card for commissions in May.

Speaking to Moneycontrol on the condition of anonymity, several sellers accused Flipkart of effectively violating the foreign direct investment (FDI) policy for e-commerce marketplaces. They also alleged that the company’s move was anti-competitive as it hurt small sellers more, while giving a leeway to their bigger counterparts.

However, senior government officials said they aren't aware of the development yet. A mail sent for comments to the Commerce Ministry seeking a response was unanswered till the time of publication.

“E-commerce players are only facilitators. They cannot dictate prices or change in prices whether on the lower or higher side... Platforms can't stop sellers from making reasonable changes in prices ,” said Praveen Khandelwal, a trade union leader and anti-big tech crusader, who was elected as Member of Parliament to the Lok Sabha earlier this month.

According to sources close to the developments, Flipkart might be preventing price changes as a strategy to force sellers to pass on the benefits of lower commissions — charged to sellers in its new rate card — to consumers.

While bringing the new rate card last month, the company said that it has been simplified from four components (fixed commission, collection, shipping) to two (fixed & commission), with the aim of enhancing settlement transparency.

Sellers argued that the platform restricted price changes from the midnight of May 18, when the new rate card came into effect. They claim that Flipkart did not give them time to adjust to the new rate card and determine whether they could indeed pass on the benefit of lower commissions to their customers or not.

"We are compliant with all FDI regulations and do not influence pricing. As a homegrown e-commerce marketplace, Flipkart stands steadfast in its commitment to adapting and evolving in sync with our sellers' requirements... The all-new simplified rate card policy is aimed at optimising growth avenues for sellers while enhancing settlement transparency. As a marketplace, we strive to democratise access to resources, ensuring all sellers have access to our robust seller support system designed to provide needed assistance," a Flipkart spokesperson said in response to Moneycontrol's queries.

"The policy was introduced recently, and we are working closely with our sellers to drive a better understanding of the new policy and make necessary improvements. Since implementing the changes in the last couple of weeks, we've seen an increase in business transactions and a rise in active sellers. These results highlight Flipkart's unwavering commitment to supporting its vast network of sellers by equipping them with innovative tools and resources to thrive," the spokesperson added.

Moneycontrol has seen screenshots of eight sellers’ dashboards with Flipkart that validate the fact that they haven't been able to make changes in prices—despite raising multiple tickets with the company's seller support team.

For example, a toy seller tried to increase the price of one of his items from Rs 709 to Rs 712. But, a dialogue box prompted, “System Update: Keep revisions closer to historic settlement value.”

The historic settlement value is the average payout that a seller gets from the platform for a particular item, after all deductions like commission and logistics charges. In the toy seller’s case it was Rs 404.

According to the sellers, this indicates that the platform does not want them to raise prices as their settlement values would increase and lead to higher payouts.

The e-commerce giant’s latest move has hurt different types of sellers in different ways.

For instance, a copperware seller said that his ‘historic settlement value’ has been in the range of Rs 150-200, while the average price of his copper bottles was Rs 499 per piece. As the price of the metal had increased by 15-20 percent in the last few months, his cost price had jumped by a significant amount. He was planning to pass the burden on to customers by raising the price to Rs 599 per piece when Flipkart’s move came.

“The stock that was already in their warehouse got sold out. After that, I declared it out of stock on Flipkart as it would not let me increase the price,” he said.

A Mumbai-based seller of affordable clothing said that merchants hawking in the lower price points have felt a bigger brunt. As their effective commission rates are higher in percentage terms, their margins on sales are much lower. This means that they have to manage bigger volumes of stock and be nimble with price changes.

However, the biggest losers in this episode have been the small sellers. These are merchants who may help e-commerce platforms show users a wider assortment, but don’t individually log large sales numbers.

So, the marketplaces don’t assign them with ‘account managers’ who are at the beck and call of the bigger sellers.

“The big sellers have account managers. In some cases, these account managers are still enabling the change in prices after the big or ‘alpha’ sellers push for it. But, smaller sellers like me are getting automatically-generated emails when we ask why the price changes are not working. In effect, I am not being able to earn a profit while my larger peers are doing so. It’s not a level playing field,” said a Gujarat-based seller of skincare products.

These sellers and industry experts said that if Flipkart’s move was found to be discriminatory between different sizes of sellers, it might invite action by the antitrust watchdog.

“If smaller sellers are not able to change prices vis-à-vis bigger players and their pricing is being dictated, it is surely an abuse of dominant position by Flipkart. It would then be an anti-competitive practice,” said Salman Waris, Partner at technology-focussed law firm TechLegis.

“The FDI circular of 2020 says that e-commerce entities providing a marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field. It is a violation on two fronts if Flipkart is dictating prices and also allowing bigger players to change prices while not allowing smaller ones to do it", he added.