With the new FDI rules for e-commerce kicking in on Friday, online retailers have started realigning their platforms to ensure compliance. The country’s second largest e-commerce platform Amazon India removed a number of products under its in-house brands such as Amazon Basics, Solimo, Symbol from its platform for retail customers. Further, products sold by sellers Cloudtail and Appario, in which Amazon holds equity stake indirectly, have also been removed from the platform.
It is estimated that nearly half of the sales generated on Flipkart and Amazon are through their group companies. Experts had anticipated that with the new norms becoming applicable, e-commerce companies will need to realign their business models. The revised rules, issued by the Department of Industrial Policy and Promotion in December to become applicable February 1 onwards, prohibit online platforms with foreign direct investment from selling products of companies where they hold stakes and will also be barred from getting into exclusive marketing arrangements.
The government also prohibited e-commerce companies from entering into an agreement for exclusive sale of products. As per the revised guidelines, a vendor cannot procure more than 25 per cent of products from group companies of the same marketplace where they intend to sell them.
On the Amazon platform, certain products such as Fire TV Stick, Amazon Echo smart speakers were available but from other third party sellers. Notably, while some of these products were available for delivery in one or two days, the latest delivery period was between 15-30 days.
The changes on Walmart-owned Flipkart were, however, not very visible. This is because Flipkart has already phased out WS Retail — a seller in which it owned stake. Flipkart has adopted a model under which it operates through controlled sellers such as Tech-Connect Retail Pvt Ltd. These are sellers that have a majority of their inventory sold to the group companies of the marketplace entity. By purchasing bulk of a seller’s products, a marketplace is able to control factors such as inventory, pricing and supply chain.
The new rules prohibit an entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies from selling its products on the platform run by such marketplace entity. Further, they also bar e-commerce marketplaces from exercising ownership or control over the inventory. Inventory of a vendor will be deemed controlled, it said, if more than 25 per cent of purchases of such vendor are by the marketplace or its group companies.
Amazon India had recently said it will continue to look to engage with the government to seek clarifications that helps it decide the future course of action as well as minimise the impact on its customers and sellers. A Flipkart spokesperson said the firm was disappointed that the government decided to implement the regulation changes at such a haste. “Despite the significant work that is required to change our supply chains and systems, we are also confident that we will continue to serve our customers and sellers to the standards we and they are used to,” the spokesperson said.
The new guidelines require marketplaces to furnish a certificate along with report of a statutory auditor to the Reserve Bank of India confirming compliance of the norms by September 30 every year, for the preceding financial year.