26thDecember 2018, opened with great challenges to E-commerce companies, who also sell products through subsidiaries on its platform. The change is big, e-commerce entities can now only engage in business to business (B2B) and not in business to customer (B2C).
In the initial stages most of the e-commerce companies started its business by providing a platform for buyers and sellers. They themselves never sold products. This created a healthy competitive platform, where the seller and the buyers become winners. But the scenario changed when the e-commerce giants which has grown in size to control the market, found a big profit making opportunity by having own companies dealing in the fast selling and large selling products, as sellers in the trading platform.
The impacts were
- Started predatory pricing.
- Started discounting heavily which an ordinary seller in the platform as a retailer could not.
- It has become very difficult for the retail market to survive both offline and online.
It was permitted earlier also but it was only on ownership model. It means the ecommerce company should not sell any products on the platform, on which they have ownership. In other words, they should not sell products on the platform as a seller. This made most of the ecommerce companies to start their subsidiaries and start selling. Now the new changed note makes a big change, not just ownership, they ecommerce companies should not be exercising control on sellers in the platform. In other words, it is now clear that even the ecommerce companies cannot be sellers on the platform through its subsidiaries.
The important takeaways from the latest note are
- The seller will not be allowed to sell its products on the ecommerce platform, if the seller’s inventory is deemed to be in the control of ecommerce entity.
- Restriction is imposed on the sellers that prohibits them from selling in the ecommerce platform if such ecommerce entity of group companies has any stake or have any equity participation in the seller company.
- No preferential treatment should be given to any vendor.
- It is clear that the the note says the at the e-commerce platform should not mandate the seller to sell their products exclusively on their platform, the seller can definitely, if they want, sell their products exclusively on one platform.
- The note also says, the cash provided by the e-commerce entities should not be discriminatory.
The ecommerce giants like Amazon and Flipkart need to be worried, as majority of sales through their platform is done by group companies. Flipkart is dependent on Retailnet and WS retail, whereas Cloudtail and Appario for Amazon. They have to disclose their interests and stocks and may have to sell off their stakes in these companies. The sellers who have exclusive arrangements with e-commerce companies to sell their products exclusively on the platform have to forget the agreements and should get ready to sell their products at different platforms.
This will definitely help the ordinary retailers who are feeling the pain of losing customers and business. They were not able to face the discounts and cash backs offered by the ecommerce giants. The new guidelines, is expected to help the retailers to retain customers and business and keep them floating.
By this change one more problem is coming up for the customers. Big discounts are going to go and the service and warranty will be taken by respective sellers and not ecommerce company. It means the consumers are going to face tough time on service and warranty issues as sellers are from different parts of the world and god knows how they are going to handle. Earlier it was done by e-commerce companies.
To conclude we can say that the guidelines are welcome sign for a greater change. It will definitely reduce the opportunities for e-commerce companies to indulge in malpractices, predatory pricing, unfair discounting and cash back. But there are loopholes through which the ecommerce giants can overcome these. More need to be done. These guidelines will be effective from 1stFebruary 2019.