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Traders Associations Want E Commerce Ban, but Retailers Are Part of the System That Makes It Tick

Traders Associations Want E-Commerce Ban, but Retailers Are Part of the System That Makes It Tick

By Gopal Sathe | Updated: 10 November 2014 14:11 IST

While customers like us are happy to see the price wars between online marketplaces like Flipkart, Amazon and Snapdeal, many offline retailers believe it creates an unfair expectation in the marketplace and forces them to lower prices to unsustainable levels. Many traders associations around the country have spoken out against e-commerce. Ironically, even as tensions between online and offline retailers reach a tipping point, many traditional retailers find themselves playing an important part in, and indeed benefiting from, India's growing e-commerce industry.

With leading sites like Snapdeal, Flipkart, and Amazon all following a marketplace model where they don't directly sell products but provide a platform for others, their calls to enlist more partners have often been answered by sometimes reluctant, often enthusiastic, offline retailers.

Hobson's choice
Gagandeep Singh owns Lakshmi Electronics, a store in Delhi's Mayur Vihar, which sells a wide range of consumer electronics products. With strong roots in the community, Singh still greets some of the visitors to his store personally, and takes a minute to exchange pleasantries with an old man who has come to get a clothes iron repaired.

"These customers are the few ones I can still count on," says Singh, when we started to speak to him about the impact of e-commerce on his business. Just about every product on display is also on sale, even now, weeks after Diwali.

Like many retailers, even though he complains about the impact of e-commerce on his business, he admits that the bulk of sales actually come from online websites now. And since these sites also manage the fulfilment of sales, Singh's main role is now one of a warehouse.

Singh feels quite unhappy about the arrangement, but he says he has no real choice. "E-commerce companies charge less [than we do]," says Singh, "[and] the customer thinks we are cheating if we charge more."

With regular discounts on at all times, the e-commerce companies are setting the prices of products, despite e-commerce still being a very small part of the retail ecosystem in India.

Of course, the companies don't agree with this point of view, and in fact, both Amazon and Flipkart have almost identical statements which they have issued to us multiple times in the past. "Prices for products on the Amazon.in marketplace are determined by the sellers," an Amazon spokesperson said. "Sellers are the ones who decide on the pricing of their products - and only they can change these prices in our system," as per a Flipkart spokesperson.

And this is true, Singh says - but at the same time points out that if two sellers have an identical product then the marketplaces highlight the lower price. In other words, the lowest priced seller is the one who is most likely to make the sale, leading to an endless push towards bargain bottom prices and razor-thin margins.

Who really benefits?
Groups like the All Delhi Computer Traders Association (ADCTA), based in Nehru Place in New Delhi, have issued advisories to their members to stop selling merchandise to online marketplaces. Swarn Singh, Joint Secretary of the ADCTA says that e-commerce marketplaces are the only ones to benefit from sellers providing their products at discounted prices.

"The sellers give the product at a lower cost than normal, and then the marketplaces give discounts to the customers," says Singh. "Everyone benefits except for us when this happens."

Another trader with the ADCTA who did not want his name disclosed gave us some more detail about the process - the money that a consumer spends is not necessarily what the seller receives; a margin over and above that is also sent to the company or individual that listed the item.

"Although Amazon and Flipkart and Snapdeal actually pay you more than the list price of the product [on the website], it is still less than what you'd get for selling it directly to a customer," the trader added.

And that's the reason why most retailers are unhappy - not because e-commerce has taken their customers away, but because it has permanently lowered their margins.

In economics terms, this is the tragedy of the commons - if Gagandeep Singh doesn't play along, someone else will. The marketplaces are able to set the terms of the agreements, simply because some sellers will play along with them even though they make public statements about the evils of e-commerce. And retailers actually have good reason to play along with the marketplaces.

Since Singh says that selling online has meant smaller margins, we asked him why he didn't try and focus on building the local business?

"The margins are getting smaller," he says, adding, "you have to go with the times and start thinking of buying a smaller shop [instead of the big showroom]. The margins are smaller when you sell through an online store, but you're able to sell more stock."

What really bothers Singh most though, is the concept of showrooming. Many customers come into the store to look at a product and even try it out, but then go on to buy it online anyway, he says.

"I've invested a lot of money in this shop and in the staff," says Singh. "A customer comes and ties up my salesman, takes half an hour and looks at all the different models, and then walks out to search for the best price - and the entire investment I've made in that customer goes down the drain." Between shrinking margins and drains like showrooming, sellers like Singh are left with little by way of choice.

Not just electronics
This dichotomy between online and offline sales is there even if you're not selling electronics. Anita (last name withheld on request) is a former journalist who joined her husband's apparel retail business. The couple has a shop in a popular market in Delhi, and as she tells it, working with online marketplaces to sell apparel can be more challenging than electronics.

"If you're buying a phone or a laptop, then you know what you're buying," says Anita. "With a shirt, even if you buy two shirts from the same brand at the same size, they'll have different cuts and different fits."

This means that customers return a lot of clothes after trying them on. And along the way, it's possible that minor damage comes in - often very minor and not even noticeable problems. But Anita says they have to check all the returns, and if they notice the problems, then the clothes can't be resold at the same price anymore.

"If your phone isn't working then it's the brand's problem," says Anita. "But if your shirt cuff is half-an-inch too long, and along the way you managed to get a little - like two dots - of ink on the hem, then I'm stuck with having to sell the thing at a discount in my store."

For Anita, selling products to people at her store is much easier, has less hassles, and fewer returns. So, with so many problems, why does she even bother with listing products online?

"I have a private label for clothes, and I'm selling this online as well as through the shop," she says. "The buyers are now all over India and not just Delhi. So even though there are more returns and more problems, it's completely changing the business."

"If everyone else was also offline, I'd prefer to stay offline," she adds. "It was simpler and much more convenient. [But] people in Rajasthan and Assam are selling their stuff to the same [people] I sell to in my shop." The growing competition fostered by e-commerce leaves her with no choice but to go online herself, even if she doesn't want to - a wider market is required because e-commerce is taking the local market away from Anita's shop.

Both Singh and Anita's experience shows that retailers will need to adapt if they are to stay relevant, and complaining about e-commerce isn't going to change things, especially considering that the people complaining are also the people who make the current system possible.

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