With the new rules of Government of India on Ecommerce Marketplace, it will be impossible to give more discounts and cashbacks to big companies such as Amazon India and Flipkart. Due to the rules that will come into effect from February 1, 2019, this will mainly be due to major changes in supply chain and logistics.
What is the role of supply chain in cash, cashback, and logistics?
1. Amazon-owned wholesale company Amazon wholesale and Flipkart, similar company Flipkart India Pvt Ltd manufacturers buy branded goods at cheaper rates. These products then sell at the marketplace of Amazon and Flipkart by offering select Sellers discounts and cashbacks.
2. In the case of Amazon, these select sellers are those companies in which this ecommerce company or any group company has an equity stake and the seller buys these products from the wholesale company. For example, 100% owned by Prion business services, CloudTail is a Joint Venture with 49.15 percent stake in Catamaran India, of Amazon and Narayana Murthy. There are many such companies.
3. In case of Flipkart, select Sellers are called Preferred Sellers. They buy all of their products from Flipkart’s wholesale company.
4. On the marketplaces of Amazon and Flipkart, they have around 70-80 percent of their selected sellers in sales.
5. The trade figures of Amazon and Flipkart make it clear that their wholesale units are an important part of their competitiveness pricing sales model.
6. Amazon wholsale’s earnings increased by 73 percent to Rs. 12,224 crore in financial year 2017-18. In the same period, the income of Flipkart India Pvt Ltd increased 40 percent to Rs 21,000 crore.
How will this model change due to new rules?
1. All select sellers with equity stake in ecommerce marketplace or its group companies will not be able to sell goods on those marketplaces. This means that a unit of Amazon will not be able to sell goods at Amazon India’s marketplace.
2. Along with this, Amazon’s unit may not be present at Amazon Global’s Amazon India marketplace.
3. From Amazon or Flipkart’s fully-owned wholesale companies, the value of buying a product from any seller has dropped 25 percent in value terms. The impact will be on the ability to give discount on select sellers in both marketplaces as they will increase their cost after taking 75% of the goods from other sources.
4. Regarding cashback, the rules state that sales should be in ‘fair and without discrimination’. This means that select cellars will not be able to give cashback at their level at Amazon or Flipkart.
5. Exclusive Deals only offered online of any brand and marketplace have been banned. This means that the deals like Flipkart-Xiaomi will not be possible, in which Xiaomi’s smartphones were being sold only with more discounts on Flipkart.
6. Services like Amazon Fulfield and Flipkart Assured offer superfast delivery to the consumers and if they meet certain conditions they are also suitable for the sellers, but they can now be considered as discriminating.