Flipkart and Amazon indulge in predatory pricing destroying Snapdeal and online sellers
New Delhi, Mar04: A group of online sellers has written to the Competition Commission of India alleging that Flipkart’s WS Retail and Amazon’s Cloudtail indulge in predatory pricing and discounting when selling their private label products, destroying the business of smaller rivals such as Snapdeal and online sellers.
The vendors also complained that WS Retail and Cloudtail sell branded products such as phones, electronics and fastmoving consumer goods at “rock bottom prices”.
The retailers of private labels AmazonBasics and Flipkart SmartBuy have been tendered special benefits that haven’t been disclosed publicly, the All India Online Vendors’ Association, a group of 2,000 sellers on various online platforms, contended in a letter to the CCI. The letter dated March 2, 2017, was reviewed by ET.
“Flipkart has always conducted its business with transparency, integrity and in full compliance of all applicable laws,” a company spokesperson said. “Our private label, Smart-Buy, has enjoyed rapid success primarily due to the superior quality of products. We’ve shared the success of the brand and empowered sellers by licensing it to them but only after they meet our rigorous quality checks. The popularity of SmartBuy and the increased business has led to tremendous gains for sellers.”
An Amazon India spokesperson said, “We are completely compliant with Indian laws and policies. Prices for products on the Amazon.in marketplace are determined by the sellers. We work hard and continually innovate to offer services such as FBA (Fulfilment by Amazon) and Easy Ship to sellers on our platform, that enables them to significantly lower their cost of selling and reducing defects as they sell to a nationwide customer base. Sellers pass on these savings as lower prices on the platform.”
Snapdeal did not immediately respond to emails from ET seeking comment on the matter.
Cloudtail India, one of the largest sellers on Amazon, offers a range of private labels, including Symbol, a menswear brand, and Myx, an ethnic wear label for women.
Its other private labels in the Indian market include Solimo kitchen products and AmazonBasics, consisting of digital and home accessories such as data cables, batteries, chargers, camera bags, laptop bags and earphones.
AmazonBasics was launched in the US in 2009 and started in India in late 2015. It is available in most of Amazon’s major markets. The company plans to bring more private labels to India.
Flipkart launched its first private label Flipkart SmartBuy last year, selling electronic accessories and home plastic products. The ecommerce platform is set to introduce more private labels in the next six months.
In retailing, private labels typically earn a larger gross margin than products sold by other vendors, even when offered at a discount. The sellers’ group alleged that the private label retailers were getting preferential treatment.
“Certain basic products are retailed at lower-than-manufacturing prices in order to kill competition on the marketplace itself,” the association said in the letter. “All premium advertisement spots are reserved for above-mentioned companies (WS Retail and Cloudtail).”
Cloudtail is a joint venture between Amazon Asia and Infosys founder NR Narayana Murthy’s personal investment vehicle Catamaran.
WS Retail was set up by Flipkart cofounders Sachin Bansal and Binny Bansal in 2010. The founders sold their stake in WS Retail in September 2012 after facing the heat from regulators on circumventing rules that don’t allow foreign-backed ecommerce companies to sell directly to consumers. WS Retail remains the largest seller on the platform and Flipkart is and Flipkart is trying to reduce its dependence on the entity.
‘UNNATURAL INTERNAL COMPETITION’
An AIOVA spokesperson said that while the promoter of a leading ecommerce company is pleading for a level playing field against foreign competition, there is “unnatural internal competition, which has been made to destroy competition, capture market, earn revenue by dubious means.” This has led to the collapse of not only ecommerce sellers, but is also a major factor in the “crash of Snapdeal’s B2C business. Such matters should be investigated by lifting the corporate veil”, the spokesperson said in an email.
Snapdeal is laying off staff as it seeks to turn its fortunes around after a dismal 12 months, ET reported last month. Its founders have pledged not to take a salary for an unspecified period and other top executives are expected to take pay cuts.
The Gurgaon-based company has been hit hard by a combination of mounting losses, ongoing churn of the top leadership and the rapid growth of rival ongoing churn of the top leadership and the rapid growth of rival Amazon.
Apart from not being able to sell products directly to customers, marketplaces are not allowed to offer discounts or influence prices. No seller on a platform can account for more than 25% of sales.
With Flipkart posting a loss of Rs 5,223 crore and Amazon Rs 3,571 crore, the big three of India’s online retailing had a combined loss of Rs 11,754 crore in the previous financial year.