Tuesday, 24 May, 2022
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How pandemic fostered Indian consumers’ faith in e-commerce sites

In 2020, Indian consumers turned to e-commerce sites for essential items and groceries. But Reliance's push to tighten regulations for Amazon and Flipkart will curb this growth.

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The Covid-19 pandemic has been one of the most challenging events in human history.

A year ago, lockdowns were being put in place across the world and news reports were filled with incidents of panic buying and long queues outside supermarkets. In countries like the US, a severe shortage of essential items, such as toilet paper, was seen because of bulk buying while global supply chains were broken due to export and import bans imposed by several governments.

At a time when the Indian retail sector should have been facing an unprecedented crisis, technological solutions paved the way for securing the country’s long-term future.

Till last year, a portion of Indian consumers used e-commerce to buy premium and non-daily products. However, the pandemic accelerated the adoption of technology in the e-retail sector, and e-commerce companies were able to effectively provide essentials and groceries.

A key feature of this shift has been the willingness of traditional retail shops and MSMEs (micro, small and medium enterprises) to adopt e-commerce as a viable means of selling products.

In a recent survey conducted by LocalCircles, a community social media platform, 49 per cent Indians said they preferred e-commerce sites and apps for shopping in the last 12 months.

According to the survey, which received over 1,30,000 responses from over 42,000 unique consumers across 358 districts, 18 per cent said they called local retail stores and got home delivery, 31 per cent visited malls, local retailers and markets to shop while 2 per cent couldn’t say.

It is pertinent to note that traditional markets had opened in June 2020, way before e-commerce companies were allowed to deliver all products. Despite the opening of markets, consumers have preferred to use e-commerce for most of their shopping needs.

The survey also noted that consumer safety emerged as the overwhelming reason for trusting e-commerce. Six-eight per cent respondents said “safe deliveries and no reason to step out” was the primary reason for trusting e-commerce sites.

India’s e-commerce growth fuelled by global companies

The e-commerce industry in India is enabling both the consumers and more importantly MSMEs. But it is important to understand that such progress was not achieved overnight.

Since the turn of the millennium, technology-driven companies have been setting up backend infrastructure, organising inventory and digitising supply chains that were leveraged during the pandemic.

The growth of India’s e-commerce sector has been fuelled by global companies such as Walmart and Amazon. Both Flipkart (backed by Walmart) and Amazon have been working closely with MSMEs in India.

In 2020, Amazon pledged to digitise 10 million MSMEs, enable one million incremental jobs and drive $10 billion in e-commerce exports by 2025. Meanwhile, Flipkart has over 2,00,000 MSMEs on its platform and a recently launched an initiative, the Walmart Vridhhi Supplier Development Program, aims to empower 50,000 small and medium manufacturers in the next five years.

As Indian regulators focus on establishing new rules to govern the e-commerce sector by introducing a new policy, they must acknowledge and facilitate the role played by these global companies.

However, Reliance’s approach to create more hurdles for the incumbents by trying to ask the government to tighten policies through industry associations is deplorable and such a move could jeopardise livelihood of sellers operating through these marketplaces.

In its representation to a premier industry association, India’s largest retailer has alleged that both Flipkart and Amazon engage in capital dumping and predatory pricing. Reliance has suggested imposing tighter norms to regulate the operations of e-commerce companies with sizeable FDI.

Such a representation is dangerous and can threaten the e-commerce industry in India.

JioMart’s inventory ownership key advantage

RIL has already forayed into the Indian e-commerce sector through JioMart. While the site reportedly follows a marketplace model that connects offline sellers to online channels, analysts and RIL representatives have hinted how JioMart can be leveraged to sell Reliance products.

In July 2020, two senior industry representatives had suggested that JioMart will employ a “a hybrid model whereby its own retail stores and local neighbourhood shops will be roped in for order fulfilment to ensure the platform has the fastest delivery”.

Furthermore, the executives had stated that “pricing competition with Amazon and Flipkart are not a concern since even now the Reliance Retail stores have one of the lowest pricing in the country across products which is possible due to the scale of operation”.

A detailed analysis of JioMart’s kirana-driven model shows a glaring gap that can only be filled by owning inventory. Eventually, there will be multiple kiranas across the country on the Reliance platform.

A kirana can store at best 800-900 stock keeping units (SKUs) and hence the inventory model from Reliance Retail stores is required to service all orders.

In fact, JioMart’s inventory ownership has been cited as a key advantage by industry analysts. A news report, published in April 2020, quoted analysts from Sanford C. Bernstein, a brokerage firm, who said that JioMart’s model has some key advantages over its biggest competitors, in a country where the law effectively blocks e-commerce platforms from owning their inventory.

Reliance “has inventory control driving better pricing, customer experience & stronger control on logistics”, Bernstein analysts wrote in a note to clients on 23 April 2020.

RIL’s representation to tighten regulations and scrutiny for companies such as Amazon and Flipkart would severely curtail the innovation and growth of e-commerce in India.

It will be interesting to see if the industry association will forward these recommendations and if the government will accept them. These could define the livelihood of lakhs of MSMEs and impact the Indian economy.

(K. Narasimhan is senior advocate at the Madras High Court)

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