Row over private labels:Flipkart, Amazon face vendors' ire for low sales

The AIOVA alleges discrimination by e-commerce firms with private labels

Flipkart and Amazon are facing heat from online sellers for using their private labels to bring down prices of products sold on their platforms, which small sellers say is affecting their businesses.

The All India Online Vendors' Association (AIOVA), which represents around 2,000 online retailers, in a letter to the Competition Commission of India, alleged that captive sellers such as Amazon’s Cloudtail and Flipkart’s WS Retail are being given special benefits that the rest of them are not.

Flipkart’s largest seller, WS Retail posted revenues of Rs 13,921 crore in the year that ended March 2016, making it the largest retail brand in India. Cloudtail, which is a joint venture between N R Narayana Murthy's Catamaran Ventures and Amazon Asia, posted revenue worth Rs 4,591 crore in the same period.

AIOVA alleges that WS Retail and Cloudtail continue to make up 70-80 per cent of the sales on Flipkart and Amazon respectively, violating the foreign direct investment (FDI) norms for e-commerce marketplaces in India. However, both the e-commerce companies claim that they are in compliance with the 25 per cent sales cut off for individual sellers.

In the financial year 2016, both WS Retail and Cloudtail contributed far more than 25 per cent of Flipkart’s and Amazon’s sales respectively, but these numbers are from before India’s new FDI policy became applicable. There have been several reports suggesting the e-commerce companies have not been able to comply with the FDI norms as they are struggling to cultivate a new line of large sellers. Moreover, both companies began consolidating the number of sellers on their platform which had swelled to over 100,000 on each, to weed out bad sellers but also concentrate sales to a few large sellers. 

This has created a long tail of smaller sellers who have seen falling sales and are now being further squeezed by the alleged anticompetitive practices of these platforms. Flipkart has opted for Alibaba’s seller model where 20 per cent of the sellers will contribute 80 per cent of the sales, while the rest will compete for a small share of the overall sales. The company is also looking to create clones of WS Retail to ensure it can control its own inventory while still remaining compliant with India’s laws.

“Certain basic products are retailed at lower than manufacturing prices in order to kill competition on the marketplace itself or to drive advertisement revenue by luring marketplace seller for sales,” wrote AIOVA in its letter to the CCI, which was vetted by Business Standard newspaper.

Amazon and Flipkart have started their own private label brands such as Amazon’s Basics and Symbol, and Flipkart’s Smartbuy which are sold only through their captive sellers. The companies say they use private labels to plug gaps in their product offering to customers, and also boost their earnings with higher margins. 

However, sellers claim that the companies do not charge the same listing fees, advertising fees and other charges from sellers of private label brands which puts them at a disadvantage. Sellers are witnessing this shift at a time when growth of India’s e-commerce sales dropped by 15 times to just 12 per cent in 2016. 

According to market research firm RedSeer Consulting, the e-retail market in India had grown by 180 per cent in 2015 to $13 billion. In the calendar year 2016 the sector clocked $14.5 billion in sales, echoing a big slowdown in market that is poised to hit as much as $120 billion by 2020.

To their disdain, both the e-commerce companies Amazon and Flipkart have outlined plans to launch a host of private labels across electronic accessories, home wares and fashion categories adopted by conventional large retail chains.