E-commerce festive sales under govt scanner

Unprecedented ad spend, aggressive discounts by e-commerce giants leads to government scrutiny; several brands issue cautionary notes to consumers as demand for a regulatory authority gathers steam

e4m by Abhinn Shreshtha
Updated: Oct 9, 2014 7:59 AM
E-commerce festive sales under govt scanner

The government has received a number of complaints against Flipkart and other online retail companies regarding their online sales said Nirmala Sitharaman, Minister of State (Independent Charge) for Ministry of Commerce & Industry, on Wednesday.

This follows news that the Confederation of All India Traders (CAIT) had demanded the government set up a regulatory authority for e-commerce business in India. In a letter to Sitharaman, CAIT National General Secretary Praveen Khandelwal drew her attention to the massive discounts being offered by Flipkart and others saying that it was unfair to offline retail, reported PTI.

Flipkart seems to be the main entity under scrutiny though other e-retailers will no doubt also come under the lens. On October 6, Flipkart held The Big Billion Day sale, which saw products, including electronics, getting sold at, discounts as high as 70 per cent. Other e-commerce players have also been offering large discounts in a festive blitz that has surprised and awed most observers of the retail sector.

Massive spending on advertisement has seen the likes of Amazon, Jabong, Flipkart and Snapdeal invest in ad inventory across all media. This unprecedented ad spend coupled with aggressive discounts have caused many in the offline sector to start worrying that they will not be able to keep up with their online counterparts, especially since they cannot compete on the price front. However, if the government decides that e-commerce players have an unfair advantage then things might change and we could see e-retailers falling victim to their own success.

A lot will depend on how these discounts are decided and who among the three parties—brand, e-retailer and seller, absorbs the cost. Media reports suggest that brands like LG, Sony, Samsung, etc are boycotting Flipkart until they promise that prices will not be dropped to “unrealistic” levels. Though there is no official confirmation, it might make sense if brands feel that an e-retailer is offering discounts without clearing it with the brand first.

In April, Dell had issued a cautionary warning for shoppers against buying its laptops and tablets from e-commerce websites. However, in August, this advisory was withdrawn. Others like Nikon, Asus, Lenovo, etc. have also released similar cautionary notes. Snapdeal refused to comment on Sitharaman’s statement. Similarly, Myntra, which was acquired by Flipkart earlier this year, and which is offering discounts to as high as 50 per cent on its products, also did not comment. However, a Myntra spokesperson said that all offers are executed post approval from respective brands. Flipkart and Amazon had not responded at the time of the publishing.

“It is usually the retailer which absorbs the cost incurred while providing the big discounts,” said Paresh Parekh, Tax Partner (Retail & Consumer Products) at Ernst & Young. He suggested that even in Flipkart’s case the cost might have been shared between the seller and the e-retailer.

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