Why this kolaveri? Are e-commerce portals the pied pipers of brick-and-mortar companies?

The Big Billion Day sale of Flipkart on 6^th October raised quite a few eye-brows of several retailers and especially the brick-and-mortar companies with limited or insignificant presence in e-commerce. The big questions being asked are: how the products are being sold below manufacturing price? Is it not to destroy competition? There is also news that the Confederation of All India Traders has written to Commerce Minister Nirmala Sitharaman complaining about such ‘sales’. The Confederation complained that huge discounts amounted to predatory pricing and is against the principle of ‘fair’ ‘competition’. There is also a suggestion to constitute a regulator to monitor e-commerce websites to level the retail sales. They may not be aware that there are already some regulations in place.

Flipkart was not prepared as needed to address the unexpected ‘rush’ on their website due to which several online customers had ‘undesired’ experiences that found vent on social media. The management of Flipkart was quick to respond and publicly expressed their apologies for the price changes, stock-outs, website not responding, etc. Didn't similar things happen when some retailers conducted such sales at their stores and people thronged in thousands? One thing is for sure – Flipkart learnt a big lesson and also taught others at their cost.

All these years, the brick-and-mortar retail companies, irrespective of their size and location were a law unto themselves offering crazy discounts during festivals and other dull times. There were several occasions when the offers were as high as up to 80% discount on MRP( up to was always in small letters). It was always a wonder as to how such discounting is possible. The products sold on such huge and unbelievable discounts were either marked up or the not the moving kind. Though most people knew the secret, they preferred to shop more during such special sales with the hope that they could get a better bargain than during the regular sales when no discounts were offered. The retailers made a killing during such discount sales and off-loaded all unwanted stocks and also managed to get extra margins from the suppliers.

Now coming to the subject matter of this column – The events that are unfolding in the e-commerce space and the hue and cry certain big retailers of this country are raising on e-commerce websites reminds me of English non-detail story I read at school, that of Pied Piper of Hamelin, a town that suffered from rat infestation. For those who have not read that story - A piper claiming to be a rat-catcher promises the town of Hamelin to get rid of the rats. The piper was promised to be paid for the help. He plays his pipe to lure the rats into a river and becomes successful in getting the town rid of the rats. But the town authorities refuse to pay him. The piper leaves the town angrily deciding to take revenge later. One day he returns and playing his pipe in a mesmerizing manner lures the town's children away from their parents. Only three children remain behind out of which one was lame, the second was deaf and third was blind. They had their own inadequacies and so couldn’t follow the other children.

There are many established brick-and-mortar retailers who have been in the business for years with deep pockets and also the potential to borrow money as needed whenever they expanded. The who’s who of India are into retail with interests ranging from electronics, groceries and convenience, clothing, jewelry, footwear, mobiles, etc. It took them a whole lot of time and money to establish in the market or to break-even. Some of them still have huge debts that they want to get rid of. It is so difficult for them to expand into newer territories or to grow their business with market opening up every day and competition on the prowl every minute. The big retailers had their own predatory pricing that tried to snatch business from the mom-and-pop stores. Whatever these giant retailers are complaining about online portals today was meted out by them to mom-and-pop stores. That the mom-and-stores survived the onslaught of big retail is completely a different story.

The e-commerce portals that have sprung up in the last 5-7 years have created online stores that sold across a range and not just electronics or clothing. They emerged as one-stop shops for several of the customers’ needs. They innovated, used the technology, invested in the right kind of resources and built mammoth online companies that have now become envy for several established retailers. The valuations of these e-commerce companies have reached phenomenal heights with big international PEs showing interest and investing in them. Like the pied piper of Hamelin, these companies have lured away customers and potential investors leaving several retailers red-faced. One report says that the gross merchandise value or GMV for the first five months of 2014 of four of the major online portals is more than half of the four big Indian retailers’ revenue. 

The big retailers who are few in number had their websites in place as an extension of their physical stores but they were also like the three children in Hamelin. They were lame as they could not follow the trend, they were deaf as they couldn't hear what the customers were asking and they were blind to the realities of the future or to the turns that business would take. All of them thought that dotcom business would go nowhere as there was already a bust earlier.

Now after seeing the success of the Bansals et al, entry of Amazon as a re-seller, every business house with deep pockets wishes to enter e-commerce in full scale. Though it is good for the customers to have as many sellers with irresistible offers, the existing retailers need not take cudgels with e-commerce players and try to project that their practices are unfair.

If there is a vendor selling at a very competitive price and the customer is benefited, why should anybody have a problem? Are they suggesting that a cartel should be formed to see that nobody sells below a certain fixed price? In such a case, is it fair to deprive the customers of better deals? These are a few questions that those retailers and vendors finding fault with the likes of Flipkart must answer the consumers.

With increasing reach of smart phones and internet, we can only expect the online business to go up and it should be a free for all market wherein the consumer wins at all times. It is important for every retailer to remember that consumer is the king and he will go the way of the one who lures him with the best offers, whether online or offline.