New Delhi: Online shopping has lost is shine and customers are gravitating away from retail giants such as Amazon and Flipkart after the new FDI rule in the e-commerce sector came into vogue on February 1. Both the players have seen a drop of about 22-35 per cent in their sales, industry projections have revealed.
Amazon India has already withdraw many of its products and they were listed as “currently unavailable” as the new norms prohibit the e-retailers from selling products of companies in which they have stakes.
The two companies have together lost market capitalisation of USD 50 billion (roughly Rs. 3,60,000 crores), as per estimates.
Brokerage firm Morgan Stanley has estimated that Flipkart could face meaningful disruption as top-line pressure in the near term as gross sales have been driven by smartphone and electronic sales which are high-priced.
It has warned that Walmart may even exit Flipkart in a similar move to what Amazon did in China if the retail giant can’t see a long-term path to profitability. Walmart’s exit is likely, and not completely out of the question, with the Indian e-commerce market becoming more complicated, it said.
As per the new rule which has come just ahead of the Lok Sabha polls, online marketplaces and their group companies have been barred from owning their vendors and prohibits them from controlling the inventory sold on their platforms. What this means is that online players cannot sale exclusive deals or offer deep pocket discounts. Amazon’s two top sellers — Cloudtail and Appario Retail — removed products sold by them.
The new rules are being seen as attempts by the BJP government to reach out to the brick and mortar retailers ahead of the general elections as they were the worst hit after online etailers emerged in the retail space.
According to a draft analysis from global consultants PwC and as reporrted by Reuters, online sales in India could drop by USD 46 billion by 2022 courtesy the new regulations. Moreover, by March 2022, the new policy could lead to the creation of 1.1 million fewer jobs than may have been previously expected and lead to a reduction in taxes collected of USD 6 billion.
Both Amazon and Flipkart had extensively lobbied (directly as well as through associations and trade bodies) with government officials seeking an extension in deadline after the proposed changes were announced in December. They had also written to the government seeking more time to understand the details of the new framework.
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