With an aim to provide a level playing field for traders and retailers in the state, the state of Gujarat on Thursday passed a bill to levy an entry tax on goods purchased through e-commerce portals.
The tax, levied on the entry of Specified Goods into Local Areas (Amendment) Bill, 2016, was passed in the state assembly. Congress MLAs were not present while this decision was taken, as they were suspended on Wednesday by the Speaker for two days .
The bill altered the present Act of 2001 which did not include e-commerce transactions. According to the state government, the present act was having a serious effect on the local entrepreneur. The goods purchased through online platforms, coming inside the state, were sold at less price because the traders were not liable to pay any tax.
“Due to the recent development in the field of online purchase, web-based software applications or through tele-shopping platforms, which does not attract any tax under the present Act, local businesses were adversely affected. As per the bill, the word ‘importer’, as specified in the present Act, now also covers those who bring or facilitate to bring any specified goods for consumption, use or sale in Gujarat from any part of the country using online platforms,” State Finance Minister Saurabh Patel was quoted by PTI as saying.
The state was forced to amend the bill after brick-and-mortar traders demonstrated against e-tailers selling goods at a much cheaper rate since they are exempted from taxes. This bill in the state budget has brought the local traders and e-tailers on the same platform.
“The state government would announce the rate of tax as well as other procedures to be followed by the importers through a separate notification,” Patel was quoted by PTI as saying.
The Government’s decision to allow 100 per cent Foreign Direct Investment (FDI) in the market place format of e-commerce retailing has stirred reactions from all across the industry, and research analysts and e-tailers are a happy lot.
“The allowance of 100 per cent FDI, online for marketplace models is good for consumers and international retailers both. This will allow international retailers to enter the country easily. If any company wants to become operational in India, without the hassle of going through the FDI laws for offline stores, this provides them with the perfect opportunity. This will also work in favour of the consumers, who can now have access to more international brands online, than ever before,” Shabori Das, Senior Research Analyst, Euromonitor International, told Indiaretailing Bureau.
Even startups believe it will help them in focusing more on innovation and business aspect. Elaborating the benefits of 100 per cent FDI in e-commerce market place model, Amit Singh, Founder & CEO Allsupermart.com said, “It will be beneficial to players like us as it will enable in focusing more on the innovation and business aspect. Allsupermart being a market place player welcomes the Government’s announcement as it will help us grow in many ways.”
FDI has not been allowed in inventory-based model of e-commerce as per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce. To bring clarity, the DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘market place model’.
Market place model of e-commerce means providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly, according to the guidelines.
“The move will help companies in multiple ways as opening doors for foreign investments will enable them to focus on core business proposition and further access to funds. The clear definition by DIPP for market place and inventory based models of e-commerce will help in structuring the industry,” says Ujjwal Trikha, Founder & CEO, FurnitureDekho.com.
As per the guidelines, an e-commerce firm, however, will not be permitted to sell more than 25 per cent of the sales affected through its market place from one vendor or their group companies.
According to Shabori Das, “Prohibition of discounts and restricting individual vendor contribution to marketplace owner’s revenue to 25 per cent is bad for the consumers and marketplace owners. The immediate result of this would be the lack of discounts offered by marketplace companies. The deep discounts offered by the companies will no longer be possible thereby, leading to the prices online rising to the same level as offline. This will result in consumers losing some loyalty towards the channel, which will translate to lowered business for the marketplace owners. Furthermore, since the maximum a vendor can contribute to the revenue was limited to 25 per cent the marketplace companies will need to work towards increasing the vendors, which will require more effort by the companies, to find new quality sellers.”
While the new policy for foreign direct investment (FDI) in the fast-growing e-commerce sector has been welcomed by several lobby groups and offline retailers, experts note that a few implications of the new guidelines could leave some online players in a fix.
The Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, on Tuesday, allowed 100 per cent FDI in online retail of goods and services under the marketplace model, but kept the inventory-based model of e-commerce out of its purview.
However, two conditions attached to the approval, in particular, could exert pressure on some e-tailers, as they will have to restructure their businesses to comply with the law. The first being that no one company or seller on a marketplace can now account for more than 25 per cent of the total sales generated on the site. Second, e-commerce entities operating a marketplace model can no longer influence the retail prices of goods or services.
“This will ensure that the pseudo marketplace models run by a few e-commerce companies will be forced to rationalise their pricing and discounts,” says Craftsvilla.com Founder & CEO, Manoj Gupta.
Commenting on the bar on retail price manipulation, CEO Third Eyesight, Devangshu Dutta, notes, “Buying market share through discounts is a game for the deep-pocketed, and aggressive discounting is also now explicitly in the Government’s cross-hairs. While the focus within e-commerce companies had already started shifting to smaller discounts, the new policy will force them to think harder and act quicker.”
Sellers like Cloudtail and WS Retail account for a major chunk of sales on Amazon and Flipkart, respectively. While Cloudtail is a joint venture between Amazon Asia and Infosys founder NR Narayana Murthy’s personal investment vehicle Catamaran. WS Retail was set up by Flipkart co-founders Sachin Bansal and Binny Bansal in 2010.
“Marketplaces such as Amazon and Flipkart have very large shares of their business being contributed by inventory sales from their own (‘arm’s-length’) entities. These companies will have to rethink their business mix and business structures to comply with the law. However, platforms that present a diversified merchant base would certainly have a clear path to invest further in India,” Dutta states.
Emails sent to Flipkart regarding the impact of these implications went unanswered, while Amazon India told Indiaretailing Bureau it is still studying the changes and would issue a press statement soon.
Even as e-tailers scramble to interpret and implement the new rules, investors feel that the latest policy announcement is a breath of fresh air for e-commerce firms that have been struggling to attract funding since the beginning of 2016.
“E-commerce players have already raised significant foreign funding. However, there are still many multi-billion dollar funds yet to be injected. With regulations in place, we can see a fresh infusion of funds in the market,”Managing Partner, Unicorn India Ventures Anil Joshi, tells Indiaretailing.
“E-commerce entities should now look to build a profitable ecosystem rather than revert back to old, predictable strategies,” Joshi asserts. “Currently, e-commerce accounts for a mere 2-3 per cent of modern retail in India and has barely scratched the surface. There is a huge market potential and demand, especially in tier-II and III towns that are still waiting for these companies to make an entry.”
We hope you didn’t miss Flipkart’s Sachin Bansal and Snapdeal’s Kunal Bahltwitter spat.
Keeping aside the sarcastic tone of the twitter exchange, is there some truth to what Bansal said? Is Snapdeal turning out to be a bad investment for its investors?
Investors pulling out of Snapdeal by selling stakes
Anews reportrevealed that Bangalore-based Saama Capital India Advisors sold its stake in Snapdeal to Ontario Teachers’ Pension Plan (OTPP) in November last year. It is not the first ones though. Others are:
Kenneth Glass sold its Snapdeal shares to RNT Associates in September 2014
Kalaari Capital sold its Snapdeal shares to Softbank in February 2015
Sequoia sold its Snapdeal shares to Ontario Teachers’ Pension Plan in January 2016
Snapdeal’svaluation is growing, then why pull out right now? Perfect timing and great offer are the two reasons.
Ash Lilani, Managing Partner and Co-Founder of Saama Capitalexplains, “Snapdeal will grow bigger, and its value will potentially grow over time. There’s no doubt on that front. The obvious question is: if it’s going to grow, why not stay invested? The opportunity for exit or liquidity is always unknown. Fund managers have to make a call on what timing is best for them and their investors (limited partners).”
Lilaniadded, “Snapdeal was three years into our fund (Saama Capital II), when the OTPP offer came along. Who knows how long it would be before another opportunity like that came along.”
Trouble in startup paradise
From stake sales todevaluation, it’s quite clear that days of free-flowing funds and exaggerated valuation figures of ecommerce companies (leaders & startups both) is gone.
Companies are finding it hard to raise funds, particularly in theonline foodindustry. Besides Snapdeal, investors have sold their shares/stakes ineBay, Quikr andFlipkartto other firms.
Mahesh Murthy, co-founder of Seedfundsaid, “There have been steep de-valuations of heavily-funded businesses around the world due to drying up of future funding as well as bleak prospects of IPOs. Any prudent investor with a public face like Morgan Stanley has a legal responsibility to offer prudent guidance.”
However, there is nothing to be alarmed by startup markdowns. It merely indicates that investors want ecommerce players to get more practical, accountable and organized before they put in their money. The online industry is getting realistic and thus the companies with not-so strong foundation and backing are bowing out.
We all agree that selling online is a great opportunity for entrepreneurs. While apparel, groceries, books, electronic gadgets, jewellery, and personal care products are on top of the list of online sales, there are other lucrative areas as well.
One such is the sale of baby care products. A higher rate of disposable income added to increased exposure through different media has contributed to a growth in the purchase of baby care products. Insome cases, companies are also ripping off new parents by selling them products their babies don’t need, including wigs and convertible changing tables.
High demand for baby care products
The population of the country is going up with the majority being under the age of 35. This invariably has resulted in a baby boom. Therefore, the market for selling baby products is huge and selling baby care products online has immense potential.
Most parents are increasingly turning to virtual stores for their regular purchases.
Rimpa Chakraborty Guha, mother of a two year old, says, “I have bought my daughter’s pram, diaper bag, and hot flask online. I buy her diapers and wipes online as I get them at reasonable rates.” Rimpa, who shops for baby products on Amazon adds, “I buy baby wash and books when there is a sale.”
She does not buy baby food online, as she doesn’t want to risk it.
Studies have also shown that the market is only set to grow. According tothis ResearchMoz study, the baby care market in India is looking at a growth rate of 17% in the period between 2015 and 2019. Thanks to a growing rate of middle class, and greater income, Indians are more open to spending. The top categories of products are apparel, diapers, baby food, and toys.
Leading baby product brands
Some of the top names in the arena include:
Chicco – Pronounced as ‘kee-ko’, this brand has been around for nearly 50 years. It has a dedicatedsitefor Indian shoppers. It is quite popular among parents. The company sells baby products, thermometers, needles and syringes. Their products include car strollers, high chairs, bottles, baby care products including body washes and creams, pacifiers, teethers, clothes and toys. Chicco appears to be a popular choice of the niche market.
Babyoye – An Indian online store for buying baby products,Babyoyestocks products from different brands including Fisher-Price, Nestle, Himalaya, Johnson and Johnson, Pampers, Pigeon and Mee Mee, Mom and Me, Oye and Snuggles. Babyoye offers COD, credit and debit card payments, and net banking. Free delivery is offered on orders over Rs. 500. Apart from baby products, the store also offers the things a mother to be would need including maternity clothes, pillows, dietary supplements and skin and hair care products.
The Mahindra subsidiary does not limit itself to babies, but moves on to books and nursery products as well. While there are a few parents who complain that the physical store charges much higher than the online store, shoppers at Babyoye seem to be a content lot.
FirstCry – This online store lives it up king size. With thespianAmitabh Bacchan as its brand ambassador, andRatan Tata investingin the company,FirstCryhas its path cut out. The online store stocks brands like Funskool, Pigeon, Huggies, Johnson and Johnson, Mee Mee, Hotwheels, Mattel, Barbie, Pampers and Nuby, among others.
Products include diapers, toys, clothes, footwear, skin care products, furniture and nursery items. The company provides free shipping and COD. It also has a mobile app. FirstCryhas raisednearly $69 million from Vertex Ventures, IDG Ventures India, Valiant Capital, SAIF Partners, and NEA.
However, it appears as though the company needs to sort out its customer support and delivery. Many shoppers have complained about the lackadaisical attitude of the delivery and support. Delayed delivery, no response to either emails or Facebook posts, and multiple follow ups going nowhere are some of the complaints shoppers have. FirstCry clearly needs to relook its blind spots and deal with them.
Selling child care products come with its share of worries; primarily the fact that the window is very brief. The time that a child spends in diapers and using sippy cups, teething toys and walkers is short as most children outgrow these needs in two to three years.
A Nielson study points out that despite these limitations, the possibilities are huge.Liz Buchanandirector of Global Professional Services at Nielsen says, “Consumers are deeply invested in these categories, and they are highly discriminating about the products they buy for their children. However, to achieve a competitive advantage in a space dominated by only a few major brands, a deep understanding of what’s driving product choice is critical.”
The absence of a systematic regulation is also aroad block. In some cases, traditional child care methods play spoilsport. Parents are content with tried and tested ideas like ragi for baby food, and homemade cloth diapers.
Janice Sharavana who heads the sales and delivery teams at HealthBazaar, a company that sells toys online feels that customers tend to order based on the pictures they see on the marketplaces, which may not always match with the original product.
“When buyers are unhappy with what they have got, they give negative ratings to sellers. We sell only top brands like Chicco and Mee Mee, and the negative comments affect our ratings. I would suggest that buyers check the image at the brand’s site to get a clearer idea of what the product looks like.”
Online shoppers also tend to steal or damage the product before they return it, making it of no value to the seller.
“Some buyers return only part of a package or it comes damaged. Flipkart does not allow sellers to reach buyers directly, so they contact the buyers who deny any misdemeanour.”
With only 50% of the amount returned, and the product rendered unsalable, the sellers are left with no options.
“We have a lot of happy customers, who keep us going,” says Janice on a hopeful note.
What are the products flying off virtual shelves?
Nielsen predicts good things for ecommerce in Asia for baby products. Thereportshows that toys and clothes are the highest selling products online. 38% of respondents in the study’s survey have bought toys, and 34% have bought clothes, 23% have bought diapers, and 17% baby food.
In the APAC region, 31% have bought diapers, and one fourth of the respondents have bought baby food.
How to get your cash registers ringing
The following will help boost online sales:
Mobile– Nielsen suggests introducing apps and mobile friendly sites to keep pace with the increasing use of smartphones in India.
Simple process– Keep the shopping and checkout process minimal to prevent shoppers from getting fed up.
Increased payment options– Include COD and mobile wallets among payment options as the shopper need not always have a bank account.
Multiple delivery choices– The study quotesAmazon’stie-ups with local stores.Flipkarthas alsotied up with Apollo Pharmacyto act as a pick-up point. Rather than stick to the usual logistics options, think out of the box to come up with quicker delivery options.
Selling baby care products online is doubtlessly a lucrative area. Sellers need to keep in mind the sensitivity of the market, and ensure that they are extremely careful about the products’ sources. While exercising due diligence is a given in selling anything, child care is a particularly sensitive area, and sellers cannot afford any lapse.
In May 2014, we first heard ofMyntra’s intention to venture offlinewith its Roadster brand. After the success of its recent ‘End of Reason Sale’, Myntra yet again voiced its interest inpiloting an omni-channel approach. Experience zones, wherecustomers could get closer to the brandwere also on the agenda.
Thefashion etailer received $50mnfrom parent company, Flipkartonly this month. It is now reporteded that Myntra is on the vergeof sealing a deal to acquire the US retail chain, Forever 21, which caters to young adults and teenagers. It currently operates ten physical stores across the country.
Forever 21’s stores are located in:
National Capital Region
Myntraalready sells Forever 21’s productsexclusively online. Forever 21 is currently managed as a joint venture in association with DLF Brands. Myntra has so far played down the deal as speculation, although the rumours rumble on.
“Handshakes have happened with Myntra and currently the documentation is happening,”said an anonymous source.
Rural to urban migration in India is a common practice, mainly for better education and employment opportunities. But when it comes to ecommerce, there is an anti-clockwise migration where digital companies are moving from urban to rural terrain.
Experts approve of this trend as they feelexploring remote towns and villagesis the right path to growth. The popular sentiment is ‘think rural before going global’ should be digital start-up’s main goal.
Radhika Aggarwal, co-founder of online marketplace Shopcluesasserted, “We haven’t even scratched the surface yet in India. We’re very focused on getting into rural India and there are multiple things Indian companies can do before they start looking abroad.”
Top etailers are already doing their bit
After smellinghuge potential, ecommerce biggies Flipkart, Amazon, Snapdeal, Shopclues and Paytm have alreadymoved onto tier 2 & 3 cities, small towns and villages.
Low returns ratein the rural market is a big relief for etailers. Not to forget online orders fromsmall towns has only gone upin the past few years.
How are they managing to do it? By:
Partneringwith rural ecommerce start-ups for delivery assistance
Making most ofgovernment initiatives
Introducing regionallanguage websites
Buildingoffline storesin rural market
Barely a drop in the ocean
India’sonline buyer baseis very low compared to other ecommerce markets across the world. This is why our online industry is still termed as ‘at the nascent stage’ and has a long way to go before it hits the maturity stage.
Once the kinks such as bad internet connectivity, low penetration of digital payments, complicated logistics network, delivery nightmares, and ambiguous legal framework is ironed out, rural market will be a goldmine of ecommerce opportunities.
Online marketplace,Flipkarthas reportedly amassed750 million registered customers in India. This is the first ecommerce firm to accomplish the figure in a single country, after the USA and Asian neighbours, China.
India has approximately121 million broadbandsuscribers
Flipkart claims to have registered over 60% of this broadband database
Non-metros account for over 50% of Flipkart’s traffic
Specialised logistics network
In January this year, Flipkart forecasted that itslarge appliance categorywill grow in leaps and bounds over the next two years. It is currently the third largest category for Flipkart, just behind electronics and apparel. The average ticket price for large appliances is Rs. 25,000 and the category is currentlyworth $10 billion, so there is plenty to play for, as Flipkart aims to grow its customer base further.
Fast selling large appliances include:
Most of the time large appliances need post delivery installation and after sales services. Sincelaunching the segmentin April 2014, Flipkart later tied up withJeeves Consumer servicesto facilitate the same.
Apart from the top selling large appliance brands such as Vu, BPL, Sansui and Whirlpool, Flipkart is now on the look out for smaller unknown brands, as it would be able negotiate better prices for the customer, from these products. To attract these smaller brands, Flipkart plans to utilise its analytics to create an improved logistic network.
Flipkart will assist smaller brands with:
“We have redesigned and set up a dedicated in-house supply chain that (will handle), installation and customer experience. We import directly from them (brands), help them distribute through our centres, provide installation service and help in brand marketing. Larger brands which earlier refused any ecommerce presence, are now warming up to online retailing and holding conversations to sell on the platform,”said Amit Bansal,Head of the large appliances business, Flipkart.