Even as the Government is busy clarifying rules on the operations of foreign brick-and-mortar retailers such as Walmart and Tesco, there is plenty of action involving their click-and-order counterparts that are as keen on grabbing a slice of the country’s growing consumer market. The week that is drawing to a close saw Amazon, the world’s No. 1 online retailer, announcing its entry into India and also its rival, eBay, investing an undisclosed sum in India’s largest e-commerce marketplace, Snapdeal.com, giving it access to the New Delhi-based company’s 20 million registered users and distribution network.
On the face of it, Amazon’s entry is not comparable to that of Walmart, if only because the latter is a more recognisable name in India. Also, while the Government has permitted Walmart and Tesco to set up front-end stores to sell goods directly to consumers — conventional retail — it hasn’t allowed foreign direct investment in online retail. Simply put, it means an Amazon today cannot ‘sell’ anything — whether its own Kindle e-book reader or personal care products sourced from say, Hindustan Unilever — through its online platform in India. What it can technically do is only offer this platform as a ‘marketplace’ for others to hawk their products to consumers.
The apt analogy here is the kutcha arhatiya or commission agent in a mandi , who does not have any title to the underlying goods, but merely facilitates transactions between buyers and sellers of grain in return for a consideration. Similarly, Amazon can only tie up with companies to offer its online marketplace as a channel for them to reach consumers, who will, in turn, receive invoices from the sellers themselves. This is unlike a Walmart, which can source products by itself and sell them through its own brick-and-mortar retail outlets.
But the ‘online marketplace’ model can still be a potential game-changer from a distribution and consumer standpoint. Amazon, for instance, is talking of taking care of the entire packaging, warehousing and logistics requirements (delivery to consumers included) of firms planning to sell their wares through its platform. By establishing merchandise storage and distribution capacities on a large enough scale to bring down these costs, companies may find it far cheaper to offer products on Amazon’s platform than through their own networks. From consumers’ standpoint, it hardly matters whether they are buying from Amazon the e-retailer or directly from the company that uses Amazon’s online marketplace. If companies find the latter a more attractive sales platform, their existing brick-and-mortar distribution networks will come under pressure. Currently, nearly three-quarters of India’s estimated $10-billion e-commerce market is accounted for by online travel bookings. But this could change with big global online players coming in.