Durables firms to petition govt over e-commerce discounts

Industry body to write to commerce ministry, seek regulation for e-tailers

The country's top consumer durables companies like LG, Samsung, Sony and Videocon are in the process of writing to Commerce Minister Nirmala Sitharaman against deep discounts being offered by e-commerce companies. The letter, to be routed through industry body Consumer Electronics and Appliances Manufacturers Association (CEAMA), will articulate their concerns over "predatory pricing" that e-tailers are practising.

This will be the first formal attempt by these companies to register their protest. Earlier, LG, Samsung and Sony had complained that the October 6 flash sales by Flipkart and Snapdeal made their products available at discounts as steep as 30-40 per cent to the market operating price (MOP). This, they said, upset offline retailers, which typically give discounts of 10-15 per cent on MOP.

MOP, the actual price at which a company makes a product available to a retailer, is slightly less than maximum retail price (MRP). So, if an Apple iPhone's MRP, for example, is Rs 50,000, its MOP will be about Rs 45,000.

During Diwali sale or other big shopping events, offline retailers typically bring down the price (MOP) by 10-15 per cent to attract buyers. With e-tailers (Flipkart and Snapdeal) discounting way below that accepted practice on October 6, industry sources said, offline retailers like regional players, as well as modern and traditional traders, were furious.

Kishore Biyani, chief executive of Future Group, which operates the eZone chain of consumer electronics stores, said: "Let e-commerce sell products without offering discounts and then compete. They are surviving only because of these discounts. As long as e-commerce companies are funded, they will be able to give such discounts. The moment the funding stops, there will be no discounts."

The CEAMA letter, according to the body's secretary-general, Amit Chadha, will highlight the issue of deep discounts and press for this practice to be regulated. "Not very long ago, the e-tailing channel accounted for only about five per cent of industry sales. Thanks to these flash sales by e-commerce majors, their customer base has increased. According to our assessment, the e-tailing channel today constitutes 15-20 per cent of industry sales. And, if the practice of deep discounting is not regulated, we will see the customer base for online platforms going up. Brick-and-mortar retailers are badly affected by this. Shops are empty because consumers wait for these attractive offers online. There has to be a price parity," says Chadha.

LG, India's largest consumer durables company, issued an advisory on October 6, saying it had not authorised any e-commerce company to sell its products in India. It could not vouch for genuineness of the products sold online and, the company said, it retained the right of not extending additional services and warranties on such products.

Chadha says the second issue that will figure prominently in CEAMA’s letter will be the sourcing methods of online platforms. “We have raised this issue in the past and propose to bring it up again in our letter to the commerce minister. How is it that a product finds it way online when the company producing it has not authorised its sale. Who are these companies tapping,” Chadha asks.

According to industry sources, small dealers (with networks of a few stores) that procure products from companies are to blame; they offload these products to online marketplaces to ensure sales. “The practice has gained traction lately, with shopping online as a habit picking up. E-commerce companies assure these small dealers that their products will be sold. The dealers are happy to get a small margin in sales of these products,” says the chief executive of a top consumer durables company who does not wish to be named, given the sensitivity of the matter.

PREDATORY PRICING?
What the firms' letter to the commerce ministry will say

• Regulation: Regulate e-commerce companies, as their discounts are affecting offline channel partners' business
  

 

Fair means: Ensure e-commerce companies have fair business practices
 

Sourcing: Consumer durables and electronics companies are also complaining that online marketplaces source from the small direct dealers that assure them of sales
 

Small cut: What direct dealers get in return for these sourcing deals is a small percentage of sales proceeds