It's all about the pricing: Why offline retailers are losing the battle to Amazon, Flipkart

Branded players, especially in the white goods space are crying foul on the deep discounts that are being offered on their products during festival sales

E-tailers have a lot to cheer this festival season with almost every company announcing record sales. Spread over five days, the three largest online players Flipkart, Amazon and Snapdeal claimed to have registered very good growth as compared to last year. Buoyed by its success Amazon is reported to be lining up at least two more sale events. Flipkart is expected to join the race.

However, not everyone is amused by the action in the cyber space. Branded players, especially in the white goods space are crying foul on the deep discounts that are being offered on their products during these sales. LG and Videocon have cautioned online sellers against big discount sales and have even stopped supplies to a few.

They claim that the big discounts offered by the online retailers are in violation of e-commerce regulations and warn that warranties may not be valid on these products. Branded players fear that prices which fell below cost in some instances is affecting their brand image and sales through normal sales channel.

The structure of the business of branded players is preventing them from taking advantage of the boom in consumption. Even in the case of garments, which is the largest selling product segment in e-commerce, branded players have failed to create a dent in the market. Most of the branded players have ventured in the e-commerce space but failed to make an impact.

A news report says that fashion lifestyle e-tailers like Abof.com, an Aditya Birla group venture, Ajio of Reliance Industries and NNNow.con of Arvind are struggling to generate volumes. Monthly gross merchandise value (GMV) of these players range between Rs 5 crore to Rs 10 crore, not worth a comparison with the goods that move in the e-commerce space. Explaining the muted sales, branded players say that they are not in the game on GMV generation but would rather preserve their brand.

Branded players, be it in the white goods or in garmenting space need to have a presence on the ground. Apart from their own sales channels, these companies have a franchisee network which help in pushing their products deeper and faster. These franchisee and alternate channels have complained in the past that the discounts offered by the e-tailers during their mega festival sale are well below the price at which they get their goods from the company.

Footfalls in the store have not decreased, but they are largely of customers who come in to have a look at the products but prefer buying it from an e-tailer at a lower price. Channel checks and shifting volume from brick and mortar space to cyber space resulted in the companies setting up e-commerce platforms on their own. But the volume is yet to shift in their favour.

The message these Grand Festival Sales have to offer has not reached the brick and mortar branded players. The reason the GMVs go up during the short period is because of the heavy discounts they offer. Consumers are behaving like value investors. They are buying a good product at a deep discount, which hits the market every year. Many postpone their shopping throughout the year to take advantage of these sales.

Having an e-commerce presence but selling it at the same price as the neighbourhood store will not be a differentiator. Consumers are at least not playing the game as a logistics arbitrage, but need a genuine discount. Unless companies are willing to share the distribution commissions that they are saving by bypassing the traditional route, consumers will wait for the discount sales, even if takes place once in a year.