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No More Deep Discount Sales As eCommerce Firms Temporarily Suspend Such Schemes Due To Latest FDI Norms

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A large portion of the rapid growth India’s ecommerce companies have witnessed, can be attributed to those Big Billion Days (Flipkart), Freedom Sales(Amazon) and other sales events marked by heavy, almost unbelievable discounts. Reports however now suggest, that with the latest FDI norms which do not allow these companies to influence product prices on their platforms, discount days are all but gone.

Citing five people familiar with the matter, the report said that these companies continue to fund discounts given by third party sellers on their platforms but have cancelled sales plans and accompanying advertisements. This is to protect themselves from potential punishment from regulators.

Ecommerce marketplaces don’t want to attract the ire of regulators and offline retailers right now. The government has just announced new regulations and it will be very embarrassing for them if online retailers continue as if nothing has happened. So, to avoid angering the regulators, Flipkart, Amazon and Snapdeal have put sales and advertising of sales events on hold, 

said one person on the condition of anonymity.

Flipkart has cancelled its app-only sale event during the first week of May whereas Amazon and Snapdeal have cancelled their plans of one-day sale event marked by huge discounts in various product categories.

According to people mentioned above, ecommerce companies are devising new ways to restructure their business in a way that will enable them to offer discounts and sales during the festive season.

Since festive season, particularly the Diwali quarter, accounts for the majority of sales on these platforms, it has become absolutely necessary for these firms to find out ways to lure customers through deep discounts and sales.

One exception to these companies is Flipkart owned fashion retailer Myntra which has confirmed its three-day sale event to take place during next month as planned. This is due to the presence of one big seller, Vector E-commerce Pvt. Ltd  on Myntra which has made it easier for it to manage its sales.

The government recently allowed 100% FDI in ecommerce marketplace model but with two conditions which have forced these companies to rethink their strategies.

One of them was to disallow direct/indirect influencing of prices, while the other was a limit on sales through a single seller. The second one is interesting in particular, since no ecommerce company can achieve more than 25% of its sales through a single seller.

Since Cloudtail India contributes more than 40% of Amazon sales as well as WS Retail of Flipkart does more than 25% of total sales on Flipkart, these companies may have to set up new seller entities on their platforms. But because the Government brought the rule in effect from March 29, some companies may fail to immediately meet this demand in this year and will be able to do so only at the end of current fiscal.

Snapdeal, on the other hand, has claimed to have already met this demand, citing nearly 300,000 sellers on its platform from across India due to which the bigger ones also claim much less than 25% share of total sales.

However, when it comes to deep discounts and sales, all ecommerce companies have indulged in the process at some time or the other. So it will be interesting to see how they make a comeback and continue riding on discounts to drive their sales while following latest guidelines at the same time.

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