Economic Highlight

17 October 2014, New Delhi

E-Tailers Market

CONSUMERS RELIEF, BIGGIES SIGH

By Shivaji Sarkar

The one-day massive sale success of Flipkart has unraveled the myth of the Indian market. Its products are too highly priced. This gives a leeway to sell products at lower costs. The fundamental of business is to sell products at low profits. If products are sold with high 30 to 50 per cent profit margin, it opens it up for competition. It can be sometime too stiff and may wipe out the larger players with ease.

This is what has rattled big companies such as Samsung, Videocon, Tata, LG and host of other manufacturers operating in the Indian market. Some of them first reacted sharply saying that they might not extend warranty on such e-sale products. Next day realizing the folly of their approach, they too retracted.

It is not important to know whether it was a $100 million sale or a billion. That is the end result. It needs a scrutiny why Flipkart, now followed by Amazon and Snapdeal, are attracting buyers.

There is one simple answer. The products are available at 30 to 60 per cent less than the MRP at so-called company or factory retail shops. A mobile could be purchased at almost one-third the price, a shoe at less than 55 per cent of its marked price, a TV at least at prices 25 to 35 per cent less than the showroom prices. Similar is the case with garments and apparels. Many bought a TV for Rs 26000, which would have cost Rs 48,000 or more, a mobile for Rs 1000 against a price of Rs 4000 to 10,000, a pair of shoes for Rs 1300 against market price of Rs 4400. Sometimes you end up paying the Janpath (street shops) price for a branded garment.

So why wouldn’t the buyer flock to e-shops? They also save on parking fee, transport, toiling in dirty markets, spending on unnecessary food and drinks. Another gain is they save on losing small coins, that any day robs the consumers all told thousands of crore. Above all the product is delivered at the doorstep for their wise decision to spend less.

This has raised many an eyebrow from small retailers. Their Diwali sale is hit. It has also hit the large retailers who thrive on the notion that “for quality goods, one has to shell out more”.

On the other hand, it robs the so-called high-end shops of their mystique glamour. If someone steps into these shops and enquires about the price, the salesmen are trained to give a demeaning look to the customer. “His dignity is deliberately hit to make it obvious, you are unwanted as you can’t pay our price”, salesmen at one such shop explains to the scribe. They have forgotten the age-old proverb, “Consumer is the king”. The king, of course, may lose a battle or two, but eventually he hits back to win the battle.

Flipkart-like event is a small opportunity to work on that consumer psyche. Consumers also need to be aware that once such e-tailers settle down and possibly eliminate many of the rivals, they in the end could behave like the cartelized malls. May be Amazon, Snapdeal and others create a new cartel. In the Indian context, with the least protection for the consumers, this could be a one-time opportunity for the buyers.   

Flipkart sale is not the panacea. It only calls for strong measures to fix prices. Liberalised market is not a licence to sell products at three to four times the actual production price. Indians are paying through their nose. They forget that not so long ago a footwear company, Phoenix, was wiped out of the market for pricing products at the highest possible end. Many apparel companies have met the same fate.

The e-tailers are working on loopholes that the big marketers create. Consumers do not mind paying five to eight per cent more than the production cost. But if it exceeds that then it creates the leeway for entrance of competitors. Unethical pricing has no place in the market.

Large retailers have cartelized to boost their sales in an unethical manner. They are also now planning to hit back at Flipkart-like companies.

Such e-tailers should know that the market is much wider. The largest consumer producing companies, one of them almost created a monopoly by merging, acquiring and edging out competitors, have virtually more than doubled prices of products like soap cakes, toothpaste tubes and other cosmetics. A soap cake that used to cost around Rs 4 in 2010, today is sold at not less than Rs 10, toothpaste which was priced at Rs 5 or less costs more than Rs 15. So e-tailers only have to think of selling larger number of products to become market leaders.

Gross merchandise value (GMV) is a key to the valuation of any e-commerce site. How the massive customer discontent impacts GMV run rate in the coming days and valuation for Flipkart is for the founders to figure out. On the face of it, such competitive price-cuts benefit consumers.

Irrational pricing of products is causing enormous problem for the economy. The buyers are at the mercy of the producers and cost of living is going through the roof. Small retailers have a challenge. Should they move out or something should be done to create the competition – a hated word for the manufacturers?

The consumers have to wake up to safeguard their interests. The Government has to help in building that mechanism. There has to be a method prior to going to consumer courts. Products must display addresses of producers prominently and not in obscure fine prints, if at all. The consumer and small retailers only can correct the market dynamics. The big ones intend only to convolute it and fleece the consumers.

Many issues related to retail — from deep discounts to taxation and investments, among others — need to be addressed so that the retail experience fosters a healthy competition. Indeed, retail market dynamics is changing. It is setting its own rules. Both the society and Government have to act to make it thrive as well as regulate it.

The big companies surviving on cartelised functioning and selling their products at high prices apparently have yet to learn from the shock. The time has come to check the pricing mechanism of large producers and create a vibrant competition. ---INFA

(Copyright, India News & Feature Alliance)