The cloudburst of controversy following the unprecedented success of the humongous sales announced by Flipkart, Snapdeal and Amazon promises a war between the online and brick-and-mortar retailers. Such was the frenzy of hungry online buyers that Flipkart claimed sales worth $100 million in 10 hours and Snapdeal talked of sales of a crore per minute.
They had, according to one report, spent Rs 100 crore advertising their sales.
The brick-and-mortar group, which includes some of the biggest names in electronics, like Sony, Samsung and LG, and the Future Group, have accused online retailers of predatory pricing. Predatory, as they describe it, is selling an item below cost price. Flipkart has sold items for as low as '1 and high-end phones were offered at 90 per cent discount. One of the complaints of high-end gadget manufacturers like Nokia and Samsung is that these huge discounts are damaging the image of these high-end brands, besides ruining their own sales. This war is not likely to be limited to just a war of words in the coming days as commerce minister Nirmala Sitharaman has been dragged in. She said they have received many complaints and concerns from various quarters and has promised she will look into them. One does not know whether the government has any intention of coming out with a new policy to stop such “sales”. It will be interesting to see how the government handles this and whether any solution will be legally tenable. Even the Confederation of All-India Traders, which has been in the forefront of opposing foreign direct investment in multi-brand retail, recently asked Ms Sitharaman to monitor and regulate online retail companies as they see these as a threat to the mom and pop stores.
At one level, online retailers have always sold items cheaper as they save on rent and other infrastructure. Buying online has been on the increase, especially in Tier 2 and 3 cities and towns, as they don’t have access to the luxury boutiques and malls that city consumers do. Offline retailers have been finding a dip in sales, particularly among the 18-40 age group.
Companies like Flipkart have bust the myth that the Indian consumer likes to see and feel the product before buying since young buyers seem to have a totally different mindset.
Flipkart and others are at present flush with funds and can afford to use predatory pricing strategies. But whether they can sustain this is yet to be seen. There is, however, no doubt that technology is a great leveller and, to some extent, a democratising agent as it makes goods and services available to a larger number of people at affordable prices.
