Thursday, 17 January 2019

Star fashion brands in an ecommerce knot

Star fashion brands in an ecommerce knotNEW DELHI: The latest amendments to the FDI policy on ecommerce could inflict collateral damage on Bollywood stars, including Saif Ali Khan, Hrithik Roshan, Deepika Padukone and Alia Bhatt, who have launched their own fashion brands.

Flipkart-owned fashion portal Myntra — or its subsidiary Jabong in the case of Bhatt — holds a stake in these celebrities’ brands, people aware of the matter told ET. The brands are mostly sold on Myntra, Jabong and Flipkart, which has been acquired by Walmart. That would run afoul of new FDI rules, which are scheduled to come into effect on February 1. 
Star fashion brands in an ecommerce knot 
“An entity having equity participation by ecommerce marketplace entity or its group companies, or having control on its inventory by ecommerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” says the policy announced in December. This raises uncertainty over whether brands like House of Pataudi (Khan), HRX (Roshan), All About You (Padukone) and Alia Bhatt For Jabong will be able to continue selling on the FDI-backed platforms.

Brands will have to stop selling from Feb 1Myntra did not respond to queries and neither did the actors’ representatives. Analysts said the celebrity brands will have to stop selling on Myntra and Jabong from February 1unless online store operators sell their stakes in those labels.

“An ecommerce platform that has foreign capital, it is absolutely clear that you cannot hold inventory and have stake in an inventory model,” said Devangshu Dutta, chief executive of retail consultant Third Eyesight. Flipkart, Myntra’s parent and India’s largest ecommerce enterprise, was acquired by Walmart for $16 billion last year. “It seems difficult (for the celebrity brands) with foreign capital and with the new clauses,” Dutta said. “They will have to spin it into a different company or something like that.”

Most other celebrity brands such as Salman Khan’s Being Human, Virat Kohli’s One8 and Sonam Kapoor’s Rheson will not be impacted by the new rules because they don’t have equity relationships with the ecommerce marketplaces.

A person familiar with the development said Jabong had “discontinued” selling Bhatt’s brand a while ago, but a sheath outfit bearing the label was still available on Jabong for Rs 2,999 on Wednesday.

According to company insiders, Myntra has controlling equity in HRX, coowns House of Pataudi with Khan and holds a stake in Padukone’s label. Similarly, Jabong owns a stake in Bhatt’s brand, sources said.

ET had reported in August 2016 that Myntra had acquired a controlling 51% stake for an undisclosed amount in HRX from co-owners Roshan and Exceed Entertainment, with the original promoters holding the rest.

House of Pataudi — co-owned by Myntra, Exceed Entertainment and Khan — was launched three months ago to sell ethnic wear for men and women.

CAIT favours FDI policy for ecomm covering domestic companies too

The foreign direct investment (FDI) rules for e-commerce companies should be applicable to domestic online players also, to restrict them from adopting any unethical business practices, said the Confederation of All India Traders (CAIT).

“The restrictions imposed in FDI policy in e-commerce should also be made applicable to domestic ecommerce players to ensure a level playing field and fair competition,” CAIT secretary general Praveen Khandelwal said Wednesday.

Last month, the government updated FDI rules to bar any entity related to an e-commerce platform from selling on that site, limit how much one vendor can sell there and prohibit e-tailers from giving any preferential treatment to any supplier.

The new framework will come into force on February 1 and the platforms will have to confirm compliance with the guidelines by September 30 of every year for the preceding financial year to the Reserve Bank of India.

ET reported Tuesday that Amazon and Flipkart had sought more time to comply with the policy.

The Department of Industrial Policy and Promotion (DIPP) had clarified on January 3 that the private labels of online platforms will not suffer on account of the updated rules.

The traders’ body asked the government not to give into the demands of multinational e-commerce players and American industry chambers to amend rules.

Khandelwal said the companies that do not comply with the policy should not be allowed to operate their e-commerce portals or raise funds until they have obtained a compliance certificate.

“We want the government to institute a probe into the business activities of major e-commerce players over the last two-three years. Those found violating the policy should be strongly punished,” he said.

Flipkart India gets Rs 1,431 cr in fresh capital from parent entity

Flipkart India gets Rs 1,431 cr in fresh capital from parent entity Flipkart India, the wholesale arm of the Walmart-owned ecommerce marketplace in India, has received Rs 1,431 crore in fresh capital from its Singapore-based parent entity Flipkart Private Limited. The fund infusion comes days after the Indian government made clarifications to the FDI policy for the ecommerce industry which will significantly affect firms like Flipkart and Amazon.

According to documents filed with the Registrar of Companies (RoC), Flipkart’s parent entity was issued 4.86 lakh shares in Flipkart India on January 7 at a price of Rs 29,400 per share. The documents, which were reviewed by ET, were sourced from financial data platform

Flipkart India purchases goods in bulk from manufacturers and sells them to preferred sellers. This model has come under the scanner post the recent changes in FDI regulations for ecommerce companies, as per Press Note 2 issued on December 26, last year. The Department of Industrial Policy and Promotion (DIPP), put out a clarification for the FDI policy for ecommerce, disallowing players such as Amazon and Flipkart from selling products from vendors in which they directly or indirectly have any stake. The marketplaces have until February 1 to comply with the new rules, for which they’ve sought an extension, as reported earlier.

Flipkart had invested Rs 2,190 crore in Flipkart India in December last year, making the new investment highly unusual as the company has previously spaced out its fund infusions in its Indian subsidiaries. Together, the two investments bring the total investment in Flipkart India to over Rs 3,600 crore, or approximately half a billion dollars.The investme Flipkart India gets Rs 1,431 cr in fresh capital from parent entitynt will be the third large fund infusion into Flipkart after Walmart closed to deal to acquire 77% stake in the homegrown etailer for $16 billion in August last year. Flipkart Internet, the marketplace entity of the company had received over Rs 3,400 crore in September last year, ahead of its massive Big Billion Days festive sale.

Wednesday, 16 January 2019

CCI dismisses Snapdeal's complaint against KAFF on minimum resale price

CCI dismisses Snapdeal's complaint against KAFF on minimum resale priceNEW DELHI: The Competition Commission of India Tuesday dismissed e-commerce platform Snapdeal's complaint alleging unfair business practices against KAFFAppliances with regard to the imposition of minimum resale price maintenance (RPM).

The fair trade regulator dismissed the complaint by Jasper Infotech Pvt Ltd, which owns and operates e-commerce platform Snapdeal, as the "conduct of KAFF did not demonstrate any adverse effect on the competition".

The complaint was filed by Jasper in 2014 after it alleged that KAFF was attempting to impose a price restriction on the online platform to make sales at a minimum price and threatened to ban online sales if such prices were not maintained.

Following this, the commission had directed its investigation arm, director general, to investigate whether the minimum resale price imposed by KAFF on its dealers contravened the Competition Act.

The director general submitted the main investigation report and consequently the supplementary investigation report to ascertain whether KAFF imposed price restriction.

In a 28-page order, CCI said based on both the reports, the commission did not find any evidence of adverse effect on competition.

Further, the presence of a large number of dealers who were competing with each other suggests a fair degree of intra-brand competition, Competition Commission Of India (CCI) noted.

Accordingly, CCI dismissed the complaint as it found no contravention of Section 3 of the Act.

Section 3 pertains to anti-abusive agreements.

Ecomm firms lobbying hard, govt should probe their biz: CAIT

Ecomm firms lobbying hard, govt should probe their biz: CAITNew Delhi: Traders’ body Confederation of All India Traders (CAIT) urged the government not to accede to any demand by large e-commerce players or US associations for changes or delayed implementation of the updates FDI norms for ecommerce.

It also demanded that the government should make it mandatory for the ecommerce companies to obtain a compliance certificate as on March 3, 2019 and the companies that do not have the certificate should be restricted to operate their ecommerce portal any more.

“The companies should not be allowed to raise funds until compliance certificate is obtained. Already companies have circumvented law by converting marketplace to an open market for B2C business which is against the FDI policy and its letter and spirit,” Praveen Khandelwal, secretary general, CAIT, said.

The group also reiterated its earlier demand that the FDI norms related to ecommerce companies should be implemented on domestic online players also to restrict them from adopting any unethical business practices.

He further added that in utter violation of Press Note 3 of 2016 – which articulated the FDI norms for ecommerce - major ecommerce players started operating in the B2C space and building multiple tiers of companies with the possible intention of circumventing the regulations.

“It was clear from modus operandi that these market places were probably hoping that these infringements would be ignored once the operations become the norm. A deep analysis of behavioural economics of these individual entities clearly suggest that the FDI direction v/s the cash burn was extremely unusual behaviour and is only conducted to camouflage the intent of the policy and the government,” he said.

Tightening norms for ecommerce firms having foreign investment, the government barred online marketplaces such as Flipkart and Amazon from selling products of companies where they hold stakes and banned exclusive marketing arrangements that could influence product price. 

The confederation has earlier written to commerce minister Suresh Prabhu to bring out t a comprehensive e-commerce policy be brought about at the earliest, and underlined the need for an effective regulator, that is “armed with enforcement and adjudicatory powers to enforce e-commerce policy”.

Amazon, Flipkart seek more time to comply with new FDI policy

Amazon and Walmart-owned Flipkart have asked the government to extend the February 1 deadline to comply with recently announced changes in the foreign direct investment (FDI) policy for ecommerce, according to people with knowledge of the matter. Flipkart confirmed this in an email.

“We are working diligently to assess all aspects of the Flipkart business in an effort to ensure full compliance with the new rules, but believe an extension is appropriate in order to ensure that all elements of the new Press Note are clarified and a smooth transition for marketplace participants occurs without any disruption for customers and small sellers,” a spokesperson told ET.

While Amazon has asked for time until June 1, Flipkart has asked for six months, said the people cited above. The latest provisions announced on December 26 have shaken the ecommerce industry as it requires sweeping changes in the business model. These were introduced following longstanding complaints by local brick-and-mortar traders and retailers alleging that overseas-owned online marketplaces were violating the existing policy by influencing the prices of products, indulging in deep discounting and indirectly employing an inventory-based model.

An Amazon India spokesperson said that the company is evaluating the circular and has no further comment to make.

“It is important that a broad marketdriven framework be developed through a consultative process,” Flipkart told ET. “We hope to be able to work with the government to promote fair, pro-growth policies that will continue to develop this nascent sector, making India a competitive economy and driving benefits to consumers, small suppliers, infrastructure development, and innovation.”

Amazon, Flipkart seek more time to comply with new FDI policy 
In its letter to the Department of Industrial Policy and Promotion (DIPP) on Tuesday, Amazon said it would be difficult for the company to comply by February 1 as this involves extensive overhauling of its business model and systems, said the people cited above. The US giant also said that when Press Note 3 of 2016 came into effect, the government had consulted all stakeholders, hence there had been time to bring about the necessary changes in order to comply with it. Such consultations weren’t held this time, according to the marketplace. It told DIPP that every contract the company has with partners will have to be renegotiated. Since there was no prior consultation, the company needs time to carry out the necessary changes, it told DIPP, according to the people cited above. The updated policy clearly bars any entity related to the marketplace or any group entity from selling directly to the consumer, according to the press note issued by DIPP on December 26.

The US-India Strategic Partnership Forum had earlier said that the updated FDI norms show a lack of predictability in the regulatory environment and could make their way into the long list of trade issues that the country is trying to resolve with the US.

The Confederation of All India Traders (CAIT), a domestic lobby, has opposed any move to delay implementation of the norms.

Two clauses in particular necessitate sweeping changes, said the people cited above. First, no vendor can have equity participation by the marketplace or its group companies. Second, the inventory of a vendor will be deemed to be controlled by the marketplace if more than 25% of the vendor’s purchases are from the marketplace entity, including its wholesale unit. The marketplace entity or its group companies cannot have control over inventory under the FDI rules.

Amazon and Flipkart purchase goods in bulk at cheap rates from manufacturers through their wholesale entities — Amazon Wholesale and Flipkart India Pvt Ltd — and sell them to companies or preferred sellers, which are companies in which the ecommerce company or a group entity may have an equity stake.

The government has said that there is no change in the ecommerce policy and that the press note issued last month only reiterated provisions to ensure better policy implementation in letter and spirit.

Tuesday, 15 January 2019

Amazon food biz to log off if new rules remain on menu

Amazon food biz to log off if new rules remain on menuMUMBAI | NEW DELHI: Amazon’s food-only retail business will stop selling on if the government’s latest foreign direct investment (FDI) guidelines remain unchanged by next month. 

This would be a blow for the initiative as Amazon was the only foreign retailer to have committed investment — to the tune of $500 million — in the food retail segment after it opened up in mid-2016. In addition, Amazon’s planned acquisition of a stake in Future Retail may be delayed, people familiar with the matter told ET.

This development follows the latest notification on ecommerce FDI, which prohibits marketplaces from selling affiliates’ products. It goes into effect on February 1.

“Amazon Retail India Pvt Ltd (ARIPL), which is a seller of foodstuff on, will stop selling post-February 1 in a bid to comply with the new marketplace regulations,” said one of the persons with direct knowledge of the development.

Amazon food biz to log off if new rules remain on menu 

Amazon food biz to log off if new rules remain on menu 

An Amazon spokesperson said the company was still evaluating the new norms. “We remain committed to invest in India in a way that can work with the government’s vision towards the farmer and agricultural community but at present, we are still evaluating the Press Note 2 guidelines,” said the company.

The government tightened norms for FDI-funded ecommerce companies including Flipkart and Amazon in December and said such entities cannot exercise ownership or control over inventory. They must provide services such as warehousing, logistics and advertising to all sellers in a fair manner. It also disallowed ecommerce companies from entering into pacts for the exclusive sale of products and from holding equity stakes in their sellers.

These new norms have also cast their shadow over Amazon’s proposed stake acquisition in Kishore Biyani’s Future Retail. The US online retailer was in talks to pick 9.5% stake in Future Retail and the deal was supposed to be announced last year.

The person quoted earlier said that as the new norms prevent a foreign marketplace company from holding any stake in a seller on its platform, it is unlikely that the transaction can now go ahead. The Future group is a seller on the Amazon platform and after the new guidelines Amazon won’t be able to ride on Future Retail’s brand portfolio or store network.

But another person said the deal is ‘on track’ and is in the process of being restructured.

“We do not comment on speculation about what Amazon may or may not do in time to come,” said the Amazon spokesperson in response to a query on the Future stake purchase.

Amazon was in discussions to acquire a stake in India’s largest listed retailer through the foreign portfolio investor (FPI) route, similar to its earlier deal two years ago when it acquired a 5% stake in Shoppers Stop for about Rs 180 crore. An individual FPI can hold up to 10% in an Indian entity though multiple FPIs can hold up to 49% stake.

Amazon had also acquired a stake in More supermarkets from Aditya Birla Retail through Witzig Advisory Services along with co-investor Samara Capital a quarter ago. Just last week, the Competition Commission of India sought details from Samara Capital on the role of Amazon and how the proposed deal is in line with the government’s revised FDI ecommerce policy.

In 2016, India had for the first time permitted 100% overseas subsidiaries to retail locally produced food items through both offline and online channels to help farmers and create jobs. The initiative had received lukewarm response from foreign investors until Amazon applied through the route.

In 2017, the government approved Amazon’s proposal to invest $500 million to sell locally produced food items through both brick and mortar stores and e-commerce. Amazon has not yet started physical stores for food only retailing and ARIPL is selling primarily on

Legal experts are said to have told Amazon that the latest changes will mean ARIPL can’t sell on the Amazon marketplace starting February 1. FDI-funded platforms can’t sell products from any entities with which they have equity relationships when the changes go into effect.

Brick and mortar Etail may lose Rs 40,000 crore, retail to get a 3rd of it

Online retailers could take a Rs 35,000-40,000-crore hit on their FY20 revenues to comply with the revised foreign investment policy, according to Crisil. Brick-and-mortar stores, as a result, may see a 150-200-bps spike in sales with an additional Rs Etail may lose Rs 40,000 crore, retail to get a 3rd of it12,000-crore-plus mop-up.

“The fact that there will be a level playing field, which will create a balance in the market, is good for the growth of the retail business in India,” said Rakesh Biyani, joint MD at Future Retail. “I think the additional (Rs 10,000-12,000 crore) revenue is a fair assumption in a country where retail consumption is growing at 10%.”

A recent clarification from the Department of Industrial Policy & Promotion (DIPP) on the foreign direct investment (FDI) policy for eretailers restricts marketplaces, operators and their group companies from holding equity in sellers on their platforms, caps the percentage procurement for sellers from emarketplaces, and puts curbs on exclusive partnership with brands or providing favourable services to a few vendors.

The revised policy, to be effective from February, aims squarely at protecting the home-grown retailers, which have seen consumers drifting to the deep discounts online.

“Discounts should be moderate and that will help everyone,” said J Suresh, CEO at Arvind Brands & Lifestyle, which runs stores of nearly two dozen brands, including Gap, US Polo, Sephora and Children’s Place as a licensee or through JVs. “The brick-and-mortar mobile stores are going to benefit the maximum and the next beneficiary will be fashion.”

Between fiscal 2014 and 2018, e-retail in India grew 40% annually to reach Rs 1 lakh crore, far outstripping physical retailers’ 13% growth to Rs 3.2 lakh crore on a relatively higher base.

Etail may lose Rs 40,000 crore, retail to get a 3rd of it 
“Nearly 35-40% of e-retail industry sales, amounting to Rs 35,000-40,000 crore, could be impacted due to the tightened policy,” said Anuj Sethi, senior director, Crisil Ratings. It said that if offline retailers lap up even a fourth of the impacted sales of e-retailers, it would lead to an additional 150-200-basis-point revenue growth. The rating agency has revised revenue growth of physical retailers to 19% for FY20 from 17% earlier.

“The new policy will help omnichannel retailers maintain prices and keep them under control since they manage their own portal as well as physical stores,” department store chain Lifestyle International MD Vasanth Kumar said.

Crisil expects the impact on e-retailers to be largely on the electronics and apparel segments, which account for a bulk of their revenue. Also, for most retailers, including Amazon and Flipkart, their own labels account for over 10% of sales, and has price advantage.

These top two e-retailers, accounting for about 70% of the e-retail industry revenue, generate about half of their sales through group companies. Following the restriction on equity ownership in sellers, e-retailers will need to make changes in their supply chain and may tweak business models in several ways, including adoption of franchisee model, leading to increase in the cost of compliance as they strive to adhere to revised guidelines in less than 40 days.