Monday 24 November 2014

Karnataka's traditional retailers strike against e-tailers, OEMs

Small and medium electronics and hardware dealers acrossshut shop on Monday to protest against the allegedly unfair practices of their online counterparts, leading to huge losses.

According to the Federation of IT Dealers’ Associations-Karnataka (FITDAK), which spearheaded the protest, brick-and-mortar retailers of electronics and hardware in the state have seen nearly 50-60 per cent decline in business due to the steep discounts and “predatory pricing” by online sellers.

Around 600 electronics and hardware stores in Bengaluru — and around 2,500 across Karnataka — were shut as part of the protest on Monday.

“Companies raise funds for either making capital expenditure or operational expenditures. But none of that is happening. Instead, all the funds that these online retailers are raising is being spent on supporting heavy discounts that they offer. They are investing Rs 2 for making a sale of Rs 1,” B Ananda Rao, president, FITDAK, told Business Standard.

“We could appreciate competition from online retail portals if they were flourishing by the virtue of a technology revolution or exceptional logistics strength. But sadly, their aggression and growth is seen only through predatory pricing by way of offering huge discounts,” he added.

Predatory pricing, or undercutting, is a strategy where a product or service is sold at a very low price with an intention to drive competitors out of the market or create entry barriers for potential competitors.

According to the brick-and-mortar retailers who participated in a rally at Bengaluru’s town hall on Monday as part of the protest, on an average day websites offer discounts of 12-30 per cent on the maximum retail price of an electronics and hardware product. This excludes the “bumper sale” days that most held in October, to tap into the festive season demand.

While this was only a daylong protest, traditional retailers in the state have threatened to go on an indefinite “purchase bandh” (they would stop taking any fresh stock from manufacturers) from the second week of December, if the matter is not addressed.

According to Rao, on November 21, his association, along with several other representatives of electronics and hardware sellers met Manufacturers’ Association for Information Technology’s officials and several other manufacturers.

“They confessed that this predatory pricing practice is out of their control but we have asked them to find a solution to this,” Rao said. “We will wait for a couple of weeks to hear back from them, else we will go on a purchase bandh.”

Rao added the members of FITDAK are also disturbed with several Indian businessmen, such asand Azim Premji, investing in e-commerce companies, which are selling items on heavy discounts, leading to predatory pricing.

Earlier this year, Wipro’s Chairman and Chairman Emeritus Ratan Tata had announced an investment in Snapdeal. Earlier this month, Tata also announced an investment in online furniture retailer Urban Ladder.

“As India’s leading e-commerce marketplace we pride ourselves in helping manufactures and medium and small enterprises or sellers to reach out and sell directly to buyers across the country. In fact, this model has helped the manufacturing industry, as it supports the sales of products and creates huge employment, including jobs in ancillary industries. As a marketplace, we do not keep an inventory or sell to consumers. It is our sellers who keep the inventory in our warehouse,” a spokesperson said. “With regards to following ethical practices, Flipkart is in compliance with the laws-of-the-land and continuously encourages sellers on the platform to abide by it.”

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