NEW DELHI: The founder of India's largest brick-and-mortar retailer Kishore Biyani said the marketplace model adopted by ecommerce companies differs little from conventional methods, questioning the rationale that allows them to raise foreign capital. "There is nothing different about marketplace (from brick and-mortar retail) except for accounting,"Biyani said in an interview.
"They (online retailers) sell to consumers. They are violating the law (on overseas investment) in spirit and in letter."The founder of the Future Group, which runs more than 1,200 stores selling everything from food to furniture, elaborated on his logic.
"All retailers — whether real or virtual — source almost all goods from manufacturers and suppliers,"he said. "Virtual retailers, like real retailers, store most of their merchandise or inventories in their own warehouses. How one treats this inventory in the financial accounts may differ. Some account this inventory on their own balance sheet, others account for it in their suppliers' balance sheet. There are real-world retailers as well who do not account for the inventory on their own books."
"They (online retailers) sell to consumers. They are violating the law (on overseas investment) in spirit and in letter."The founder of the Future Group, which runs more than 1,200 stores selling everything from food to furniture, elaborated on his logic.
"All retailers — whether real or virtual — source almost all goods from manufacturers and suppliers,"he said. "Virtual retailers, like real retailers, store most of their merchandise or inventories in their own warehouses. How one treats this inventory in the financial accounts may differ. Some account this inventory on their own balance sheet, others account for it in their suppliers' balance sheet. There are real-world retailers as well who do not account for the inventory on their own books."
That's why there is no real difference in the nature of business between ecommerce and retail chains, Biyani said. And yet, companies that run brickand-mortar stores face stringent curbs when it comes to foreign investments unlike their online counterparts, he said. "Any retailer can be a marketplace and any marketplace is also retailer,"Biyani said.
"In addition, in these so-called marketplaces, sellers do not directly interact nor ship goods directly to buyers. Like real retailers, virtual retailers themselves own or handle the logistics and customer delivery for everything that they sell,"Biyani said.
India bars foreign direct investment (FDI) in any ecommerce venture that sells products directly to consumers but allows 100% foreign capital in the marketplace model, which involves online retailers setting themselves up as platforms for other retailers to sell products. In effect, this means that these companies are selling to consumers and this doesn't count as wholesale trading Biyani said.
"By legal definition, wholesale trading or B2B (business to business) involves selling only to those who own businesses or have sales tax or service tax registration. The websites do not have any B2B or wholesale business,"he said.
"We are not opposed to FDI. We only expect that the law and its implementation are clear so that it applies equally to real and virtual retailers."Biyani's comments are the first public expression of discontent by retailers on the issue, although the Retailers Association of Indialobby group had recently filed a case in the Delhi High Court seeking a level playing field using this argument.
The judge referred the matter to the government to decide in the next four months.
DRIVING FORCE
The increasing adoption of ecommerce by Indians is driving business to Amazon, Flipkart and Snapdeal and hurting brick-andmortar establishments. The prospect of this trend strengthening is also a cause for worry.
But Biyani said virtual retailers aren't taking away "our"business or "our"customers. His argument is more about fairness, given that the flood of overseas money into ecommerce companies allows them to offer discounts to win market share.
The increasing adoption of ecommerce by Indians is driving business to Amazon, Flipkart and Snapdeal and hurting brick-and mortar establishments. The prospect of this trend strengthening is also a cause for worry. But Biyani said virtual retailers aren't taking away "our"business or "our"customers.
His argument is more about fairness, given that the flood of overseas money into ecommerce companies allows them to offer discounts to win market share.
"The growth of virtual retail is not led through brands or products developed by the companies or by achieving operational efficiencies or scale,"he said.
"It is entirely led through reducing the prices of products that are subsidised by the investments made by foreign private equity funds and venture capitalists. On the other hand, retailers in the real world face severe restrictions on fundraising, especially when it comes to foreign funds, whether through external commercial borrowings or through equity.
That isn't fair."Spencer's Retail reported a net loss of Rs 114 crore for FY15. Losses widened because of heavy discounting by ecommerce companies even though Spencer's posted higher revenue, Sanjiv Goenka, chairman of CESC Ltd that owns the retail chain, is reported to have said.
In recent years, homegrown Flipkart and Snapdeal have raised billions of dollars from investors while US-based Amazon has pledged to invest $2 billion in India to tap the country's ecommerce potential. Flush with capital, ecommerce companies have unleashed advertising and discounting strategies. Flipkart and Snapdeal declined comment while Amazon didn't respond to queries. Biyani didn't name any specific company in his comments.
IMPACT ON SMALL STORES
According to Biyani, the impact of ecommerce is mainly on small consumer electronic stores. "A large number of small shops engaged in selling mobile phones and electronics have gone out of business in the past few years and it is entirely due to the deep pockets of the foreign funds subsidising and cutting prices of mobile phones being sold by virtual retailers,"he said.
He pointed out that ecommerce companies are now entering food and groceries in the context of the argument against FDI in retail describing these as sensitive segments.
Allowing overseas money in retail would hurt millions of kirana stores, those opposed to it had said. "The whole debate on FDI in retailing was on protecting small traders, shop owners and farmers engaged in the food business. That's the reason why FDI in retailing was not allowed. But that is exactly where FDI is now coming,"Biyani said.
"In addition, in these so-called marketplaces, sellers do not directly interact nor ship goods directly to buyers. Like real retailers, virtual retailers themselves own or handle the logistics and customer delivery for everything that they sell,"Biyani said.
India bars foreign direct investment (FDI) in any ecommerce venture that sells products directly to consumers but allows 100% foreign capital in the marketplace model, which involves online retailers setting themselves up as platforms for other retailers to sell products. In effect, this means that these companies are selling to consumers and this doesn't count as wholesale trading Biyani said.
"By legal definition, wholesale trading or B2B (business to business) involves selling only to those who own businesses or have sales tax or service tax registration. The websites do not have any B2B or wholesale business,"he said.
"We are not opposed to FDI. We only expect that the law and its implementation are clear so that it applies equally to real and virtual retailers."Biyani's comments are the first public expression of discontent by retailers on the issue, although the Retailers Association of Indialobby group had recently filed a case in the Delhi High Court seeking a level playing field using this argument.
The judge referred the matter to the government to decide in the next four months.
DRIVING FORCE
The increasing adoption of ecommerce by Indians is driving business to Amazon, Flipkart and Snapdeal and hurting brick-andmortar establishments. The prospect of this trend strengthening is also a cause for worry.
But Biyani said virtual retailers aren't taking away "our"business or "our"customers. His argument is more about fairness, given that the flood of overseas money into ecommerce companies allows them to offer discounts to win market share.
The increasing adoption of ecommerce by Indians is driving business to Amazon, Flipkart and Snapdeal and hurting brick-and mortar establishments. The prospect of this trend strengthening is also a cause for worry. But Biyani said virtual retailers aren't taking away "our"business or "our"customers.
His argument is more about fairness, given that the flood of overseas money into ecommerce companies allows them to offer discounts to win market share.
"The growth of virtual retail is not led through brands or products developed by the companies or by achieving operational efficiencies or scale,"he said.
"It is entirely led through reducing the prices of products that are subsidised by the investments made by foreign private equity funds and venture capitalists. On the other hand, retailers in the real world face severe restrictions on fundraising, especially when it comes to foreign funds, whether through external commercial borrowings or through equity.
That isn't fair."Spencer's Retail reported a net loss of Rs 114 crore for FY15. Losses widened because of heavy discounting by ecommerce companies even though Spencer's posted higher revenue, Sanjiv Goenka, chairman of CESC Ltd that owns the retail chain, is reported to have said.
In recent years, homegrown Flipkart and Snapdeal have raised billions of dollars from investors while US-based Amazon has pledged to invest $2 billion in India to tap the country's ecommerce potential. Flush with capital, ecommerce companies have unleashed advertising and discounting strategies. Flipkart and Snapdeal declined comment while Amazon didn't respond to queries. Biyani didn't name any specific company in his comments.
IMPACT ON SMALL STORES
According to Biyani, the impact of ecommerce is mainly on small consumer electronic stores. "A large number of small shops engaged in selling mobile phones and electronics have gone out of business in the past few years and it is entirely due to the deep pockets of the foreign funds subsidising and cutting prices of mobile phones being sold by virtual retailers,"he said.
He pointed out that ecommerce companies are now entering food and groceries in the context of the argument against FDI in retail describing these as sensitive segments.
Allowing overseas money in retail would hurt millions of kirana stores, those opposed to it had said. "The whole debate on FDI in retailing was on protecting small traders, shop owners and farmers engaged in the food business. That's the reason why FDI in retailing was not allowed. But that is exactly where FDI is now coming,"Biyani said.
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