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Rediff.com  » Business » Tech brands lock horns with e-com firms over 'predatory' pricing

Tech brands lock horns with e-com firms over 'predatory' pricing

February 20, 2014 10:40 IST

Tech brands lock horns with e-com firms over 'predatory' pricing

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Surabhi Agarwal and Anusha Soni in New Delhi

India’s $500-billion (around Rs 30-lakh-crore) retail sector already seems to be facing the heat from the much smaller e-commerce segment, the present size of which, excluding online travel, is a mere $3.1 billion (Rs 18,600 crore).

Joining technology product companies’ online versus offline battle, Lenovo India on Wednesday issued an advisory to its buyers against doing business with e-retailers.

Dubbing e-commerce players like Amazon, Flipkart and Snapdeal as ‘not authorised resellers’, Lenovo has put a notice on its website urging consumers to buy products only from its exclusive stores or its own e-commerce portal.

In doing so, the Chinese electronics maker joined Japanese counterparts Toshiba and Nikon which put out similar advisories earlier.

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Photographs: Reuters

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Given that it is not considered as much a ‘touch and feel’ category as, say, apparel, electronics is one of the fastest-growing online segments in terms of sales for firms like Flipkart.

Also, the segment is showing significant growth, of up to 60 per cent annually.

However, deep discounts being offered by e-retailers have begun to hurt traditional retailers of these products.

Earlier this month, retail associations across the country held a meeting with the hardware manufacturers industry body -- MAIT -- to raise the issue of undercutting prices.

Anwar Shirpurwala, executive director of MAIT, said products were being bought from retail channel and sold online at a much lower price; this was creating problems for offline retailers.

“The question is whether business ethics are being maintained or not,” said Shirpurwala, adding the body was still undecided on whether it should intervene in the matter.

“Such concerns were also raised when large-format stores came up. Since e-commerce is a new channel, such issues are bound to be there.”

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Photographs: Reuters

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Online companies, on the other hand, have been justifying sale of products by them, saying it’s all legal and authorised.

The controversy around online sale of products is not new.

Earlier, the European Commission had released anti-trust rules allowing luxury brands to put certain restrictions on online retailers in the wake of disproportionate online and offline pricing.

The argument was that online player, which didn’t have brick-and-mortar outlets, were able to go for aggressive discounts.

Also, according to a December report by Bloomberg, Samsung Electronics and Royal Philips were among companies raided by the European Union’s anti-trust officials as part of a probe into suspected online-sale restrictions.

In a statement, both Flipkart and Snapdeal said the products sold on their platforms were genuine.

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Photographs: Reuters

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Since these were sold by authorised dealers on their portals, these were eligible for warranty, too.

“As a neutral marketplace, we do not determine prices.

“Sellers are also contractually obligated to list genuine products with manufacturer warranty,” an spokesperson for said Amazon India in an email.

According to Milan Sheth, partner at audit & consultancy firm EY, since the electronics category is so large online, technology product companies should engage more with e-commerce companies, rather than questioning the channel.

“The concern of the companies should rather be counterfeit products.”

Praveen Khandelwal, general-secretary, Confederation of All India Traders, said e-commerce was eating into brick-and mortar retail’s pie.

“The dynamics of their procurement are not clear and they are selling at much lower prices than offline retailers.

“If they are not directly procuring from the company, where do the products come from?” He added that the issue had been raised with the government.

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Photographs: Steve Marcus/Reuters
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Explaining the rationale behind the notice, Shailendra Katyal, director (consumer business), Lenovo India, said it had come to the company’s notice that some online stores and marketplaces were selling Lenovo products at heavily-discounted prices.

The advisory had been issued with end-customer’s interest on mind.

“Our observation is that these may not be authorised Lenovo resellers.”

It was earlier reported that Flipkart was served a legal notice by anti-virus software firm Quick Heal for alleged unauthorised sale of its products.

After directions from a Pune court, the company had to discontinue the sale these products.

Similarly, in September 2013, camera-maker Nikon had warned customers that Flipkart and Snapdeal were not the company’s authorised partners in India.

At present, at least three prominent e-commerce players -- Flipkart, Myntra and Snapdeal -- are aiming for $1 billion gross merchandise value by 2015-16.

This shows the scale of online retailers.

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Image: A Flipkart ad.
Photographs: Rediff Archives

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As Technopak Chairman Arvind Singhal had earlier told Business Standard, e-commerce is likely to be a much bigger disruption for the industry than foreign direct investment in multi-brand retail.

While Flipkart has shifted from an inventory-based model to the marketplace format, Snapdeal has been a marketplace loyalist. Myntra, which so far is inventory-based, might be looking at partially turning to marketplace.

Marketplace, which is about hosting retailers on one’s website, is a much more cost-effective format than an inventory-based model.

David vs Goliath?

  • Local retailers and distributors losing business due to underpricing of electronic products by e-commerce players; have raised issue with the government
  • 2,352%: The estimated increase in the size of online retail in India by 2021 -- to $76 billion from $3.1 billion at present
  • Advisory to buyers Lenovo has said that leading websites like Flipkart, Amazon and Snapdeal are not its authorised dealers
  • Importance of electronics: Flipkart co-founder and CEO Sachin Bansal has said electronics is the largest category for his company in terms of sales value

Photographs: Lee Jae-Won/Reuters

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