Impact of changes in regulation and policy stand with respect to internet retail
REPORT CONTEXT – POLICY EVOLUTION
- Indian law permits
- 100% foreign ownership of “single-brand” retailers, e.g. Ikea, but limits foreign ownership to 51% in “multi-brand” retail
- 100% foreign ownership of multi-brand wholesalers i.e. selling to businesses, but not to retailers i.e. selling to individuals
- In 2016, Indian government clarified the rules relating to foreign ownership in e-commerce retail.
- It allowed foreign-backed companies to operate internet-based marketplaces i.e. connect independent sellers with customers
- It, however, did not allow these foreign backed companies to keep inventory or sell products directly to consumers
- Capped total sales originating from a group company or one vendor at 25%
- Foreign backed internet retailers, most prominently Amazon India (owned by Amazon Inc.) and Flipkart (owned by Walmart Inc.) had already anticipated government action and restructured their operations to thinly comply with broad guidelines:
- Amazon set up a JV (with 49% ownership) that owns Cloudtail – the largest seller on Amazon India
- Flipkart set up a wholesale distributor and retailer, WS Retail that pushed sales on marketplace through multiple sellers
Policy now (effective 1st February 2019)
- The new rules do not allow foreign funded online retailers to
- source more than 25% of its inventory from a wholesaler linked to the marketplace, or
- have any of the wholesaler’s equity owned by the marketplace
- restricts marketplace to keep inventory or sell directly to consumers
- Implementation of sudden changes and rules restricting foreign but not domestic players is likely to have multiple short term and long terms effects on the Indian e-tailing scenario
WHY IS THIS IMPORTANT ?
- India has ~600 mn internet users, 20% of which are active online shoppers
- Indian online retail is a $24 BN industry (2018) and is set to cross $100 BN by 2023
- Recently policy changes effective 1st February saw following market reactions from major e-tailing players:
- Amazon Inc. lowered its sales guidance for the first quarter due to the new rules, sending its shares down by more than 4% on Friday, 1 Feb.
- Walmart shares also came under selling pressure on Friday, 1 Feb down 2.1%
- Other internet industry players are likely to be impacted as well with the policy changes causing them to rethink their supply chain and operational strategies to comply with rules
OBJECTIVE OF THE UPCOMING REDSEER REPORT
- The above policy changes as implemented on 1st February 2019, forced foreign funded e-commerce platforms to restructure their operations and supply chains. With the internet retail in India sized at USD 24 BN in CY18, the changes are likely to have far reaching consequences to not just internet retail but also to overall retail, business and consumer sentiment, employment, GDP, and beyond.
- RedSeer, through its deep market understanding of the Indian e-commerce is set to unveil a detailed report on the implications of the new e-commerce retail regulation and policy stand. The key aspects that report will cover are:
Table of Contents
- Context Understanding
- Origin and Evolution of the Issue
- Regulation and Policy Stand
- Overall Retail
- Internet Retail
- Participation by e-tailers.
- Policy Impact (as experienced after 1st February 2019)
- Trade and financial exposure
- Wholesale affiliate sales vs marketplace sales of e-tailers
- Cut by platform and category
- Mitigation strategies
- Sales Impact (estimates for Feb Week 1)
- SKUs affected by category and platform
- Delta in discounts to customers
- Short term impact on online traffic, usage, and orders
- Short term impact on GMV, incl by category and platform
- Annual impact on the GMV, incl by category and platform
- Supply Chain Impact
- Impact on sourcing from brands and sellers
- Impact on delivery timelines and operations
- Trade and financial exposure
- Sentiment Analysis
- Customer view
- Awareness of policy changes
- View on discounts and perceived changes in the same
- Change in buying sentiment – willingness to buy, buying consideration set, where are shifting to buying instead if not online
- Challenges faced amongst platform users/buyers post the new rules (if any)
- Seller View
- Perceived implications of the new changes
- Short term impact seen on business
- Sentiment in working with platform- has the midterm outlook improved
- Challenges and opportunities in long term\
- Industry Practioners view
- How are the incumbents managing the policy changes?
- How will the industry evolve? – supply chain, market shares, and profitability
- How will it impact small retailers? How real is threat faced by incumbents from for big Indian retailers e.g. Reliance?
- What are the key challenges and opportunities?
- Customer view
The study has been conducted using RedSeer’s trademark integrated research approach, which involves the following:
- Consumer surveys: 150+ surveys of regular shoppers on internet marketplaces, both the large horizontals and top 4-5 smaller ones
- Seller interviews: 30+ seller interviews to understand their perspective on the policy changes
- Industry veterans and experts: 10-20 interviews from industry participants to understand their outlook and approach for navigating the policy changes
RedSeer will synthesise inputs from the above research studies and leverage its deep internet industry understanding, and proprietary knowledge to provide a holistic view on the impact of changes in regulation and policy stand towards internet retail in India.
For further details on this report, feel free to reach out to us at firstname.lastname@example.org
 Industry participants includes marketplaces, participating brands, sellers, and industry experts from e-tailing and other affected internet verticals e.g. e-grocery, others