Offline Retailers Drag Govt To Court Demanding FDI Level Playing Field With Online Retailers

Looks like, the fight between offline and online retailers is not going to end any time soon. Retailers Association of India, who has large organized offline retailers like Future Group, Shopper’s stop and Reliance Retail as their members have now moved the Delhi High court against Indian Government, reports ET.

There is no doubt that predatory pricing tactics adopted by eCommerce sites are hurting offline retail businesses. The eCommerce sites are currently able to offer huge discounts and offers on back of billion dollar fundings they have received from Indian and foreign Venture capital firms. While the VCs are pouring money into eCommerce ventures with a long term view, even Indian buyers are now increasingly getting comfortable making purchases online.

Large offline retailers are finding it difficult to compete with pricing offered by the online sites – and this is especially true in case of electronics and gadgets, where online retailers now command nearly 20 percent of all sales.

The court case filed in Delhi High court wants parity amongst offline and online retailers. They too want FDI to be opened up for offline retail sector.

Though, FDI has not opened up in eCommerce, the likes of Flipkart and Snapdeal operate as marketplaces for which they are attracting huge foreign investments. Kumar Rajagopalan, Chief Executive at Retailers Association of India (RAI) said, “On paper, ecommerce can’t have foreign direct investment. However, a whole lot of marketplaces are effectively retailing. It is a convenient method of saying they are marketplaces, but they can get as much FDI they want. So there is no level playing field in India.

The case for RAI will be handled by noted lawyer Abhishek Manu Singhvi and the court is expected to hear the case on Wednesday.

But Will Offline Retailers Attract Similar Investments?

Even if the case is heard and Government is forced to bring FDI in retail sector, the question is whether Offline retailers attract similar sized investments as in case of various eCommerce firms?

We agree with experts that brick and mortar retail is a very different business, and it will be very difficult to attract that kind of investments. The offline retailers can never have the kind of margins that eCommerce sites can potentially have. Also, with Indians increasingly getting comfortable making purchases online, it is inevitable that online retailers are going to grow much faster than their offline counter parts.

Currently, it is not that FDI is not allowed in offline retail sector – In 2012, Congress led Government announced 51% FDI in the sector, however, there were very few takers – Tesco from the UK is the only company that has entered India with this FDI route. The primary reason for Foreign companies not too enthused about it is because the investments need to follow some stringent clauses like minimum investment of 100M or mandatory 30% sourcing from local vendors and so on!

Offline Retailers Trying Hard to Stop eCommerce Juggernaut

Offline retailers are trying their best to ensure that eCommerce in India does not fly. They are forcing big brand names to desist buyers from buying online. Just yesterday, LG and Videocon has threatened that they will stop offering free after sales support for the products that have been purchased online. Last year, Lenovo, Toshiba, Netgear, Nikon and even Dell had come out with similar statements that they will not be offering warranties on their online product purchases.

While Brands may be happy that their products are being sold online, offline retailers are threatening them that they will stop promoting the products if product manufacturers do not come out with statements to discourage buyers from making online purchases.

In our view, eCommerce Juggernaut is already moving ahead with full steam, and it is going to be very difficult for anyone to stop it. More so, now Indian buyers have got a sweet taste of shopping online, and looking at the growth all ecommerce portal are witnessing, consumers are not going to stop making purchases online.

Like we have said before, offline retailers need to suck it up and come up with creative solutions to combat eCommerce players. Revolting or filing court cases is not going to make much of a difference in larger scheme of things.

What do you think?