Flipkart test: Will Narendra Modi stop etailers in their tracks?

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Flipkart’s Big Billion Day sale that,

according to company notched up sales of over Rs 600 cr in a day.

M_Id_483747_ecommerce

NewZNew (Feature) : It has to be a delicious irony if small kirana shops join hands with big organised retailers like Kishore Biyani to rail against etailers who, like Flipkart, have had a stunning debut in the market. The immediate provocation, which got commerce minister Nirmala Sitharaman to say the government was looking into the matter of huge discounting, is Flipkart’s Big Billion Day sale that, according to the company notched up sales of over Rs 600 crore in a day, a number that even the top-most retailer in India hasn’t been able to come within sniffing distance of.

All manner of charges are being bandied about, the most quoted one being dumping and how it is illegal to sell below-cost. Both charges sound good in the television studios where fat cat retailers are being asked for their opinion, but hold little water. Dumping, for instance, requires the firm to have significant market power. But the entire etail sector selling $4 billion worth of goods, using consulting firm Technopak’s best-case scenario for the year, doesn’t even have a 1% share of the $500 billion consumer market—since Flipkart will be a fraction of this, it doesn’t come anywhere near meeting this criterion. So neither the kiranas nor the big retailers will be able to get much help from the Competition Commission of India. This is the same reason why telcos like Bharti Airtel and Hutch weren’t able to prove predatory pricing charges against Reliance Infocomm’s Monsoon Hungama in 2003.

The below-cost argument is perhaps even more hollow, and Biyani and the others making this case will have to prove it. Just because a sale is taking place below the maximum retail price (MRP) doesn’t make it below-cost. Let’s say an article costs R100 but has an MRP of R200—that’s a pretty standard thing for most goods. The difference between the two is what comprises trade margins, shared between wholesalers and retailers. So as long as Flipkart is selling at over R100, it is difficult to make a case for it selling below-cost—though, as this column has just argued, that is also permissible till such time that Flipkart is a dominant player.

Indeed, the consumer durables firms who are publicly railing against the huge discounts being offered by etailers would do well to see how these firms are procuring these goods. Chances are it is their wholesalers who are selling to these firms, preferring to sacrifice some of