How did India unwind existing retailers? And, as a side question, what prevents retailers from doing a stupid shell company game where the product line and the retail arm are minimally legally separated but still totally the same company?
I ask these not to do a "gotcha", but because this is the first I'm hearing of this and it's fascinating and I'd like to know more.
Amazon and Flipkart used its business power in India to buy up thousands of products in bulk, sell them to vendors on their platforms, and then allow those vendors to offer the same products to customers. They also used to offer to cover vendor losses for discounts on its site using their dollar might at a loss to themselves. It was a huge incentive for heavily cost-conscious Indian consumers as an incentive to move from offline marketplace to online marketplace. This was very important in a pre-dominantly cash oriented conservative Indian market where consumers were reluctant to purchase things online due to fear of fraud. In addition to this, they started offering 0% cost financing for 6 months to purchase the products at installments without any interest rate with or without credit cards. However, what it is doing is driving offline markets out of the business as they cannot match the discounts offered by these companies. This is the reason trade association complained to the government and government decided to take this action.
For example, a smartphone that sells at $400 at offline stores would be available for $350 on Amazon/Flipkart. The cost price of device would be $350 for offline stores. You can also use No Cost financing to purchase the product for monthly payment of $58.33 for 6 months (Totaling $350). Amazon/Flipkart would absorb the interest cost. The losses are obvious as neither Amazon India Inc. (opened 2013) nor Flipkart (opened 2007 and the biggest Indian marketplace bought by Walmart in 2018 for $16 Billion) have made a cent of profit in India. Both Flipkart and Amazon had losses around $500 million for FY17-18, a number expected to go up post Walmart's purchase of Flipkart. Also, Amazon Prime is India is available for $15 a year and includes Amazon Prime Video, Amazon Prime Music and 1 Day Free Standard Shipping with no minimum order. In a country where data is basically free (30GB 4G Data with unlimited calls/messages per month for $2), this also adds to pushing people towards Amazon.
On a seperate note, a similar thing is taking place in Indian food delivery market where food delivery companies like Zomato, Swiggy or Ubereats are offering steep continuous discounts of 40-60% forcing delivery restaurants to jump into their ecosystem. The Restaurant association has also approached government with their complaints.
For Example, a Sub that sells for $4 would be delivered for $2 including delivery cost. The delivery companies absorbing rest of the costs.
The All India Online Vendors Association (AIOVA), which represents more than 3,500 online sellers did file a complaint against Flipkart/Amazon with Competition Commission of India (CCI) however, CCI did not find any violation of existing laws in Amazon or Flipkarts trade practices. IANAL but India does have Anti-Dumping and Pro-Competition laws but probably they are not updated for e-commerce. Amazon and Flipkart are able to find loop holes in it to continue their practices. Which is why Govt. imposed the marketplace cannot sell the products laws.
I ask these not to do a "gotcha", but because this is the first I'm hearing of this and it's fascinating and I'd like to know more.