India Undoing Amazon

On February 1st new e-commerce rules in India kicked in, forcing Amazon and Flipkart to restructure their business strategies. India does not allow foreign investors to control and market their own inventory on their e-commerce platforms. They are only allowed to operate marketplace platforms where others sell goods to retail consumers. The foreign direct investment (FDI) rules do not allow e-commerce sites to “exercise ownership or control over the inventory” of sellers.

Amazon’s party owned sellers Cloudtail, Appario Retail Private Ltd, Amazon Retail, and Shoppers Stop Limited were forced to remove all of their inventory from the website, totaling to hundreds of thousands of removed products. Amazon Echo devices, AmazonBasics and Solimo private label products, Amazon Pantry, and products from other brands are no longer available.

According to our research dozens more sellers removed some or most of their catalog. It’s unclear if these sellers are affiliated with Amazon or are supplied by Amazon wholesale. Overall millions of products are no longer available across all categories on Amazon India. The number of products started to drop a few weeks before February 1st and so far hasn’t recovered.

Number of Listed Products on Amazon India

According to some analysts both Amazon and Flipkart drove more than half the sales on their marketplaces either through co-owned sellers, like Cloudtail and Appario on Amazon and the obsolete WS Retail on Flipkart, or indirectly through their wholesale units. Their business-to-business units - Amazon Wholesale and Flipkart India - were suppliers to the preferred sellers, such as RetailNet, SuperComNet, India Flash Mart, Omnitech Retail and Trunet Commerce on Flipkart. There is now a 25% cap by value on any seller buying products from Amazon’s or Flipkart’s wholesale units. Some of the drop in listed products could be attributed to this rule.

This year Amazon India will surpass 500,000 sellers, having reached 400,000 in September 2018. Yet the top sellers like Cloudtail and Appario contribute most of the platform’s sales, making Amazon India to have one of the most extreme marketplaces power law. Smaller sellers are hopeful the new FDI rules will make them more competitive. Although both Amazon and Flipkart can be expected to try to circumvent the rules, like they did in 2016 when the first FDI rules were introduced.

Despite these roadblocks e-commerce in India remains the most disruptive, driven by growing internet population, explosion of mobile payments, and thus changing customer behavior. According to Bloomberg estimates Amazon is the market leader with $7.5 billion in GMV, followed by Flipkart in second place with $6.2 billion. However with Myntra and Jabong included Flipkart GMV matches Amazon’s.

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Juozas Kaziukėnas

Founder of Marketplace Pulse, Juozas wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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