E-commerce discounting may not be predatory

When e-commerce firms offer huge discounts, is it tantamount to ‘predatory pricing’? While brick and mortar retailers say it is predatory in nature, lawyers point out that there may not be much basis in this charge as the former hold little or no inventory.

An industry body, the Confederation of All-India Traders, called for a probe into the business model and trade practices of e-commerce companies to find out how they offer huge discounts during the ongoing festive season.

“Market-places should technically provide only technology. How have companies like Flipkart achieved such a huge sale when they don’t own inventories? Clearly, they are hand-in-glove with the sellers and would have made anywhere between 5 per cent and 20 per cent,” says Praveen Khandelwal, of CAIT.

CAIT said it has written to Commerce Minister Nirmala Sitharaman to look into the working and business model of e-commerce players. “We are mulling approaching the Competition Commission of India (CCI) to look into the predatory pricing of e-commerce firms,” he added.

Several major retailers also said, on condition of anonymity, that sales of footwear, electronics and gift articles were showing a dip following e-commerce sales.

“The consuming class in India is in the age group of 18-30. Incidentally, they are also the ones who are driving up sales in the online space. This may erode our customer base,” a retailer said.

When contacted, Future Group CEO Kishore Biyani said: “Our laws don’t allow us to sell below the cost price. This is against fair trade practices,” though he declined to say whether the e-commerce sales had any bearing on brick and mortar retailing.

On Monday, e-commerce firm Flipkart, that had offered big discounts on various product categories, suffered from server glitches.

Kumar Rajgopalan, CEO, Retailers Association of India, said: “e-commerce players have always given price sops and brick and mortar players are aware of this. Online stores are like a mall on the net. Retailers themselves are looking at omni-retail channels. It is still too early to say if the discounting has had any impact on sales.”

Predatory pricing is defined as ‘sale of goods or provision of services, at a price that is below the cost. Gautam Shahi, senior associate at law firm J Sagar, said: “While analysing the online portals market in the case of Ashish Ahuja vs. Snapdeal and ScanDisk, it was the CCI’s opinion that Snapdeal is not engaged in purchase and sale of products, and operates only as a web portal for other dealers.”

Shahi said that based on this order of CCI, if dealers offer their goods at below cost price but the web portal itself is not doing so, then no case for predatory pricing can be made against them.