Govt clarification on flash sales compounds confusion among e-tailers


Bengaluru | New Delhi: The Centre’s
clarification on Monday, allowing e-commerce portals to conduct conventional sale events while disallowing “only specific flash sales or back-to-back sales”, compounded confusion among e-tailers, brands and sellers, according to multiple people who spoke to ET on the developments.

The government directive said flash sales will not be allowed as they “limit customer choice, increase prices and prevent a level playing field”.

Industry sources, who termed the government clarification as “vague”, said it will only further disrupt growth in consumer spending, as it deprives buyers of aggressive pricing options even as brands lose out on the chance to build hype around launches.

“This is arbitrary and makes no sense,” said a senior e-commerce industry executive. “If anything, flash sales drive up consumer demand and lead to at least some reduction in prices of launches. This is without any substance.”

News reports on Tuesday, citing government officials, said that the Department of Consumer Affairs will not seek disclosure of flash sales but will act if a consumer files a complaint about one.

The regulatory confusion comes even as online marketplaces
gear up for a strong season of consumer spending, following the waning of the second wave of the pandemic. “These are unnecessary disruptions, especially when ecommerce is driving the revival in consumer spending,” said a top industry executive.

Flipkart and Amazon India did not immediately respond to ET, while emails sent to Xiaomi, Vivo, Oppo, Realme and Samsung remained unanswered.

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Smartphone Sales

Typically, the biggest driver of online flash sales for e-tailers is the popular smartphone category. Consumer electronics, particularly smartphones, are among the highest-selling categories on e-commerce platforms. Data from Counterpoint Research showed the online channel accounted for 45% of all smartphone sales in 2020.

Brands such as Xiaomi and Oppo have reported sales of over Rs 500 crore for some of their most popular models within the first 10-15 days of launch, primarily through online retail.

For leading e-commerce firms, 40-50% of total sales is generated from smartphones. This is due to multiple factors. Smartphones have a higher average selling price (ASP) than other categories, so it helps e-tailers in boosting gross sales numbers. While smartphone penetration was already on the rise in India, the pandemic has only accelerated demand for both old and new devices. Flash sales are designed around new devices, but both Flipkart and Amazon India offer consumers the option to sell the old device during these sales, essentially bringing down the final price of the product.

Amazon India and Flipkart account for 85-90% of the online smartphone sales each quarter, according to estimates from market research firm Counterpoint Research.

Smartphone brands ET spoke to said flash sales are not conducted with any intention of limiting customer choice or increasing prices, as all models are launched with online-offline price parity.

“Whenever a product is launched, any brand readies certain inventory, which goes on sale at the same market price across all channels,” said a top executive at a leading smartphone brand. “If demand outpaces predictions and the inventory is sold out within hours or days, the next cycle of supplies comes in a week. That’s the whole concept of a flash sale.”

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Analysts pointed out that although smartphones are sold at maximum retail price, brands such as Xiaomi, Poco, Samsung and Realme supply the majority of their inventory to online partners and exclusive offline sellers for the first 15-20 days of product launch. This is a bid to divert more sales online and the pandemic has accelerated this shift further, they pointed out.

Read our explainer on the draft e-commerce rules here

Govt Proposals

Legal experts told ET that the changes proposed by the government are hard to justify as far as consumer choice is concerned. “We don’t know how these changes will help consumers,” said a partner at a leading law firm who works with a leading e-commerce platform.

“The practice may be termed anti-competitive if a brand is selling the same products at lower price online, but the matter surely falls outside the purview of the consumer affairs ministry,” said another senior lawyer.

The government has also taken another step to address issues related to country of origin for products sold online. The government note said e-tailers, while selling imported goods or services, should offer alternatives of goods made locally at pre-purchase stage to give a fair opportunity to domestic goods.

This comes after the government last year
gave a diktat to e-tailers to ensure all products listed on the platform show their country of origin. This was largely triggered by a border dispute between India and China. A lot of products online, including smartphones and appliances, are sourced from China.

Offline Retailers Push Back

While e-commerce firms and brands are not enthused by the proposals, offline traders and brick-and-mortar store owners have a different view.

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According to the All India Mobile Retailers Association (AIMRA), smartphone brands have created the flash sale phenomenon by working closely with e-tailers and are supplying most of the new devices to online platforms. This practice has left offline stores with significantly less stock, forcing many independent and modern store owners to consolidate operations or shut down.

“Consumer footfall has anyway dropped due to the pandemic and if all the launches are done online, then why would anyone come to offline stores?” AIMRA’s national president Arvinder Khurana said. We have been pushing for long against the brands to end this preferential treatment of flash sales and window period online, and to provide stocks to offline retailers as well at the same time.”

Industry sources cited above pointed out that even while the Centre’s amendments are directed at e-commerce platforms and their sellers, third-party brands can still push discounts, claiming it as their marketing spends. They (brands) can even distribute larger stocks preferentially to online portals to circumvent new rules, which do not deal with the larger issue of exclusivity, the people said.

“Moreover, would it be fair to curb promotions and offers on online portals when certain exclusive schemes are given to offline retailers as well?” said another brand executive.



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