With the fight between e-tailers and retailers intensifying over the steep discounts being offered by the former, making the latter's business unviable, manufacturers have started looking at options which would place some kind of floor and ceiling band within which discounts can be offered by the online sellers.
At least two companies FE spoke to, Bata and Benetton, hinted at putting up some such mechanisms in place so that their dealers don't lose money. The other option of stopping supplies to the e-tailers has been ruled out as it is seen as too harsh.
“The discounting policy of e-tailers harms the brand as consumers lose trust. We can't stop supplying to the online players but will work out something so that there's some kind of parity between the prices and discounts they offer and the retailers do if this trend continues. We have strict discounting policies and advisories for both online and offline channels which are engrained in the agreements we sign with our dealers and distributors,” Sanjeev Mohanty, MD, Benetton India, said.
The impact of online retail is most evident in segments where the product specifications are standard and differentiation is low, such as books, music and electronics. Over the past 4-5 years, competition from online retailers such as Flipkart (in books, music and electronics), Myntra and Jabong (in apparel) has eaten into the revenues of brick and mortar retailers. The complaint from the retailers is that since online sellers offer huge discount, consumers often use their showrooms as trial rooms.
“There is no differentiation when it comes to online and offline channels of selling and such a situation has not happened that we stop supplying to the online partners,” added Sumit Kumar, vice-president and head of marketing and customer service, Bata India.
Another reason for the manufacturers to work out a compromise between the two sides is that increasingly shopping malls have also started insisting that their agreements for rental leases for showrooms of major brands should have a clause relating to discounting policy available to the e-tailers and retailers.
“We have not penned anything as of now in the leases but we want the online clause to be a part of the new leases. We have to be aware as to which brands do more online selling and can be harmful for store sales,” said Abhishek Bansal, executive director, Pacific Mall.
Same is the case with the upcoming DLF Mall of India, which is keenly observing the fast growing e-commerce space and has already factored in the trend.
“We will be more careful when it comes to online shopping. Our current agreement with international brands already reflects this clearly wherein certain references are made on how brands treat their online strategy,” added Pushpa Bector, senior vice president and head (leasing and mall management), DLF Mall of India.
Some like Canon India have not authorised any online agency to retail its cameras but says it can't do much if e-tailers buy its products from its authorised dealers and then sells it cheaper to consumers.
“Our dealers may shift to stocking other products if their profits plummet like this due to predatory pricing by companies like Flipkart and Snapdeal. The dealers need their 10-15% margins. We can't do anything more than demarcating the authorised dealers from the others because the e-tailers can buy our products from any dealer or distributor and sell them cheap,” added Alok Bharadwaj, executive vice-president at Canon India.