2014 was a watershed year
for Indian e-commerce since valuations soared & off line players were
forced to initiate Omni-channel strategies as a counter foil. The year however
shall also be remembered for the roadblocks that threatened to impede if not
stop the juggernaut. The angsts of the stakeholders,
E-com Marketplace Angst: Logistic Nightmares:
As per TOI, e-com logistics
accounts for 10% of the Indian logistics market of Rs 12000 crores. 80% of the
shipments travel by air with a per shipment cost of Rs 90/-. Clearly airlines -
with their own profitability concerns - would give preference to passengers,
not shipments, during the holiday season. The cancellation of about 100 Spicejet
flights, at the end of 2014, delayed shipments to Chennai, Hyderabad, Nagpur
& North East leaving the sellers red faced with a potential loss of reputation.
Players in this emerging space have their futures hinged on “trust” & must
tread cautiously on “customer experience” of which timely delivery forms an
important part.
Logistic troubles are not a
consequence of lack of investment Infact PE (Private Equity) players see in
this sector the potential for grabbing “multibagger” returns. As a consequence,
logistic players like ECOM Express raised Rs. 100 crore from PE firm Peepul
Capital while Delhivery raised $33 million led by Multiples Alternate Asset
Management. If investments are not delivering on scale-up schedules, there is a
urgent need for creative innovation.
One imaginative innovation would be for larger e-Com players
to get together to buy dedicated aircraft for e-commerce shipments; else should
increase sellers within a city. Fashion portal Fashionara has already opened
hubs in six cities to deal with logistical bottlenecks & expect more to
follow suit.
States
Angst: Taxes
E-com players were bogged
down by litigation last year. The Karnataka commercial tax department. slapped
notices on merchants selling through Amazon & demanded online players to
pay VAT on goods stored in their warehouses even before customers have ordered
for these products. The notices say
these merchants cannot register Amazon’s warehouse as their ‘additional place
of business’. Maharashtra too, followed suit, with a demand against
tele-shopping and e-commerce platform Naaptol.com.
The
e-com players contend that they offer a marketplace model where they bring sellers
& buyers together & “facilitate” a transaction for which they receive a
commission that attracts service Tax – which they have been paying. Since they
do not “own” the goods but are only providing the services of storage, delivery
and collection of money for the seller, they profess that neither VAT nor
sales tax should apply.
Taxmen
on the other hand argue that stocking by on line players is a scientific &
not a random act & hence there are elements of value addition that should attract
VAT. In addition, they emphasize, that since amazon stocks goods like a shopkeeper
with a buyback clause – stock are returned if products are unsold - the
ownership of the goods is “practically transferred” to the e-com company till
they sell it. Amazon in a bid to break the logjam, has suggested that a rule
making it mandatory for online firms to furnish details of transactions,
seller’s identity and VAT collected to tax authorities shall help check on compliance.
While
political intervention has initiated a “glow slow” a more permanent solution is
needed for the ghosts of “archaic laws & retrospective taxation” continue
to haunt industry.
The Odisha govt. has raised a different but a pertinent issue. Central Sales Tax (CST) is levied
at e-com warehouses located in places like Noida, Mumbai, Chennai and Gurgaon,
depleting the tax revenues of consuming states as well as denting the retail trade in that geography. The state has,
therefore, called for modifying CST rules. However, implementation of the goods
and services tax (GST) shall resolve the problem as it will be levied at the
stage of consumption.
Consumer Angst: Issue
of Warranty.
Consumers are lured by e-tailers through low prices
& the convenience of doorstep delivery. However the issue of warranty is
often overlooked with deleterious consequences. Physical retailers often accuse
e-tailers of selling much below the “market operating prices” in a bid to boost
traffic to increase sales & valuations. In a knee jerk reaction, manufacturers
have responded through differential warranty to assuage physical retail which
is inherently flawed since warranty has to be channel agnostic in a “consumer
is king” world. Surprisingly, however, Lenovo, Toshiba, Sony, Nikon and Canon have either blacklisted
e-retailers or cut warranties on products being sold on these sites.
Many International brands have declared that some of
their products, if purchased online, are not eligible for a warranty. Online
sellers have stepped in to offer a “seller’s warranty” against the original
manufacturer’s warranty which needless to say is inadequate. For instance, Tissot,
S.A, issues a two-year international warranty while e-commerce websites post it
as one-year Tissot India warranty. The consumer, obviously, feels short-charged.
Warranty for “low value” goods might not be as critical
to a buyer as much as an allowance for returning goods, if damaged; however,
for Hi-Value goods, warranty is critical. Since marketplaces play the role of
intermediation, the law does not make declaration of warranty online mandatory,
much to the chagrin of the consumers. The govt. needs to step in to remedy the
lacunae through legislation.
Conclusion
Clearly while the sector is zooming, each of the
stakeholders has their own set of angsts that could derail the sector if not
addressed with agility. The govt. should
initiate a debate, release a discussion paper immediately & close loop on
legislation rather than being scuppered by a stalled parliament or tying itself
in knots on ordinances.
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