Smaller players to reap benefits from new e-commerce policy

Introduction of the new policy on e-commerce is a big step for this rapidly growing industry. The new policy is not only going to impact the e-commerce platforms but will also impact each and every stakeholder of the ecosystem.

Impact to be on fin-tech and logistics companies

As per the new policy, e-commerce platforms can’t sell any product on their marketplace directly or indirectly through their subsidiary. Now, e-commerce platforms can’t give preferential treatment or preferential services. Even the subsidiaries of the e-commerce platforms will have to render services to sellers or vendors at arm’s length price in a non-discriminatory manner. It ultimately means that this policy will impact fin-tech companies, logistics companies and other vendors as well.

One of the biggest beneficiaries of e-commerce emergence is the logistics sector. Today e-commerce logistics market is estimated at $1.35 billion. Any negative trend in e-commerce sales will also result negatively on e-commerce logistics. Today three fourth of e-commerce sales are controlled by Amazon and Flipkart. As per a draft analysis from global consultants PwC, e-commerce giants such as Amazon and Flipkart could reduce online sales by $46 billion by 2022. This will have a direct impact on volumes of e-commerce logistics players.

Reduction in discounts will control volume surge

Another impact can be on a volume surge pattern. So far, each e-commerce logistics firms’ biggest challenge was to manage surge during festive sales, which by and large was happening due to heavy discounts and offers. Since the new policy stops from differential pricing on market places, the discounts during the sale periods will reduce. Reduction of discount will also reduce such surge in volumes.

Both Amazon and Flipkart have their own captive arm for logistics, which are handling almost 50% of last mile delivery volume of these players. Now these e-commerce marketplaces can’t give favorable terms for warehousing or logistics, which so far these companies were offering. Now we expect that this will reduce use of captive arm on differentiated terms and opportunity to pure logistics players will increase with level playing.

Impact on warehousing & fulfilment pattern

Another major impact which we foresee will be on warehousing/fulfillment pattern. So far, the large players were having their own or outsourced large fulfilment centres, from where turnaround time was very fast. Due to this factor, many small vendors were not able to compete with such large sellers.

The new policy is going to incentivize small players and their volume in marketplaces is expected to grow. Under such a scenario, such small vendors will also move towards availing fulfilment centre facilities. In such a scenario, the fulfilment centres will be smaller in size and closer to sellers, which means there will be mini-fulfilment centres in tier 2 towns.

A positive step for the long run

In short term, there may be some negative impact on growth rates of e-commerce business. However, in long run, this is going to be positive for all stakeholders. This policy is the first step towards regulating the industry for which there was no clear policy so far.

This article is authored by Vikash Khatri, Founder, Aviral Consulting Pvt. Ltd.

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