DNA Edit: Major Disruption - E-commerce makes fate of traditional retail uncertain

The anger of owners of traditional stores in Gujarat against e-retailers is understandable because the latter have been eating into their businesses.

Even during Diwali, the peak time of retail activities, physical stores had suffered so badly that the owners of these establishments ordered goods worth crores of rupees from e-commerce giants and upon their arrival refused to take delivery and sent them back instead.

The bitterness is not restricted to Gujarat. In July, thousands of traders and retailers had hit the streets across 500 cities in protest against US retail giant Walmart’s potential acquisition of online retailer Flipkart, which they feared would affect their business.

The government’s policy that allows 100 per cent FDI, under the automatic route in marketplace e-commerce model, has put a question mark on the existence of lakhs of mom-and-pop stores in the country. Armed with capital and technology, companies like Amazon and Walmart have fundamentally disrupted the retail sector.

E-commerce giants have captured the market by offering deep discounts to consumers and such predatory pricing has weaned away the loyal clientele from brick-and-mortar stores. Due to capital dumping, these companies could indulge in loss leadership in potentially huge and growing markets like India.

The huge inflow of millions of dollars have given these multinationals the financial muscle to sustain losses over a long period of time. The combined loss of the two Flipkart entities — Flipkart India and Flipkart Internet — was well over Rs 3,200 crore in FY2017-18. That didn’t deter Walmart to pick up about 77 per cent stakes in the company for about $16 billion. Amazon has also been aggressively investing in the Indian market, having pumped in close to $5 billion to the Indian operations.

As a result, one can see the steep decline in neighbourhood stores. Under the guise of technology, MNCs are disrupting a way of living and a way of earning. The death of these small family-owned establishments would also destroy the next generation. So while the consumer is happy because of the benefits, a giant retailer systematically destroys the local manufacturing and supply chain ecosystem.

Moreover, online retail is also altering the fundamental behaviour of consumers. Earlier, shopping involved the five senses when a buyer would walk into a store, physically inspect the merchandise that she wishes to buy, bargain with the shopkeeper and finally zero in on the purchase.

In online shopping, the entire exercise is impersonal, hardly involving human interactions. Big retail will have devastating consequences on a huge chunk of the working population. Nearly 96 per cent of Indian retail is unorganised, and e-commerce entities have capitalised on the fragmented nature of India’s physical retail institutions, by offering a wider portfolio of products, a simple purchasing experience and a significantly higher level of comfort and convenience.

The e-commerce juggernaut has virtually become unstoppable. There are an estimated 12 million small neighbourhood stores. And, they can’t be sacrificed to the predatory practices of e-commerce behemoths.