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Good morning. India’s trade minister Piyush Goyal on Wednesday said Amazon investing money in the country wasn’t necessarily a good thing. Predatory pricing by the e-commerce giant and its likes could cause “social disruption”. Is this really a problem for Indian retail? Read on to know more. 

In other news, looks like Nykaa is set to have a cheerful festive season. Meanwhile, India’s dairy company Amul’s brand is quite a strong one.

THE TAKE

Frictionless Shopping: Who’s Really Paying The Price? 

A little over four years ago, just before the Covid-19 pandemic upended our lives, India’s trade minister Piyush Goyal went after Amazon saying they were not doing a great favour to India when they invested a billion dollars. His argument then was that Amazon was making losses, presumably by undercutting prices, so they had to fund that loss, which was the investment. Hence, it wasn’t an investment at all. 

On Wednesday, more than four years later, Goyal said the same thing. This time in the context of the claim that e-commerce could lead to social disruption. Goyal, however, said he did not want to wish away e-commerce but argued for its orderly growth. Goyal’s argument was against predatory pricing that online marketplaces such as Amazon provide. 

Predatory pricing, including by electric motorcycle makers, creates disruption in the market. Goyal’s remarks came close on the heels of a report by a reasonably government-friendly think tank which seemed to argue the opposite. The report is by Pahle India Foundation, run by Dr Rajiv Kumar which he set up in 2013. Kumar then joined NITI Aayog, the planning body as VC and then returned to the think tank.

The report says that online vendors have generated 15.8 million jobs in India, including 3.5 million for women, with about 1.76 million retail enterprises participating in e-commerce activity. Titled 'Assessing the Net Impact of e-Commerce on Employment and Consumer Welfare in India' was launched by Goyal. E-commerce, according to the report, has been a key driver of employment in India. On average, online vendors employ 54% more people and almost twice the number of female employees, compared to offline vendors.

The report noted that two of the most widely-recognised contributions of e-commerce penetration in the retail sector are — growth in employment and improvements in consumer welfare. Importantly, the report claimed that rather than displacing physical markets, e-commerce is expanding into new territories like tier 3 cities.

The report also said more than two-thirds of the online vendors interviewed experienced an increase in online sales value and profits in the past year and that 58% saw an increase in both. Some data points suggest people spend a lot of time on e-commerce platforms even if they may not buy anything.

It's not clear whether the minister is attacking only foreign e-commerce platforms like Amazon or Flipkart or domestic ones. Predatory pricing is not the preserve of overseas e-commerce companies alone. Indian companies, with overseas venture funding mostly, have been doing precisely the same thing.

While Flipkart and Amazon set price trends, the customers and sellers of products have also been beneficiaries of this practice. What consumers really love about e-commerce is the lack of friction which is more apparent in the Indian context, apart from the other benefits of the ability to scour millions of products and benefit from wide choice.

Reduction of friction in financial services and transactions has created its own set of problems with more people snapping up loans, maybe to buy products or maintain their lifestyles. E-commerce is, at its very basic proposition, a logistics enabler and a reducer of friction.

The question is do we want to reduce friction or manage it? Except for in some cases, is offline retail really suffering because of e-commerce? Even if it is, the corresponding jobs and opportunities created by the ability to make products that can be directly exported have also increased for Indian entrepreneurs. In the case of the beauty segment in India, where there was latent demand, that e-commerce has better navigated. Whether all this has been profitable is a different question. 

If there is a tilt in either direction, we must have good data to make a case. Goyal pointed out that countries like Switzerland have controlled the growth of e-commerce. This is not a fair comparison to a large and logistically complex country like India. Either way, it comes back to data on who benefits or not.

If Amazon is bringing in investments to fund its losses, that is a loss for Amazon and a gain for the consumer, as it has been with all the funds that have come into and evaporated in the e-commerce sector. If the cost of reducing friction is too high, then eventually enterprises will be forced to raise prices and reduce their offerings. If consumers genuinely and still want to pay more, they will.

Cheap funding will not last forever, whether from venture capital or small investors, given the number of new IPOs in this space. Eventually, economics must decide the fate of this space.

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CO:RELATION

Nykaa’s Leap, Even Before Festive Season

The shares of FSN E-commerce, the parent company of beauty and fashion e-commerce brand Nykaa, soared over 10% on Wednesday. This was despite a flat-to-negative market trend. Over the past month, they have risen 21% and are in line with peers in digital e-commerce like Zomato or One97 Communication (Paytm). The only explanation for that is profitability. The company had a strong quarter with net profits tripling compared to the same quarter last year. 

There are believers in Nykaa's prospects. The company's management told analysts they were pinning hope on a recovery in discretionary consumer spending in the second half of this year. Prospects for margins were better if product discounting moderated from the current levels. Investors seem to have noted that growth was mentioned 76 times and margin (profit) was mentioned 68 times during the conversation. The prolonged conversation over profit margins and growth seems to have cleared a lot of air on the path ahead. The upcoming festive season could be more than just festivities for team Nykaa.

CORE NUMBER

547.3 million

This is the number of people in India that use OTT platforms, according to a report by media consulting firm Ormax. However, out of this, the number of active paid subscriptions remained 99.6 million, very close to the number of subscribers last year. The report stated that OTT penetration in the country was 38.4%, and 97% of those surveyed used smartphones to watch online video content.

FROM THE PERIPHERY

—💪 Amul has been ranked as the world’s strongest food brand, with an AAA+ rating, according to Brand Finance’s Global Food & Drinks Report 2024. Amul scored a 91 on 100  Brand Strength Index score, which is based on familiarity, consideration, and recommendation metrics. Amul shared this rating with Hershey’s which was ranked second. The brand value for Amul is pegged at $3.3 billion which is 11% higher than the previous year. The brand commands 75% of the milk market, 85% of the butter market, and 66% of the cheese market.

—📉 A Bank of Baroda report reveals that corporate sector employment growth slowed to 1.5% in FY24, down from 5.7% in FY23, with just 90,840 new jobs added compared to 333,000 the previous year. This drop is attributed to FY23 being the first post-pandemic year with significant staff turnover. Based on data from 1,196 companies with a total net sales of Rs 99.3 trillion, the report highlighted that retailing (19.4%) and trading (16.2%) led to job creation. In contrast, hospitality (-11.9%), logistics (-11.8%), business services (-6.3%), and textiles (-5%) saw declines in employment.

—🏠 Nearly 2,000 housing projects across 42 Indian cities are stalled, affecting 5.08 lakh units, according to PropEquity, a real estate data and analytics company. The ongoing stalling of 1,998 projects underscores the real estate sector's struggles with timely execution and delivery, causing widespread disruptions for buyers and developers alike. Most stalled projects are in high-demand metro areas like Delhi-NCR, Mumbai and Bengaluru. Issues like financial constraints faced by developers, regulatory hurdles, land acquisition challenges and delays in approvals, are contributing to the widespread delays. These challenges underscore the pressing need for reforms in the sector to ensure the timely completion of housing projects.

—🚴 Decathlon is betting big on the Indian market with a planned investment of ₹933 crore over the next five years, Press Trust of India reported. The money will be spent on ramping up retail operations and setting up manufacturing capacities. Currently, the French sports retailer has 90 stores, which aims to take up to 190. Local manufacturing is also expected to reach 85% by 2026, up from the current 68% of products sold in the country. B2B channels and digital presence are also areas of focus, the company said. 

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