The new Indian e-commerce rules will increase costs for online retailers such as Amazon, Walmart and Flipkart as they review their business structure, a senior industry source told Reuters. The new rules are expected to affect the entire Indian e-retail market, which by 2026 will be worth more than $200 billion, with players such as Tata Bigbasket, Reliance Industries, JioMart, SoftBank-backed Snapdeal, Amazon, Walmart and Flipkart. Reliance Retail is expected to challenge the dominance of Amazon and Snapdeal, raising taxes on the survival of smaller players.
Things were thrown into turmoil in April when retail associations including small businesses and giants such as Future Group and Reliance sent a letter to Commerce and Industry Minister Suresh Prabhu claiming that many of India's e-commerce players violated India's Foreign Investment Rules by influencing the prices on their platforms, contrary to the permitted marketplace model. Indian retailers have also pushed for action on Flipkart and Amazon, believing that the offline world is no longer competitive. Forcing that will jeopardize Amazon and Flipkart plans to tap the growing e-commerce market, as it requires them to reconsider their existing business structures and increase compliance costs, said industry sources.
Indian retailers claim that Amazon and Flipkart use their wholesale units to list products on their websites and select sellers, circumventing the Foreign Investment restrictions that prohibit direct sales. In this context, venture capital is being funneled from the bottomless pit into subsidised long-term sales of goods in order to secure market share for Flipkarts and Amazons, critics say.
Amazon has pledged to invest $5.5 billion in India, while Walmart spent $1.6 billion on its acquisition of Flipkart last year as more Indians shop online. In June 2016, they agreed to invest an additional $3 billion to put further pressure on rivals Flipkarts and Snapdeal,  and entered the food segment with their Kirana in Bangalore, with plans to enter several other cities such as Delhi, Mumbai and Chennai, but face stiff competition from Indian startups.
India is expected to become the fastest growing e-commerce market in the world, and Amazon has announced it will invest $3 billion in its India business to focus on its grocery business. India got its own version of Cyber Monday, also known as the Great Online Shopping Festival, which began in December 2012, and Google India has teamed up with e-commerce companies such as Flipkart, Homeshop18, Snapdeal, Indiatime Shopping and MakeMyTrip. Starting in 2017, Flipkarts, Snapdeals and Amazon will be the largest e-commerce companies in India.
India has a young population and an increasing use of smartphones and the Internet, which has caused the emergence of small e-tailers and businesses like Clue, Koovs, Voonik and Craftsvilla in the market, but the big players like Flipkart, Snapdeal, Myntra and Jabong have forged their identities. Flipkart's own Myntras and Jabongs integrated their activities in 2018, outperforming the others with a whopping 70% market share in online fashion retailing. Even Walmart, which owns FlipKart in India, restricts itself to e-commerce brands like Snapdeal and Yebhi Fashion, if you will.
Major players such as Flipkart and Snapdeal had to overhaul their strategies after Amazon became a threat to them. Amazon's foray into the Indian market changed the dynamic so much that arch-rivals Flipkart and Snapdeals considered takeover deals a few years later, particularly in 2017. This manifested itself in the fact that the two e-commerce giants had no chance against Amazon alone. Amazon has faced stiff local competition from unicorns like Snapdeal, which has been backed by investors like Tencent and Alibaba.
Amazon has positioned itself as a necessary intermediary for companies that want to succeed in e-commerce with pioneering areas such as machine learning, unemployed retail technology, drone delivery and voice computing gaining traction. This benefits companies willing to pay their taxes and enable them to stay competitive. Consumers are diversifying their purchasing options through major e-commerce channels and not through Amazon, Flipkart or certain retail brand websites. One of them is Mukesh Ambani, chairman of Reliance Industries and publisher of Forbes India. He recently launched JioMart, an e-commerce platform that has the potential to become India's fastest-growing e-commerce platform, challenging Amazon India and Flipkarts. Goldman Sachs estimates that JioBrands' Online Gross Domestic Product Value (GMV) will reach $35 billion by 2025, compared with only 1% today.
Investors are advising young entrepreneurs to avoid burning cash in e-retail and to not compete with big e-commerce companies in saturated areas such as fashion. Fashion e-commerce Yebhi changed its business model earlier this year. Online merchandise portal Bluegape closed, shopping platform Koolkart closed, and the founder of the troubled fashion portal Donebynone quit. He plans to revive the business with Monthecommerce, a company that closed the store after 2-3 years of operation after realizing that it could not match the expectations of Indian users with the prices and services of billion-dollar players. A study analysed the losses of e-commerce companies in India and global e-commerce players.
Hopes of attracting Amazon and Flipkart to the next wave of new buyers in small cities across India are underpinned by the rise of the Internet, affordable data rates, and better access to smartphones in these areas. Amazon's investments in Indian companies such as Housejoy, the e-commerce platform Shoppers Stop, the insurance company Bankbazaar, and so on have encouraged its involvement in India's technological ecosystem. The urgency to tap India's small towns is so great that Amazon and Flipkart are spending a lot of money to ensure that they are well tailored to the needs of potential buyers in the region.