E-commerce: Death Knell for Small Town Dealers

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Abhishek
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Dealers in tier-3 cities are flabbergasted by rise in online sales. For many retailers, the sales situation is so bad that it is not a question of whether they will close down stores, but when and how many...

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Dealers in tier 3 cities are aimless due to rise in online sales. For many retailers, the sales situation is so bad that it is not a question of whether they will cut stores, but when and how many...

"Abhi tak hum log sunte thae ki farmers suicide kar rahe hain, ab IT resellers suicide commit karenge, "said one depressed IT trade partner during a conversation on the repercussions of growing online business of Flipkarts and Amazons in the world. He owns a physical shop reselling IT products and his business has declined drastically in the last two years. Reason; predatory online prices have eaten up brick-mortar box-pushing business.

Indeed, with the surge in the online business, the consumers are satisfied as never before as they avail products at cheap price. But the question which is worth asking; is this pricing/business model sustainable?

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According to the partners, the products available in the online platforms are below Market Operating Price. Naresh Batra, president of Uttarakhand IT Dealers Association said that the partners are suffering. He conceded to the fact that growing popularity of online retailing is there to stay but mentioned, "Online retail is not a threat just because it is a new way of selling and buying products. Our problem is that that they have unrealistic prices and there is no measure to control it."

The common understanding goes that either vendors or distributors are supporting them on low prices. However, the reactions are mixed on this front.

Sanjay Gupta, president, Amritsar Computers Traders Association (ACTA) and general secretary of Punjab Association of Computer Traders (PACT) said that last year PACT conducted an event to hold talks on this issue with the vendor companies but of no avail.

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He said, "Companies like HP has informed that WS retail is their partner which sells HP products on Flipkart through market place business model. It clearly means that whatever prices Flipkart is offering is genuine pricing. They must be getting heavy discounts on this and it is clear case of companies ignoring the traditional channel partners."

Gupta further added, "We have started `5 crore worth of showrooms and after investing so much and we are disappointed. Ultimately we establish the brands as it is us who sell it to the end consumers but it seems that they have ignored this channel for the sake of margins and volume."

The frustration is ripe among many other partners across India who see their business shrinking in the span of two years.

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NO CONCRETE METHOD
On 19 th February this year, Lenovo sent circular to partners stating that E-commerce websites like Snapdeal, Flipkart among other not authorized Lenovo resellers. It said, "We encourage you to check your warranty entitlements when you buy from these websites," in the advisory on its website.

Earlier, companies like Toshiba and Nikon have issued the similar advisory but this is not of any real significance, say some partners.

Soon after this announcement, different newspaper stated Flipkart's response, "We can assure our customers buying Lenovo products on Flipkart.com that they are genuine. Customers will continue to enjoy the warranty and services extended to all original Lenovo products as always."

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This has led partners to also shift to invest in different businesses. One of the partners in Jodhpur mentioned that he has investment in real estate to keep the fires burning.

DIFFERENT APPROACH
Daljeet Singh of Computer Systems in Jalandher says that the problem is with the economy as a whole. Singh mentions, "In the past 6-7 months economy has gone down. The cash flows have gone down and funds with the business houses have squeezed. As a result market procurement has gone down too."

He mentions that the partners are feeling the heat because of the poor economy where Flipkart has taken some share from the small pie available. He adds, "If the market conditions have been good things would have been different."

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He emphasizes on imparting service to the consumers and build a loyal consumer base. He adds, "Due to these prices, partners have started selling goods on a margin of `250, which is practically impossible to sustain in a long run for the company. One must devise a way to rebrand their services."

Puneet Dhir, immediate past president of Jalandhar Computer Traders Association has started his online portal onlineget.com which operates in the market place and has done a substantial chunk of business in this platform.

He says, "It is a serious business and we have been able to achieve growth. Demands mostly come from South India-Kerala, Karnataka, Tamil Nadu. I am also looking for partners to grow my model of business."

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WAY FORWARD
Recently, Confed-ITA, a consortium of IT associations across Tamil Nadu while earlier talking to The DQ Week mentioned, "Dealers and partners who have to pay VAT e-commerce sites are exempted from this. This is because simply there is no rule as such in the constitution which demands VAT from online portals."

Confed-ITA will urge the state government to impose VAT or entry level tax on IT goods sold by e-commerce sites. He says this will bring down 8-10% price difference which is currently eating away channel business.

Even AKITDA met its state finance minister to apprise him of the same problem that the state government is losing revenue due to online portals.
Is this the only way forward? Please share your views on different ways to sustain the ongoing challenge.