Chander Prakash of Universal Booksellers Lucknow, an active member and senior spokesperson of the booksellers association says that the book trade is passing through trying times. “It is common knowledge that deep discounts of over 40% have hurt the book trade badly with traditional booksellers shutting their shops across the country. Efforts have been made by our association to engage with the prime minister of India, the finance minister, the commerce minister, the competition commission of India (CCI), and we do hope they would understand the necessity of the survival of the book trade in India.”
The small booksellers are not the only ones who are agitated. Indian Printer and Publisher spoke to Kinjal Shah COO of Crossword which owns over 80 stores across India. Shah confirmed that discount wars were killing off sales on most of the front list books that it pushes to shelf tops to attract new customers. Festival season sales on books are down and unlikely to recover as long as online stores offer such deep discounts.
Mala fide subversion of FDI rules
Chander Prakash says-that in practice theAmazon or Flipkart marketplace model is a mala fide subversion of the FDI rules, which do not permit online retail to do multi-brand retailing.The essence and the intent ofthe law to debar online playersfrom multi-brand retailing is lost once there is a mix of third party retailers within the online sales and logistics platforms of the eRetailers. Amazon and Flipkart are now both FDIs that provide sophisticated web portal and logistics platforms free or at a nominal fee.The third party traders achieve the desired market penetration in the multi-brand retail segment, where the online sellers are barred by law from entering directly.
Flipkart restructured its company infrastructure to evade provisions of the FDI in February 2013.To ensure adequate fund flows to sustain its diversified and rapidly growing operations, it moved its backend technology company out of the country to Singapore.This highly profitable part was also the capital intensive part owning core software like Oracle Financials and other drivers.After the third round of a US$ 150 million fund infusion from Naspers SouthAfrica, it was nearing the 50% limit beyond which it would be declared an FDI
An innovative rejig
The distribution frontend of the business called Flipkart Logisticsthat employs around 4,000 employees was sold off to Rajiv Kuchhal of WS Retail Services who earned hisspurs atInfosys BPO and OnMobile. Started in December 2010, Flipkart Logistics was devised to hold and deliver stocks, namely offer warehousing, logistics and delivery-end COD operations. Whereas it would have accessto customer receiptsthat form the bulk of revenue generated by the online portal, it would be also carrying the risk of ‘high return of goods’ and host a business model that is considered by some analysts as ‘too customer friendly to make any businesssense.’ This model of cashagainst-delivery paymentsissaid to be successful in China but not in other nations. Moreover, it is reported that Amazon is also planning third party retailserviceslike Flipkart.
Flipkart’s promoters, theBansals received their fourth round offunding of US$ 360 million in two tranches recently.The money was put up by the firm’s existing investors,Tiger Global Management Llc, as well as new investors Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital Management.
Venture capitalists destroying competition
The booksellers association feelsthat the reports of closure of bookshops acrossthe country portrays a grim picture of timesto come. “The aggressive circumvention of FDI norms by mercenary behind the scene players and global venture capitalists will destroy the indigenousIndian book trade,” says Chander Prakash. The goal of the venture capitalistsisto create single mega brands, come what may, and sell out to the highest bidder once the operationstake seed. Uday Gupta, manager of BookMark — a reputed store in South Extension Delhi,says Flipkart followed the deep discount policy two years ago when it first started operations.It gets into a discount war every time a new competitor enters and since this time it happens to be Amazon, the war may be long drawn.
Books have become customer acquisition tools because they are a standard low cost product. New buyers are likely to buy books more easily than any expensive electronic gadget or even garments. Once they buy thislow cost product, they become a first-timeregistered online customer on the database of the online portal. One out of five becomes a regular visitor, and graduatesto more expensive and sophisticated productsthan the entry level purchase which is generally books. The bookstores have meanwhile lost the customer because the online store hassold the book at a lossto acquire a new customer
