→ Beginning & End of Partnership with CloudTail
CloudTail was established as a subsidiary of Prione Business Services, a joint venture between Amazon India and Catamaran Ventures, the investment vehicle of billionaire NR Narayana Murthy. It started helping sellers sell apparel, books, cosmetics, etc. and in 7 years became Amazon’s largest vendor hosting 300,000 sellers under it.
In 2020, CCI cracked down on Amazon, based on a complaint registered by Delhi Vyapar Mahasangh, due to violations of FDI regulations which prohibit overseas companies from having their inventory in multi-brand retail. Earlier, due to a change in regulations, Amazon had reduced its stake in CloudTail from 49% to 24% to forego its position as an “owner” in CouldTail. However, reporters from Reuters conducted an independent Investigation to establish that Amazon engaged in deep discounting and gave preferential treatment to a small set of sellers, including CloudTail. This got Amazon in trouble with the CCI, and CloudTail was reportedly delisted from the platform on March 2022. To save CloudTail, Amazon went ahead and ultimately bought out its operations.
Amazon’s Appario Retail was an attempt to operate an inventory-led business model in India in a way that was not only legal but also indirect. Appario took over as the top seller on Amazon after CloudTail was removed from the marketplace. The Patni Group and Amazon have established a partnership called Frontizo Business Services, which houses the company. However, it was subject to persistent accusations of favouritismon the part of brick-and-mortar stores’ retailers, who claimed that the company provided preferential treatment to the shops. Because of this, Amazon was compelled to withdraw Appario as a merchant on the site, despite having just renewed their joint venture for another three years.
→ What does this mean for all the Stakeholders?
Amazon has committed $6.5 billion to the Indian market, a crucial growth region for the company, but it confronts various regulatory difficulties, including tighter investment regulations and legislation. While the company has repeatedly maintained that it is a friend of small sellers all over India, the events which have transpired contradict it. In 2019, it released a campaign #WeThankYouIndia to paint itself as a messiah for small sellers. While these “social” campaigns have a sweet front, ultimately,Amazon measures its business using profitability metrics. Their profit margins are lower when they source products from small sellers compared to Amazon-branded products, which can be sourced cheaply due to mass production. These are private labels housed under various brand names such as AmazonBasics, Solimo, Symbol, etc. Even though about 3-4% of sales come from these labels, it inadvertently hurts other independent sellers. For example, if Seller A has a margin of 30%, Amazon will have a margin of 70% on the identical product, enablingthem to reduce the price further.
Smaller sellers may have been relieved when they heard that CloudTail and Appario were being delisted. Still, Amazon’s ability to push its labels through price wars and enhanced visibility offers another way to grow revenues while hurting merchants.
Amazon also provides robust competition to independent e-shopping platforms like Bewakoof, HeadphoneZone, etc. This forces small online retailers to shut down within 2-3 years of
operations. The closure of Yebhi, BlueGape, and KoolKart can all be attributed to this. With CloudTail and Appario went, these independent brands can now consider entering Amazon’s Business as a seller for increased visibility and excellentconversion rates. While hyper-dependence on Amazon for Brand Promotion is not desirable, one can use it as a great starting point.
Since its Inception, e-commerce giants like Amazon have enabled the fragmented seller network to reach customers pan-India. It has also allowed customers access to a wide variety of choices and spaced for fair pricing and superior quality. With the delisting of two sellers, which reportedly accounted for 35% of Amazon’s sales and held a near-monopoly in the ‘choice’ of products, customers will now have access to even greater variety as the visibility of more sellers increases. They might also get increased access to Amazon’s private labels, provided they’re not outlawed.
Additionally, after the CloudTail fiasco, the company accused CCI of illegally detaining its employees during the raid. CloudTail broke into smaller independent sellers, and all the employees were absorbed into these sub-divisions. Some former employees are Chief Executives or in other top-management roles in new seller entities. Clicktech Retail, RetailEZ, and Cocoblu Retail are among the new sellers who have taken over businesses from Cloudtail.
Since the JV between Appario and Amazon has been renewed, its employees might not need to shift elsewhere. Alternatively, the recent closure of Amazon India’s Food Service, Wholesale Distribution and Amazon Academy has brought about a cloud of doom for the employees of these business units. But that is not a consequence of the delisting.
In conclusion, Appario’s and CloudTail’s delisting opens uptremendous opportunities for sellers, customers and former employees. Nonetheless, several hindrances are created for smaller sellers as uncertainty in this period is high. Amazon looks to reduce its shipping costs, cost of goods sold and,increase profit margins, making consolidation of vendor-business or promotion of private labels the perfect vehicles for success. But both these options will hurt sellers and customers with minimal impact on employees.
References:
1. https://the-ken.com/story/amazon-exclusivity-wishlist/?searchTerm=Appario
2. https://the-ken.com/story/amazon-private-labels/?searchTerm=Appario
6. https://www.reuters.com/technology/amazon-says-indias-appario-stop-selling-platform-2022-10-31/
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