Walmart, Wearables And The Murky Future For Marketplaces In India

While it might not look like much at first glance, an escalating legal spat between Walmart-owned, Indian eCommerce marketplace Flipkart and a small, relatively unknown New Delhi wearables maker might just be on the verge of bubbling over in a way that changes the whole direction of India’s hundred-billion-dollar eCommerce market.

Explained in its simplest terms, the wearables maker, GOQii, has alleged that Flipkart is allowing its flagship wearables product to be sold at discounts of as much as 70 percent, and that these predatory pricing techniques are going to drive them out of business.

“It’s a matter of survival. It’s not easy to take on a multibillion-dollar company,” said Vishal Gondal, GOQii’s CEO, noting that 500,000 device orders were cancelled after customers found cheaper prices on Flipkart.

In response, Flipkart’s attorneys noted that it isn’t selling GOQii goods at a discount at all — the merchants on its marketplace are, and it has no direct control over the pricing. They also noted that the company is in full compliance with India’s eCommerce pricing laws, and that it reserves “the right to institute actions for defamation, both civil and criminal.”

Tensions run high — and from a legal standpoint, the issue is on pause for the time being, as the courts have ordered Flipkart marketplace sellers (who are also party to the case) to remove all GOQii wearables from their online shops while the case is being litigated. Yet, how the case will be decided — given the emerging regulatory climate in India around eCommerce, and the foreign mega-player’s involvement in it — remains very much up in the air, as well as what it will mean for the future of the world’s most-competitive developing digital market.

The New Landscape

The legal struggle between GOQii and Flipkart emerges in an environment where foreign investors, such as Amazon and Walmart, are making massive moves within the Indian eCommerce market — and a segment of the political ruling class is watching its potential early dominance with no small measure of concern.

In February, new foreign investment rules went into effect that added some significant complications to both Flipkart and Amazon revenue streams — as they barred companies from selling products via firms in which they have an equity interest. Additionally, the new guidelines barred firms from creating exclusive selling arrangements with sellers, or from offering steep discounts to consumers based on special side negotiations. Finally, to directly invest, foreign firms are only allowed into eCommerce companies that provide marketplaces for buyers and sellers.

The news came as something of an unpleasant surprise for both Walmart and Amazon. It also came to the forefront care of Swadeshi Jagaran Manch (SJM), the economic wing of the Rashtriya Swayamsevak Sangh, which is itself the ideological parent group of recently re-elected Indian Prime Minister Narendra Modi’s ruling Bharatiya Janata Party.

“We are standing behind any small trader, businesses [that] suffer online,” said Ashwani Mahajan, SJM’s co-convenor.

Perhaps, unsurprisingly, SJM is backing GOQii in its dispute with Flipkart — with Mahajan further noting his intention to discuss GOQii’s legal case against Flipkart with government officials, as well as the general subject of online discounting.

What The Case Could Mean

The next round of legal arguments is scheduled to be heard on Friday (June 7). GOQii’s Gondal said he has evidence, via WhatsApp messages and emails from Flipkart employees, that demonstrates the firm was not the passive actor in pricing that it claims to have been, and that it was actively involved in discounting products on its website. That evidence has not yet been reviewed by media sources.

However, many eyes are on the case. If the ruling goes against Flipkart, the future of eCommerce in India might look quite different, according to some experts.

“It will set a precedent if the final decision goes against Flipkart for predatory pricing,” said Salman Waris, a partner at TechLegis Advocates & Solicitors. “Small traders’ associations and other startups may take other marketplaces adopting deep discounting strategy to court.”

The concern for some is that this first snowball of a case could set off an avalanche of small seller suits — the All India Online Vendors Association has already confirmed its plans to file a plea to join GOQii’s case against Flipkart on behalf of 3,500 online sellers it represents.

Flipkart — though it has affirmed repeatedly that it takes legal compliance seriously, and was compliant with Indian law in its practices — has made it clear that it is willing to settle this, possibly because the company is less than interested in a precedent-setting ruling in an environment where a segment of regulators is looking at it with great suspicion.

“We are engaged with the supplier to come to a swift resolution,” Flipkart said in a statement.

What that resolution is, who ultimately renders it and what it will mean for the future of marketplace commerce in India, however, remains to be seen.