Amazon kept up a cat-and-mouse game with the Indian regulators for years, secret documents uncovered by news agency Reuters have shown. The retail giant allegedly pulled a veil over, inter alia, its preferential treatment towards a cabal of few dozen sellers, undermining the interest of lakhs of other sellers associated with it. This was achieved while dodging several e-commerce regulations rolled out in the country, the documents suggest.
Certain 'secret/not for disclosure' details reflect that 33 Amazon sellers, out of its over four lakh sellers, accounted for one-third of the value of all goods sold on the company's website. Other company documents show that two other sellers - merchants in which Amazon had indirect equity stake - held around 35 per cent of the platform's sales revenue in early 2019.
Simply put, 35 sellers, out of more than four lakh merchants affiliated with Amazon India's website, in early 2019 accounted for around two-thirds of sales happening on the platform.
This goes against Amazon's public message that it works to uplift small businesses in India. This also corroborates allegations by small retailers that Amazon favours certain major sellers and violates federal regulations.
The two retailers, in which Amazon had indirect equity stake, are Cloudtail and Appario. These sellers, referred to as Special Merchants in Amazon documents, were formed to circumvent e-commerce regulations in India, as per the report.
Amazon reportedly entered a joint venture with Infosys co-founder NR Narayana Murthy, which was used to create Cloudtail in 2014. While Amazon maintained that it did extend the same privileges to Cloudtail as any other seller, company documents show that it was deeply engaged in its expansion.
"The Special Merchant (SM) was launched in Aug-14 and we helped SM quickly ramp up and gain scale through Q4," stated an Amazon India report, dated February 23, 2015, quoted by Reuters. "Launch, stabilise, grow Special Merchant; make it profitable."
Amazon had plans to ensure Cloudtail accounted for 40 per cent of Amazon.in sales. To this end, the report reveals, Amazon helped Cloudtail "acquire key relationships' with major tech companies, including Apple, Microsoft and OnePlus.
While India's e-commerce rules prohibited retail platforms from holding inventories, internal company documents show that Amazon was effectively treating Cloudtail's inventory as its own around 2016. To comply with a 25 per cent cap on sales by a single seller, Amazon moved the procurement of some mobile phone brands Cloudtail was offering to Amazon Wholesale, a wholesale business-to-business operation in India which did not fall under the foreign investment restrictions. Amazon Wholesale then supplied these products to "certain" sellers, who in turn sold them on Amazon.in, according to a 2016 internal global regulatory update.
In 2017, Amazon came up with another special merchant - Appario - created under a joint venture with an entity backed by the family of Ashok Patni, a pioneer in the Indian IT outsourcing sector.
In December 2018, Modi government restricted vendors in which marketplaces, such as Amazon, have an equity interest from selling products on these marketplaces to check deep discounting practices. The new limits forced Amazon to restructure its relationships with Cloudtail and Appario, the two special merchants in which it held indirect stakes. The two then accounted for around 35 per cent of Amazon's online sales, the Reuters report said.
On February 1, 2019, thousands of products offered by Cloudtail and Appario were removed from Amazon's website in accordance with new rules. They were reinstated days later were back as Amazon reduced its equity stake in the parent companies of the two sellers. This maneuver, the company believed, made it compliant with the new rules, Reuters reported.
Amazon refuted this report, maintaining that it has always complied with the Indian regulations.
"Amazon remains compliant with all Indian laws. In the last several years, there have been number of changes in regulations governing the marketplaces and Amazon has, on each occasion taken rapid action to ensure compliance. The story therefore seems to have outdated information and does not show any non-compliance," an Amazon spokesperson stated.
In the meantime, we continue to focus on delivering first class service to India's consumers, and helping India's manufacturers and SMBs reach customers across India and around the world, the spokesperson further added.
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