• Bricks-and-mortar mortar retailers set to regain pricing power: CRISIL Ratings

    The recent guidelines issued by the Department of Industrial Policy & Promotion (DIPP) on foreign direct investment in online marketplaces will improve profitability and cash flows of bricks-and-mortar retailers, CRISIL Ratings has said.

    According to the agency, the revised guidelines will cushion the impact of marginally higher capex intensity and support physical retailers’ credit profiles.
    Also read: Guidelines on e-commerce markets may save small and medium sellers from being arm twisted

    “Revenue growth for bricks-and-mortar retailers, especially in the apparel and consumer durables segment, should improve as pricing gradually gravitates towards parity with online marketplaces. This, coupled with expectedly greater pricing power and store productivity, will provide a fillip to profitability,” said Anuj Sethi, director at CRISIL Ratings.

    DIPP has permitted 100% FDI for online marketplaces under the automatic route while defining the marketplace model of e-commerce. It has stipulated some restrictions, however, including that the marketplace will not source more than 25% of its goods from a single vendor or group companies. Secondly, e-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain a level playing field.

    The agency said that it expects the pace of store additions by offline retailers to be faster than the 10% estimated by the industry earlier. It did not specify the expected pace of growth, though.

    The new sourcing norms will impact e-marketplaces heavily dependent on group companies and restrict deep discounting that had become synonymous with the sector, the agency said in a statement.

    “The e-marketplace sector will undergo gradual transformation in the near term to a more sustainable business model and will focus more on optimising processes like supply chain, warehousing and overall fulfilment from a deep discounting for customer acquisition strategy,” said Amit Bhave, another director at CRISIL Ratings. 

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