Flipkart’s lawsuit could impact all marketplaces in India (WMT)

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Walmart-owned Flipkart is being sued by health and fitness technology company GOQii over how its products were discounted on Flipkart’s marketplace, Reuters reports. GOQii alleges that two of its products were being sold on Flipkart for 999 rupees ($14) and 699 rupees ($10), when the two companies had previously agreed they would be sold for no less than 1,999 rupees ($29) and 1,499 rupees ($22), respectively.

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Flipkart claims to have been just a business-to-business (B2B) wholesaler in this transaction, holding no influence over the prices set by the resellers on its marketplace, according to a response from its law firm cited by Reuters.

But GOQii CEO and Founder Vishal Gondal told Reuters he has messages showing that Flipkart employees were involved in the discounting process.

Here’s what it means: This lawsuit could prove costly to Flipkart, especially since thousands of other sellers are threatening to join in.

Discounts on GOQii’s products on Flipkart allegedly led to order cancellations, and now the All India Online Vendors Association may step into the fray too. GOQii had 500,000 orders canceled by consumers who saw the discounted prices on Flipkart and felt cheated, Gondal told Reuters.

So, Flipkart may have to compensate GOQii, depending on how the lawsuit goes. What may prove costlier is that the All India Online Vendors Association intends to file a plea to join the case on behalf of 3,500 other online sellers, multiplying Flipkart’s problems.

The bigger picture: If Flipkart ends up being responsible for the prices of all third-party sellers on its site, it may become even more difficult for marketplaces to succeed in India.

Operating a marketplace in India has become harder since the government introduced regulations on what marketplaces with foreign investment can do.These rules restrict marketplace operators’ ability to offer discounts and exclusive deals, and prevent them from owning merchants that sell on their marketplaces. Companies like Amazon and Flipkart have adjusted, but not being able to control any sellers on their platforms makes it more difficult to run an efficient and profitable business.
If marketplace operators need to control their sellers’ prices, without owning any of them, the Indian e-commerce market will be very difficult to navigate. The level of oversight required to monitor all sellers’ prices on a platform would be significant, which could make operating a marketplace more expensive and may even lead to smaller product selections on marketplaces to make them more manageable. This would cut into marketplaces’ potential earnings, and could cause the marketplace strategy to fall out of favor in the valuable Indian e-commerce market.

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