Even as Amazon and Flipkart find their business models crippled by new changes in the law, India’s richest man Mukesh Ambani announced that his upcoming e-commerce venture will partner with 3 cr sellers, making it the biggest such platform in the country by number of sellers.
“Jio and Reliance Retail will shortly launch a unique new commerce platform, which will bring win-win benefits to consumers, retailers and producers across the country. This platform will enrich and empower as many as 3 cr small shopkeepers,” Ambani said at an industry event in Kolkata today.
He said West Bengal will be the company’s logistics hub for Eastern India, and that this will entail an investment of Rs 5,000 cr into warehouses, godowns etc..
This will also create direct and indirect employment for another 50,000 people in the state, he added.
“We at Reliance operate nearly 3 mln sq feet of warehouses in Bengal, and with our new commerce initiative, this will increase manifold in the next 24 months,” said Ambani, who chairs both Reliance Jio, the telecom operator, and Reliance Retail, India’s largest chain of organized retail outlets.
He said the group is already procuring about 4,000 tons of agricultural produce and 2.5 mln pieces of garments from producers in West Bengal.
This is the second time Ambani has given clues to the impending launch of the new e-commerce venture. Speaking in November, he had said that the new venture will not focus on the inventory- or warehouse-based models of competitors like Flipkart and Amazon.
Instead, he had said, it would leverage the already existing retailers, depending on them for order fulfillment, and possibly, even delivery in some places.
Flipkart and Amazon also allow local stores to sell on their platforms, but they prefer a model in which they can take care of the fulfillment and delivery to ensure a uniform customer experience.
Ambani also indicated that the investments into the group’s telecom venture will continue for some more time.
He pointed out that when he visited Kolkata in 2016, Jio had invested about Rs 4,500 cr for creating its network in the state. Within less than three years, he said, the amount has jumped nearly six-fold to 28,000 cr — or about one tenth of the total investment by Jio in India so far.
Ambani said the company is in the process of investing another Rs 10,000 cr in the state. Much of the new investment will be towards rolling out Reliance GigaFiber, the broadband-cum-IPTV offering from Reliance Jio.
Ambani said the roll-out was “progressing well”.
Going by the West Bengal figures, Jio is likely to end up investing around Rs 3.8 lakh cr in its business in India — making it the biggest telecom operator in India by investment size.
The operator, a unit of Reliance Industries, has been on a relentless expansion since it kicked off on-the-ground operations around five years ago.
FLIPKART, AMAZON TROUBLES
Mukesh Ambani’s announcement of launching the e-commerce venture “shortly” comes in the wake of tougher regulations that have crippled its biggest future competitors, Amazon and Flipkart.
Amazon and Flipkart had a model in which the two companies would use their size and scale to buy merchandise from producers at cheap rates. After buying the merchandise at cheap rates, they would enter into exclusive deals with the sellers on their platforms to sell these items only on their websites.
This allowed Flipkart and Amazon to keep the prices of the items on their websites lower than that of their competitors.
However, from the first of this month, the central government banned shops and sellers that use Amazon and Flipkart from procuring more than 25% of their goods from these players.
This restriction has made it almost impossible for sellers to keep their prices low anymore, as they now have to buy at least 75% of their trading goods at high prices from other suppliers.
Because of these high procurement prices, these goods do not move as fast as those procured from Amazon and Flipkart. However, if they don’t move, these sellers cannot purchase new goods from Amazon and Flipkart either. Thus, their entire business gets paralyzed and they are unable to make any sales.
These restrictions apply only to sellers that sell on platforms like Amazon and Flipkart which have foreign investment. They will not apply to Reliance’s upcoming e-commerce venture, and will give Reliance’s venture a strong competitive edge.
There are also reports that the new law will force Wal-Mart, the parent of Flipkart, to ‘walk away’ from its India investment, which will also potentially benefit Reliance by removing a strong competitor from the market.
This will be Reliance’s second big venture in the e-commerce field. It already has a fashion retailing website known as ajio.com. However, the venture has not met with the kind of success that Flipkart and Amazon has.