Promotional annoyance: retail asks to limit marketplace discounts to 10%
Federal retail chains are asking the government to limit the ability of marketplaces to set large discounts on goods, Izvestia has learned. Now, in order to attract customers, online platforms at their own expense offer them a discount of 30-50% of the price set by the seller himself. Offline trading does not like this: the networks are sure that their online competitors are dumping, luring customers away and thereby ousting them from the market. The Association of Retail Trade Companies (ACORT) has proposed to the government to fix the following rule in the draft law "On the Platform Economy": marketplaces will not be able to invest more than 10% of their annual turnover in the price of goods. In this case, the average online discounts will decrease to the same 10%, experts believe.
Due to what marketplaces give big discounts
The Association of Retail Trade Companies (ACORT) has asked the government to limit the ability of marketplaces to set discounts on goods of 30-50% at their own expense. Large retail chains assess this practice as "price dumping", which "leads to adverse consequences for sellers, manufacturers, buyers" and the Russian economy as a whole.
AKORT in his address (Izvestia has it) explains: due to the different legal regulations of offline and online trading and the different design of contractual relations with partners, traditional retail does not have the opportunity to make such a discount that marketplaces allow themselves.
Retail chains purchase goods from suppliers and sell them on their own behalf. With this approach, they do not have the opportunity to actively invest in discounts, that is, to significantly reduce the cost of products at their own expense — for example, to sell goods at a price below cost — as this "entails corresponding consequences from the point of view of antimonopoly and (or) tax legislation."
But online platforms work with sellers under commission agreements — the seller pays it for using the resources of the online showcase. As a result, marketplaces have the opportunity to participate in the pricing of their partners: online platforms invest part of their own funds in reducing the cost of non-their products. In total, investments in price reduction are comparable to the annual revenue of online platforms, according to ACORT.
Artur Gafarov, head of the Institute for the Development of Entrepreneurship and Economics, explained to Izvestia how prices are reduced in practice at the expense of marketplaces. For example, a seller puts his product on an online marketplace at a price of 1,000 rubles. The marketplace, on its own initiative, puts a 50% discount on it, that is, it sells for 500 rubles. The buyer purchases the product at a reduced price, while the seller receives from the marketplace not the reduced, but the full cost of the product set by him in his personal account (in our case, 1000 rubles). The difference between the price set by the seller and the price paid by the buyer is compensated by the marketplace at its own expense in the form of cash or points. The seller can spend them on marketplace services, commission reduction, and so on, the expert noted.
— The main purpose of this approach is to establish a monopolistically low price and eliminate competitors from the market. This style is recognized in international practice as predatory pricing," he added.
If the situation does not change, then in the medium term it will lead to "the closure of small and medium-sized offline retail, shopping malls, hypermarkets, and the extinction of rental and sale markets," ACORT agrees.
— Marketplace discounts reduce the volume of sales of goods in other sales channels, which become unattractive not only for buyers, but also for suppliers. We are already witnessing quite large-scale reductions in offline business sectors: sales of children's goods, books, stationery, and creative goods. Market participants are forced to wind down their businesses, cut staff, and refuse to rent and purchase premises," Stanislav Bogdanov, chairman of the ACORT Presidium, told Izvestia.
Therefore, retail chains are being asked to fix a provision in the currently being developed law On the Platform Economy, according to which marketplaces will be prohibited from investing more than 10% of their annual turnover in the price of goods (now, according to ACORT estimates, this figure reaches 100% of revenue for some marketplaces).
— This means that online platforms will be able to offer a maximum discount of 10%, a deeper discount will be prohibited, — said Artur Gafarov.
Oleg Pavlov, head of the Public Consumer Initiative (OPI), agrees with him: if marketplaces cannot invest more than 10% of their turnover in price reductions, then discounts will amount to no more than 10%. He believes that offline retail's concerns are well-founded, given the increasing role and share of marketplaces both in the online segment and in retail in general.
Are the authorities ready to impose restrictions on discounts
There is already a practice of such restrictions in the world, according to ACORT's letter. The authorities of China, Turkey and France have taken such measures. For example, China has antitrust laws that restrict platforms with a dominant position, they cannot sell goods below cost without reasonable reasons. The French Commercial Code prohibits sales at a loss, with exceptions made only for perishable and seasonal goods.
In the office of Deputy Prime Minister Dmitry Grigorenko, Izvestia was told that a separate article of the draft law "On the Platform Economy" is devoted to the issue of discounts and lower-price promotions.
— At the moment, platforms can influence sellers' pricing policies by launching single discount promotions. Thus, there is a possibility of creating unequal conditions for sellers and dumping prices. The latter, in turn, can also find loopholes, for example, inflating prices on the eve of sales, which already affects the interests of buyers, they noted. — When developing the draft law, we are guided by the need to strictly protect the consumer rights of our citizens, but with a balance of interests of all participants in the platform economy.
But direct consideration of the initiative proposed by ACORT in the draft law may lead to the loss of one of the main advantages of marketplaces — the "endless shelf", where there are always offers with the best price, the Ministry of Economic Development noted to Izvestia.
— The bill should not lead to higher prices or a deterioration in customer service, limiting consumer opportunities. The decisions outlined in the document are aimed at achieving a balance of interests of all parties: buyers, partners and platforms, they stressed. — Currently, economically significant platforms are already subject to the requirements of antimonopoly legislation, including a ban on setting monopolistically low prices for goods. Compliance with the requirements is monitored by the Federal Antimonopoly Service.
As the antimonopoly service told Izvestia, the practice of leading marketplaces that give discounts on goods at their own expense is already being studied for its compliance with the requirements of antimonopoly legislation. Earlier, antimonopoly authorities received appeals from ACORT, manufacturers and sellers of electronics and household appliances RATEK.
The position of the Ministry of Industry and Trade and marketplaces
Marketplaces use their own discounts on suppliers' goods, compensating for the price difference at their own expense, and the motives may be different: for example, an increase in the turnover of goods on the site, the Ministry of Industry and Trade told Izvestia.
— The Ministry of Economic Development has submitted a draft law "On the Platform Economy" to the government. Among other things, the document proposes to resolve the issue of how marketplaces can involve suppliers of goods in promotional campaigns. In this case, aggregators will need to obtain agreement from suppliers in advance to reduce the price. At the same time, the counterparty should be able to establish a complete ban on the sale of their goods at a reduced price," they added.
Interference in the formation of discounts, their restriction through regulation, will create a negative precedent for the trade industry as a whole, said Artem Sokolov, President of the Association of Online Trading Companies (AKIT).
— Discounts are for everyone and have always been a flexible mechanism for working with your customer base and inventory. We consider it important that sellers are informed about the use of discounts and have the opportunity to express their consent or prohibition on their use," he said.
Wildberries pricing is determined solely by the marketplace seller, the company told Izvestia. While discounts from the marketplace are funded by the platform and make products more attractive and affordable, this increases demand and helps sellers increase sales while maintaining profits.
The Ozon press service reminded Izvestia that offline retail also has promotions, yellow price tags in stores, and so on. "We do the same thing, only online," the representatives of the marketplace stated. If discounts are limited, Russians will have to pay more for goods, and the growth of small and medium-sized businesses, including thousands of domestic manufacturers, will slow down, the company is confident.
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