As the government’s policy on multi-brand retail rears its head firmly in the sands of nativist partisanship, Amazon’s response must be to reach for the clouds — or, at least, for Cloudtail.
It is estimated that Amazon’s move to relieve NR Narayana Murthy’s Catamaran Ventures from its 76% stake in Priyan, which is a wholly owner of Cloudtail, a major retailer on the Amazon India marketplace, will face regulatory hurdles due to that ban. Will face what Amazon-owned retailers can’t sell. on your e-commerce platform. Neither the law nor the logic support such speculation.
Foreign direct investment (FDI) in multi-brand e-commerce is constrained by several restrictions. First, an e-commerce operator that has inventory can only do B2B sales, which means it can only sell to businesses, not consumers. However, FDI is allowed in electronic marketplaces on which number of brands are sold by assorted sellers. Hence, both Amazon and Flipkart are marketplaces and do not maintain inventory, directly or indirectly. To prevent indirect holding of inventory, it has been determined that no group company in the e-Marketplace may hold equity in a retailer, and a group company is one in which the group controls 26% or more of the equity, or Appoints at least half the strength of the Board.
Cloudtail, a company registered in India, is the strongest retailer on the Amazon e-commerce platform. It is wholly owned by another Indian company, Prion. Amazon’s ownership in Cloudtail follows a sub-26% cap on the Amazon Group company’s stake in the retailer, which limits Amazon’s stake in the holding company to 24%, with the other 76% held by Catamaran Ventures, Promoted by Murthy, 100% Indian.
Wants to take out the idol. Amazon is forcing it by offering to take its stake. There should be no regulatory hurdle in the way of this acquisition. It makes no abuse of market power or unfair trade practice challenge. The trouble is, Prion, wholly owned by Amazon, would mean Cloudtail, wholly owned by Amazon, would no longer be able to sell on the Amazon e-Marketplace. This is not for the Competition Commission to bother about its head, but for the Department of Industrial Policy and, yes, you heard that right, promotions.
Cloudtail could sell on Flipkart or Jiomart instead of selling it on Amazon. Or it may sell its brands as an independent single-brand retailer. Or better still, Cloudtail may have an initial public offering, in which Prion offers to sell its 75% stake to the public. Unlike Prion, Cloudtail is famous for Amazon shoppers. Therefore, it makes sense for Cloudtail rather than Prion to hold an IPO.
With such an IPO, Amazon would win PR. Hindustan Unilever is a subsidiary of Anglo-Dutch FMCG giant Unilever. But in India, everyone treats it as an Indian company, not only because of the familiarity of its brands, but also because it is listed in India, and Indian investors benefit from the company’s prosperity. By giving Indians a chance to own a portion of its operations, Amazon will gain goodwill that it can use and also comply with.
Speed, of course, is of the essence. Market turmoil should not stop the IPO. The more uncertain the market, the greater the appeal of a healthy business that investors are familiar with. Go for it, Amazon; Do IPO, follow all rules, spread stakeholder and prosperity, and win goodwill to boot.
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