WMT Walmart Inc

By Corinne Abrams 

MUMBAI -- Thousands of products were pulled from Amazon.com Inc.'s India website Friday -- the first direct impact from the country's new e-commerce rules, a day after warning the restrictions would hurt its business there.

India's new restrictions, which went into effect Friday, were designed to help local retailers better compete against foreign-owned giants like Amazon and Walmart Inc., as the e-commerce market is poised to boom in the country. Amazon warned Thursday that India's restrictions could crimp revenue this quarter and that it was still evaluating the regulations.

"We do believe that India remains a good long-term opportunity," Amazon's financial chief Brian Olsavsky said.

In India, rules had barred foreign companies from holding their own online inventory and selling it direct to customers. Amazon previously worked around those regulations by selling products through subsidiaries of companies in which it owned stakes.

India tightened restrictions in late December by saying foreign retailers weren't allowed to sell online through such companies and barring foreign companies from entering into exclusive online sales agreements. Companies had until Feb. 1 to comply after their requests for more time was denied.

On Friday, thousands of products were removed from Amazon's India website. On Amazon's India website, the Amazon Echo and some other Amazon-made products were temporarily unavailable Friday morning before the company scrambled to get other sellers to offer them. Products from companies partly owned by Amazon subsidiaries also weren't available, as well as those from other Amazon in-house brands, according to Bangalore-based RedSeer Management Consulting.

An Amazon spokeswoman said the company was working to make all Amazon exclusive brands available again on the website.

Both Amazon and Walmart have made big bets in India, where the e-commerce market is estimated to balloon to $72 billion in 2022 from around $33 billion in 2018, according to research firm eMarketer. Amazon has pledged to invest $5 billion to expand in the world's fastest growing large economy, while Walmart's takeover of India's Flipkart for $16 billion was its biggest acquisition ever.

The new e-commerce rules are the latest effort by India to try to restrict U.S. tech giants' dominance in the country and promote homegrown companies in a year when Prime Minister Narendra Modi is seeking to win a second term in a general election. The government plans to introduce a "national champion" policy to encourage the rise of Indian companies, according to a person familiar with the matter.

Analysts said the new rules could affect as much as 40% of Amazon's sales in India and around a third of the revenue at Flipkart, the homegrown online retail leader now controlled by Walmart. The two companies have been neck-and-neck in terms of revenue: Flipkart's revenue for the financial year ended March 31, 2017, was $3.8 billion, while Amazon's was $3.2 billion in India, according to estimates from Barclays Research.

Both Amazon and Walmart, long among the biggest bulls on the India opportunity, were shocked when New Delhi unveiled the new set of regulations and clarifications late last year aimed at foreign owned e-commerce companies that seriously affect how they were doing business.

"It's very challenging," for the companies, said Satish Meena, a senior forecast analyst at Forrester Research. "They have to work out what to do with this inventory," and rethink their business models, he said.

Tech companies face other challenges as well. Facebook Inc.'s WhatsApp meanwhile is under pressure to allow authorities to read the messages of its users in India and is waiting for approval to roll out its first mobile-payments feature beyond the test phase.

The new rules also state that one vendor can't make more that 25% of its sales on one marketplace.

The 25% rule will likely affect Flipkart, which sells "private" brands or lines made only for Flipkart through its website, said Mr. Meena. Items from the Divastri brand, which Flipkart called a "private label" on its blog, were still available online Friday. Flipkart sells around a third of its products through private labels, according to research firm Technopak Advisors. Flipkart needs to rethink that model, said Ankur Bisen, a senior vice president at Technopak.

A spokesman for Flipkart said the company was working to change its supply chains and systems to comply with the regulations.

"We are disappointed that the government has decided to implement the regulation changes at such haste," said the spokesman.

Walmart's bricks- and-mortar wholesale stores won't be affected by the changes. It runs 23 Best Price stores and two fulfillment centers in India.

The restrictions may create some breathing space for smaller, Indian-owned rivals like Snapdeal.com, as well as Reliance Industries Ltd., a company backed by India's richest man, Mukesh Ambani, that said in January it would ramp up e-commerce efforts.

They could also give other foreign companies pause before deciding to invest heavily in India.

"They will not make big bets like Walmart," based on the regulation changes, said Forrester Research's Mr. Meena. "If there is no consistency in policy that is more damaging for companies coming into the market."

--Newley Purnell in New Delhi contributed to this article.

Write to Corinne Abrams at corinne.abrams@wsj.com

(END) Dow Jones Newswires

February 01, 2019 13:53 ET (18:53 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.