As funds dry up, e-commerce enters new delivery mode
Two years ago, when Flipkart launched the “same-day delivery” concept to counter Amazon, former CEO Sachin Bansal called it a “moment of truth”.business Updated: Jun 13, 2016 14:21 IST
Two years ago, when Flipkart launched the “same-day delivery” concept to counter Amazon, former CEO Sachin Bansal called it a “moment of truth”.
For the discerning and time-conscious online Indian shopper, it was a boon. You could order anything online, and it would be delivered at your dootstep the very same day.
For Flipkart, it was an opportunity to add more customers to its cart. After all, since it started as an online bookseller in 2007, the country’s internet user base has grown 10 times to 466 million in 2016.
As competition between e-commerce firms heated up, mainly after Amazon’s entry, the customer found himself to be the biggest gainer. Heavy discounts, free shipping, faster deliveries... online shopping was both cheaper and convenient.
The logistics of it
So, e-tailers came up with new strategies in logistics and supply-chain management, backed by ample investment. Flipkart said it would invest $2.5 billion in logistics; Snapdeal bought stake in third-party logistics firm GoJavas for $20 million.
“E-commerce companies wanted to deliver products faster than others — models such as next-day delivery to four-five hour delivery came up, and became marketing slogans,” says Neeraj Aggarwal, vice-president, last mile delivery, Flipkart.
But free shipping and same-day delivery involved costs. So top five e-commerce companies spent more than a $1 billion of shareholder capital in 2014. Losses of top 22 online startups, mostly e-tailers, were `7,884 crore at the end of March 2015.
Things, however, started changing when investors started demanding profits. Same-day and next-day deliveries went out of fashion. There has been an overall reduction in discounts, and delivery time has doubled since last year.
The big shift
Unlike the US and China, India lacks the logistics infrastructure to handle e-commerce delivery. Courier companies, which mostly delivered documents, were not equipped to courier electronics.
So in 2010, Flipkart started a pilot in Bangalore to deliver books using its own fleet and take cash at the time of delivery. It did the same when it started selling electronics. Eventually, cash-on-delivery became 70-75% of payments for e-tailers.
Meanwhile, e-commerce in India has changed from an inventory-led model to a marketplace, where merchants list products. “During inventory days, courier companies would pick the product from the warehouses… Now, no one knows which seller to pick it up from – that causes delays,” says Sanjiv Kathuria, CEO of DotZot, DTDC’s e-commerce logistics arm.
Over the past three-four years, many third-party logistics companies, including Ecom Express, GoJavas and Delhivery have kicked off operations.
To ensure faster delivery, almost 75% to 80% of orders were being flown between cities earlier. This led to a 30% to 40% increase in last-mile delivery costs. “The only priority for e-commerce companies was to satisfy the customer and deliver regardless of cost,” says Amitabh Coomar, CEO of GoJavas.
But in mid-2015, when funds started drying up, companies were forced to ship by road and rail. “Everyone is reducing cost — if companies have a slightly slower, but cheaper way of delivery, they are going for it, to improve profitability,” says Sudhanshu Gupta, vice-president, logistics, Paytm.
About 60% of all delivery is done using surface transport. However, if someone is ready to pay, e-commerce companies are still ready to ship an order by air.
Explains Amitava Saha, CEO of third-party logistics company Xpressbees: “In India, if you provide premium delivery for free, it is not sustainable as infrastructure doesn’t support quicker delivery.” For example, shipping a product from Delhi to Bangalore costs 20% to 25% more than doing it by rail or road. And then, shipments to smaller towns, half of all orders, is in any case 40% to 50% costlier.
Lesser time to return
As e-commerce firms added categories, returns increased, and so did problems. Cash on delivery began to hit balance sheets. People bought products, but didn’t accept it on delivery.
As a result, companies stopped delivering in certain pin codes, such as some parts of Uttar Pradesh. Amazon and Flipkart have partially stopped taking returns on electronic items. Flipkart has even brought down the window of its return policy from 30 days to 10 days.
ShopClues, which has a seven-days return policy, has also changed its approach. “Earlier we would pick up the return and take it to the warehouse to check for damages. Now we do it at the customer’s door step,” says a senior executive with ShopClues.
According to consultancy firm Technopak’s chairman Arvind Singhal, shorter return cycles will prevent misuse of products once boxes are opened. Returns in India cannot be ignored — it’s as high at 30% to 40% in some categories, but mostly in the range of 10% to 15%.
After Flipkart, Paytm is also reviewing its 30-days return policy. As most e-commerce companies hold back money for a while, shorter returns will ensure that sellers get the money faster. “Working capital is critical to sellers,” says Gupta.