E-commerce is poised for an exciting period of exploding growth in a period of three to five years. This is expected to lead to substantial investments in supporting infrastructure and innovative and game changing business models.
Online retail, which today represents a small fraction of the e-commerce space, is one of the fastest growing segments in India. The proposition of online retail to the customer is in offering an almost infinite variety of choices spread over an enormous geographical area. It further provides the customer facilities such as free delivery, order rescheduling, cancellation, returns and cash-on-delivery.
Fulfilling the fundamental proposition of going beyond the physical boundaries to deliver a variety of products to the customer's doorstep is a challenge for online retail brands. Hence, logistics and infrastructure in e-retailing becomes the backbone of the fulfillment network. The strong emergence of e-commerce is placing enormous pressure on the supporting logistics functions. The most important elements of differentiation for providers of e-commerce logistics are ever-shortening delivery timeliness, negligible or zero delivery prices, doorstep delivery, traceability solutions and convenient reverse logistics.
Infrastructure will demand a large proportion of investment in e-commerce and hence Indian e-commerce industry is expected to spend an additional 500 to 1,000 million USD on infrastructure, logistics and warehousing, leading to a cumulative spend of 950 to 1900 million USD till 2017-2020.
Why is there need for bigger focus on e-commerce warehousing?
E-commerce warehouses are mega e-fulfillment centres or large warehouses with an area of up to 1 million square feet for storage of products until the online orders come. These warehouses are typically placed closer to the parcel hubs.
It is important to note that each product category will have its own customised logistics requirements which can alter the balance between inventory and supply chain costs. Most e-retailers were initially dependent on third party delivery firms. However, as the market evolves and customer expectations increase, city or geography centric service levels are becoming the need of the hour. Moreover, issues specific to e-retailing such as the problems associated with fake addresses, cash-on-delivery and higher expected return rates have made e-retailers consider setting up their captive capital intensive logistic businesses. For example, Flipkart has set up several regional warehouses and is constantly increasing the supplier base across the country to achieve low transportation cost by ensuring delivery from the nearest supplier or regional warehouse.
Approximately 3.5 million sq.ft. of space had either been leased or was in various stages of negotiation by e-commerce firms across the country by the end of 2014, a growth of more than 400 per cent Y-o-Y is happening.
Trends to watch out for
= Logistics evolution will be necessary to realise the potential growth in e-retailing industry.
= Long term profitability of the e-retailing industry in the country is still under question as after so many years of operations, all the major e-retailers are yet to start making profits.
= FDI in the inventory-led retail will also be an important factor in shaping up the future of the industry.
= With uniformity in taxation laws across the country, e-retailers are expected to move closer to consumption centres with an aim to address the duplicities in the logistics chain by removing the overlaps in form of delivery and sorting centres which are traditionally closer to the consumption centres.
= The evolution of the existing logistics providers and more players entering the e-commerce warehouse domain will result in realisation of the huge potential of the e-retailing industry.
(Jaspreet Singh & Sushant Tomar, the writers are Sr. Consultants Strategy, Francorp, India)