Last Mile Delivery and Payment Mechanism Issues in Online Retail in India
Market Size
2011
Total Retail
25,000
Rs bn
2015
37,000
Organized
1,700
3,400
Online
32
100
Interview with
42
respondents
The Online retail industry in India faces a lot of operational issues
Reasons for not shopping online
Preferred payment option
5%
10%
20%
70%
Lack of touch & feel
Security Issues
Do not see any value add
20%
75%
Cash on Delivery
Online
Credit Card on Delivery
Operational Issues
Industry concerns
No shipping charges levied by e-tailers; hurts margins badly in distant regions
Will I lose customers if I start charging?
Warehousing: Costs of inventory & maintaining warehouse are very high
Which SKUs to store and what quantity?
Taxation: Both CST and VAT are charged for a sale from one state to another
How to sell products in a tax efficient manner?
Demand in tier-2 and 3 cities is fragmented and non-sustainable
Should a warehouse be set up in such cities?
Inventory turnover time is high due to inaccurate demand predictions
How to deal with over- and under-stocking?
Rural Reach: Only 23,000 out of 31,000 of Indian zip codes are serviceable
How to reach the non-serviceable regions?
Logistics: High reliance on bigger 3rd party logistic firms in remote regions
What other options are there to increase reach?
Payment: Customers feel less secure while making online payments
How to infuse trust among customers?
Recommendations
Central Warehousing
• E-tailers minimize their holding costs by having one central and several smaller warehouses
• ‘Inter-branch transfers’ are allowed to be tax-free, hence CST can be avoided during the sale
In-house logistics
• Reduces reliance on 3rd party logistic firms; can provide additional revenue source by outsourcing it
Resource exchange
• Firms share resources (channels & infrastructure); results in optimal use of resources & cost savings
Clicks & Mortar model
• E-tailers ship the goods to a store or any other target where the customer can go and collect them
Indian Postal Service
• There are around 4000 zip codes that are served only by the Indian postal service; increased reach
Cash on Delivery
Specialized logistics
• Consumers feel more confident as he/ she will be paying only once they get to see the product
• Firms specializing in providing logistics service to e-tailers; provide customized solutions