Want to bring down logistics cost in e-commerce to 5-6% of sales: Kashyap Deorah, President, Futurebazaar.com

For an online retailer, logistics strategy dictates the kind of products that it offers to sell.

As online retail or the e-tail segment grows, it is interesting to take a look at how the strategy for e-tail is different from that for the retail segment. Mr Kashyap Deorah, President, Futurebazaar.com, the online retail arm of Future Group that is behind Big Bazaar and Pantaloon, shares insights with Business Line.

How does the strategy for e-tail differ from that of retail?

When customers walk into brick-and-mortar stores, they walk out with the product. Logistics has already done its part. When customers order from an e-tailer, logistics begins when the order is placed. The clock is constantly ticking on tens of thousands of orders.

For retailers, warehouses are distribution centre — distributing boxes, cartons and batches of products from suppliers to stores. For e-tailers, warehouses are fulfilment centres — fulfilling single orders, items and customers from warehouses to customer's home.

Futurebazaar.com has a mother warehouse in Mumbai outskirts and several smaller processing centres across India to stock inventory and process orders. We work with third-party logistics partners for home delivery. They collect the cash on delivery, if required.

Is there a change in logistics cost structure?

From a logistics perspective, fulfilment centres are [of] higher cost than distribution centres due to higher complexity. However, inventory risk is smaller due to the real-time models that are possible in e-tailing. On the whole, supply chain and inventory costs in e-tailing are slightly lower than retailing.

What is your cost as a share of sales?

In the e-commerce segment, currently, we spend close to 10 per cent of our sales on logistics cost. In the next one year, we want to bring it down to 5-6 per cent range. There is a lot of scope for reduction. About 60 per cent of orders come from top 10 cities, where we already have our stores and warehouses. If we were to tie up the last-mile deliveries for the 10 cities ourselves, the cost will come down.

In how many cities do you offer to deliver goods booked online?

In the last six months we have sold to 532 tier-3 towns (from Abohar to Zirakpur, in Punjab).

After an order is placed online, how long do you take to deliver?

In Mumbai, Delhi, Bangalore, the deliveries can happen overnight or, within two days. At the other extreme are — Kolkata, West Bengal, and Uttar Pradesh, where the time taken is very high. These States have stringent paper requirement for inter-State goods transfer.

So, for these States, we ship our goods to our processing centre in Kolkata or Ghaziabad. After completion of paperwork, then we ship the good to customer. So, when the product is going by road for instance, it could take up to three weeks to reach the buyer in Kolkata.

If you order a tava set (pan) in Mumbai, you get it in a day. But a jewellery set ordered from Darjeeling in West Bengal will take up to 21 days.

How many vendors supply for the e-commerce segment? Do you see higher demand for specific goods?

Future Group sources from about 30,000 vendors across the country. Out of those, only a few hundred supply for the e-tailing space. On e-commerce, there is maximum demand for electronic goods. That is also the lower-margin category compared to others. The fastest-moving products are home and living items such as toolkits, non-stick cookware, pillows, kitchenware and innerwear.

Do you hire logistics firms for e-tail segment? Are you asking the same firms to deliver?

Futurebazaar.com works with Future Supply Chains, the group's logistics arm, to create the back-end for e-tailing. We currently work with external partners for home delivery. We have started seeing speciality logistics providers for e-commerce now. We are also thinking about creating our own home-delivery networks in certain catchments leveraging our store fronts.

Logistics service providers collect the cash on delivery. Do you offer cash-on-delivery (CoD) service for all products?

In overall e-tail sector, trend is 50 per cent business happens on cash-on-delivery, and 50 per cent on pre-paid basis. For Future bazaar, about 25 per cent of our business happens on cash-on-delivery basis. We offer cash-on-delivery on limited products and limited locations. Expensive and bulkier products are usually not on CoD offer because the reverse logistics process — which starts if the product is returned — of bulkier products are expensive and difficult.

For instance, a microwave is available for Rs 3,000, and can be transported to the customer. But if the customer were to return it without paying cash on delivery, then logistics players charge much higher for the return trip.

Those that are available on cash-on-delivery include cell phones, kitchen appliances, dining, bed and bath products (linen), essential category — personal care products. Those that are not available will be bulkier home appliances, jewellery, expensive watches.

bindu.menon@thehindu.co.in

(This article was published on March 11, 2012)
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