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E-commerce matures, players invest in logistics, warehouses
December, 06th 2011

A year-and-a-half into its second coming, Indian e-commerce is starting to exhibit signs of maturity. Leading players have started investing in supply chain and back-end systems in an effort to facilitate a smoother movement of the product or service from the supplier to the consumer. Many are also striving to cut on outsourced delivery.

While deal websites have so far driven the kings portion of the segment growth, many are now focusing on product verticals that require a more sturdy delivery mechanism.

For instance, Naaptol.com. As one of the earliest entrants in the space, Naaptol, which started operations in 2008, is looking to open up to six warehouses by 2012. Catalyst: expected implementation of the GST (goods and service tax) regime next year.
We are in the process of preparing for GST, says Manu Agarwal, founder and CEO, Naaptol.com. We have set aside funds to the tune of $1 million a month till March for warehouse development and supply-chain strengthening.

According to him, companies will have to increasingly look at a mixed model where they will continue to outsource, but will also develop their own infrastructure for last-mile delivery. With GST, trade across states will become easy. Thus one big warehouse will service a larger region without the hassle of dual taxation, he notes. The development of a wholly-owned supply chain will take time, so mixed models based on ease of use will be the norm.

The same is true for Flipkart.com, Indias poster boy for e-commerce and the countrys answer to online book retailing giant Amazon. Flipkart, whose recent valuations have made headlines recently, says it should be hitting its 2015 revenue target of $1 billion sooner than envisaged.

We now have seven warehouses and our own delivery network across more than 25 cities, informs CEO Sachin Bansal. We are looking at making bigger investments in our supply chain and technology. This should result in larger warehouses and increased automation of our processes.

Looking ahead, the logistics play makes sense. For already, according to estimates by analysts, an average of 20,000 deal transactions and 50,000 product transactions transpire everyday on just the top 10 sites put together. The numbers will only grow.

India, with a population of over 1.2 billion, has 100 million Internet users. The country, on an average, sees the launch of three e-commerce websites every month. Also aiding the growth are factors of social networking, increasing internet penetration with the 3G spectrum and the option of a captive audience because of an increased amount of time people spend on the Net. E-commerce in India is expected to touch the Rs 47,000-crore mark by the end of the calendar year.

According to Tradus.com -- one of the larger e-commerce multinationals -- the play of logistics will help companies shorten the distribution and supply chain links. FDI (in retail) will enable most players to buy directly from wholesalers, says Krishna Mootukuri, its managing director (India). It is thereby shortening their supply chains. As of now, we are not allowed to hold inventory and invoice customers.

Money is, obviously, not a problem. According to estimates by VCCEdge, which keeps tabs on venture capital and private equity investments, about 48 e-commerce companies raised $427 million till November in 2011, compared with just 11 deals worth $58 million in 2010. Many like Naaptol have raised multiple rounds of funding.

Lifestyle product website, Myntra.com, for example, has raised $40 million. It is now looking to service a larger demographic and deliver a wider array of products. Myntra wants to raise its present catalogue of 120 brands to at least 200 brands in the next six months, according to Mukesh Bansal, its founder. We are looking at developing our logistic capabilities and warehouses in various cities. We have raised $40 million, a large part of which will go towards logistic capability development, he informs. Our plan is to set up at least four warehouses by March, so that we are able to service a larger area.

The website says it is doubling business every six months. After all, over two million people visit Myntra website every month, and 3,000 people buy from it every month.

Deals and You says the trajectory is following a predictable path. According to its CEO, Gaurav Kachroo, investments in logistics make sense, given that it is a delivery-based model. The success of a venture is largely dependent on consumer satisfaction in timeliness and ease of the function, he notes. However, I think back-end will see investment, while delivery will continue to be outsourced.

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