By 2020, the stock keeping and delivery of 70 per cent of consumer goods sold online will be controlled by the e-commerce companies. The share of goods dispatched by sellers on their own has been shrinking in the past two years. This scenario will keep on increasing the need for investments by e-commerce companies and consequently profitability will remain elusive.
The horizontal e-commerce companies like Flipkart and Amazon have realised that in order to control the overall consumer experience it is imperative to have control over the inventory, finds consumer internet data from RedSeer Consulting.
In 2015, the half of the delivery was fulfilled by the e-commerce companies and remaining half was stocked, packed and delivered by the sellers themselves. In 2016, the share of e-commerce controlled delivery went up to 53 per cent in 2016 and 58 per cent in 2017.
RedSeer predicts that this will move up to 70 per cent by 2020, with sellers only delivering 30 per cent of the inventory.
As per the FDI rules, e-commerce companies following the marketplace model are not supposed to hold inventory of their own. The marketplace model does not give any control to the e-commerce company on the stock, its packaging and delivery. This makes them just a platform where the seller and buyer can transact. However, in order to reduce the delivery time and ensure the quality of delivery, e-commerce companies have been setting up fulfillment centres that can be used by the sellers.
The sellers can use the FCs to stock their inventory and the e-commerce company gets them packed and delivered on their behalf. As per the FDI rules, the ownership of the inventory should be with the seller. Even for private label products, e-commerce companies insist that they do not own the products, but promote them as brands on behalf of the sellers.
Amazon India has 62 Fulfilment Centres in 13 states with close to 18.5 million cubic feet of storage space and more than 200 of delivery stations. Flipkart too has a similar number of fulfillment centres and delivery stations.
“The experience of consumers, quality of the product and the timeline of delivery has improved since the e-commerce players started increasingly controlling the inventory. Regular deliveries have shrunk by two to three days and a large quantum of delivery happens next day,” said Vaibhav Arora, associate general manager, RedSeer.
However, creation of the infrastructure and deployment of manpower in FCs have been increasing the need for investments by e-commerce players. Amazon is committed to invest $5 billion in Indian market and this also includes investment on fulfillment centres. Similarly, Flipkart too has been making a similar investment. The new entrant Paytm Mall also is expected to pump in money to compete with the existing players. Increasing investment will keep profits elusive for the players and competition stiff in the e-commerce space.