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E-commerce sales in smaller towns are booming, but online merchants need to overcome the logistical challenges for serving this segment

The e-commerce industry is in the midst of a rapid expansion and a key component of this strategy is the expansion of leading e-retailers in tier-II and smaller towns across the country. However, the delivery of products across the country poses several challenges for logistics companies. Apart from that, e-retailers are grappling with high ‘returns’ in the cash-on-delivery model. 

Annual sales in the e-retail sector are projected to reach $ 56 billion by ’23 and to leverage the emerging opportunities, logistics companies including Delhivery, gojavas, Rhenus Logistics and Dotzot, a part of DTDC, are offering a repertoire of services for this segment. 

Online merchants are increasingly emphasising delivery of goods ordered within 72 hours on a pan India basis, which, in turn poses several challenges, as the goods are transported by air and pushing up the cost of the product to the end customer. In addition, the connecting rail and road networks to smaller towns are of poor quality and the resulting challenges for logistics players.

It’s no surprise that several e-retailers have discontinued deliveries in parts of Uttar Pradesh, Bihar, Jharkhand, Punjab, Madhya Pradesh and West Bengal, as the returns have been well beyond the industry average.

Abhishek Chakraborty, Executive Director, DTDC Courier and Cargo, said, “Demand from smaller towns is growing, but serving customers in this segment poses several challenges.”

A new channel   

To deal with logistical challenges, several e-retailers are setting up fulfillment centres and warehouses across the country along with expanding their in-house supply chain capabilities.

For instance, Snapdeal, an online market place, is planning to invest Rs 350 crore this fiscal as part of its strategy to set up 40 fulfilment centres in 15 cities.

Similarly, Pepperfry recently raised $ 15 million (nearly Rs 100 crore), in a bid to expand its supply chain infrastructure as well as merchandising capabilities.

It does not end there, and Flipkart is setting up regional warehouses and signing up more suppliers across the country, in a bid to improve delivery schedules.

Clearly, logistics is key for the success of e-retailers.