Archive for April, 2013

Will The Sad State Of Logistics Hurt Indian eCommerce?

Sunday, April 21st, 2013

An old friend of mine from my alma mater, IIT Bombay, who is now a tenured professor at the North Carolina State University, was recently carrying out a sponsored study on supply chain dynamics in various parts of the world. In this context, he reached out to me a couple of months ago to seek my inputs on the state of play of logistics in India.

Having worked in the software industry for much of my career, I pled ignorance about this subject. After all, when raw materials walk in through the door at 9AM and leave at 5PM and finished goods are shipped to customers “over the wire”, there’s no movement of “hard goods” between suppliers, manufacturers and customers the way it happens in traditional B2B logistics.

When he heard this, my friend asked me if I could share  any thoughts around B2C logistics. That I could since I’ve gained a lot of exposure to B2C logistics as a consumer in India and a few other mature markets. Here goes:

  • Logistics is still quite primitive in India compared to many parts of the western world. Let alone deliver seamless customer experience, stage-by-stage visibility and luxuries like that, logistics in India currently falls short of even fulfilling its basic goal of delivering something from A to B. If consignments get delivered at all, you’re lucky. But, if they don’t – a one in a four occurrence, in my personal experience – you don’t get a proper status update from the logistics provider.
  • Surprisingly, this is a problem faced not just by hapless consumers but also by large enterprises who ship hundreds of millions of items every year. To quote an example, a leading MNC bank has consistently had problems delivering my credit card statement for the past ten-odd months. It claims that it hands over the statement to its regular courier company on a pre-agreed date every month. However, I never get it. When I complain about non-receipt to the bank, it sends a copy of the statement through a backup courier company, which, incidentally, charges 10X more. It will soon become evident why there’s such a huge cost differential within the same industry.
  • Average courier, freight and shipping charges are much lower in India than in Germany, UK and a couple of other countries that I’m familiar with – even after correcting for price parity. Perhaps this is the outcome of banks, e-tailers, TELCOs and other large volume shippers squeezing couriers and other logistics service providers tightly on costs. To survive under such a situation, these companies cut every corner possible – by employing untrained labor, plying ramshackled vehicles, skimping on storage and shunning technology. While visiting a friend’s office in a Western suburb of Mumbai recently, I noticed that the courier company located next door was stacking its consignments all over the place including out in the open. When I asked one of its employees what would happen if there was a sudden cloudburst, he merely shrugged his shoulders. Touchscreens on which I used to digitally sign for packets around 10 years ago in Germany are still rare in India.
  • While DHL, FedEx and other MNCs operating in India do employ well-trained manpower and use better quality of infrastructure, their shipping rates are 8-10X higher than those of mainstream courier companies.  As a result, they’re affordable only for high-value (e.g. jewelry) and time-critical (e.g. tender response) shipments.
  • Logistics-intensive businesses are facing mounting challenges day by day. They’re responding in one of the following ways:
    • Some of them have taken logistics back inhouse e.g. India’s most visible e-commerce company, Flipkart, apparently found the going very tough when it earlier used to rely on third-party logistics companies. It solved its logistics problems – albeit at a huge cost – by hiring around 500 fulltime employees on its payroll to make deliveries of books, gadgets and other items all over India. For the moment it’s flush with VC funds and is able to sustain the loss. Heady with the company’s stratospheric valuation, its investors don’t seem to be too bothered about whether it will ever turn profitable if it continues to handle its logistics inhouse.
    • Others shamelessly dishonor their commitments e.g. I’ve been a subscriber of FORTUNE for close to a decade in India. Typically, I receive only one out of every two issues of the magazine. Neither the magazine’s local distributor nor its parent company’s regional office in Hong Kong has ever bothered to update me with the status of the missing issues or compensate me for my loss.
    • A few companies exit the business altogether after finding themselves unable to navigate the treacherous minefield of logistics e.g. My friendly-neighborhood library, which used to home deliver books, recently downed its shutters when it found that it couldn’t handle deliveries and pickups reliably and cost-effectively.
  • Unless the B2C logistics industry is able to bring about a sea change in the way it conveys its value proposition to its customers, it’s likely to be stuck in its current sorry state, with no immediate remedy in sight.

That said, the sad state of logistics in India is unlikely to thwart the nation’s progress in general or the dizzying growth rates of eCommerce in particular. I’ve reached this counterintuitive conclusion after seeing 4PL (finance) making an entry into India even before the ills of 3PL have been cured: With cash on delivery (COD) proving to be the most popular method of payment for ecommerce in India, logistics companies here are typically required to collect cash from customers apart from just delivering goods to them. Chalk it up to one more paradox in a country that’s full of so many of them!

How Long Can Malls Remain Open If Stores Inside Them Keep Closing Down?

Friday, April 12th, 2013

The short answer: Forever.

Now for the long version.

As noted here, many stores are unable to survive on the face of skyrocketing real estate costs. Although this post focused largely on standalone stores, mall-based stores face an even graver existential crisis since they incur 50-75% higher rentals than their high street counterparts.

When we keep witnessing stores, like the one in the adjacent picture, closing down, it’s natural to wonder if the malls housing them will follow suit. IMO, there could be a slowdown in new mall openings but malls that are already operational can remain open forever. If you disagree with this prediction, just ask yourselves how many malls you’ve seen closing down in the last 12 months. If you want a clue before you read my explanation for my counterintuitive prediction, just think of all the people you know – directly or by reputation – who own property in London, Mumbai, New York and many other cities, live somewhere else but still don’t rent out their houses in these cities, instead keeping them locked for years on end.

Malls and stores belong to two different industries with very different drivers for revenues and profits. This is why I believe what I assert in this post.

Although the media, especially in India, often uses the terms store and mall interchangeably, the former belongs to the retail industry whereas the latter is in the real estate business. Revenues of stores are driven largely by footfall, conversion and ticket size and their profitability depends on inventory, rental, employee and a few other costs. On the other hand, malls make money from rentals, plain and simple. Hypothetically, if all stores inside a mall were to close down, the mall owner would earn no rental income but, even then, they’d enjoy a huge upside from the capital appreciation of their property. Historically, real estate prices have always gone up with time and many people think this trend will continue for the foreseeable future. So, mall owners, who own both the land and the building constructed on it, are under no great pressure to shut malls down regardless of the fate of the stores inside them.

Good Riddance To Cheque Deposit Systems

Friday, April 5th, 2013

CDS_Machine_100wOver five years ago, I’d written a post titled Cheque Deposit Systems — Are They Really Worth It? During the next couple of years, I’d found this equipment to be down every other time that I’d visited the bank’s branch to pay my credit card bill. My overall poor experience with this technology led me to conclude, in a follow up post titled Technologies Without Tradeoffs, that CDS was a bad tradeoff between cost reduction and customer convenience. I then discovered Visa CardPay, the online credit card bill payment service from Visa. Thanks to this service, I’ve managed to stay away from CDS for the past few years.

Until last month, that is.

Visa CardPay only permits payments up to INR 49,999 (~US$ 1,000) per day. Since my latest bill was much higher than this ceiling, I was compelled to visit the branch to pay it. Even as I set out to do so, I was making contingency plans for alternative modes of payment if I were to encounter a malfunctioning CDS when I visited the branch. These were quite painful: Either I’d to repeat Visa CardPay over multiple days or travel 10 extra kms to drop the cheque in a third-party courier company’s drop box (ever since it installed CDS, the bank removed all drop boxes from its premises).

Thankfully, I was spared the pain. When I reached the bank’s 24/7 self-service center, which is located beside its branch premises and houses its ATMs, Kiosks and other equipment, I couldn’t find the CDS where I’d last remembered seeing it. I went inside the branch to inquire about its new location. An embarrassed receptionist told me that the bank had removed the Cheque Deposit System since it had inordinately increased transaction processing times, led to longer queues and failed too often for comfort. So, it was back to the good old drop box inside the self-service center. As was the case before CDS entered the picture several years ago, I was able to drop the cheque into the drop box and be out of the bank in less than a minute.

As a customer, I’m glad that the bank decided to scrap the Cheque Deposit System. However, as a career IT professional, I fear that moves like this don’t bode well for the greater adoption of technology in financial services. IMHO, technology providers are to blame more often than not for this situation.

Tirumala-Tirupati Updates

Monday, April 1st, 2013

Here are some updates from my recent visit to the famous Lord Balaji Temple in Tirumala-Tirupati in Andhra Pradesh, India.

  1. “Sheegra Darshan” is anything but the “quick darshan” that it stands for. My two darshans with this INR 300 ticket – the only one that can be bought at the temple premise on “current booking” – took 5h45m and 4h during not-so-peak time.
  2. ttd01On the other hand, “Sudharshan Darshan” via INR 50 ticket – to be booked in advance from any TTD Center in India – took only 1h45m.
  3. This reminded me of “price inelasticity of demand”, a concept I’d learned in an economics course during my junior college!
  4. Don’t take the Sheegra Darshan timings indicated on the TTD website and reconfirmed by its call center (1800 425 4141) too literally. According to the sign I saw at the Vaikuntam Complex during this visit, the schedule of sale of tickets for this category of darshan could be changed without prior notice. And, indeed, changed it was: The sign announced that this queue would close at 2PM on Thursdays although it was to remain open until 5PM according to the website / call center. For Fridays, whereas the website / call center indicated a closing time of 9PM, the sign specified “PI” without any explanation of the term and the entrance to the queue had actually been shut as early as 4PM. According to other signs placed prominently near all the queue complexes, the temple authorities could dispense with Sheegra Darshan altogether during rush periods. Tip to pilgrims: Keep enough buffer in your travel schedule when you visit Tirumala.
  5. During my last couple of visits, I noticed that cars and taxis had to drop off pilgrims farther and farther away from the Vaikuntam Complex, which is the starting point for most darshans. Therefore, I decided to try the bus for my Tirupati-to-Tirumala trips this time. Glad that I did. Not only does the bus cost much less (INR 80 for the round trip) compared to taxi (INR 1300), the bus stand in Tirumala is hardly 400-500 meters away from the car drop off point. Another point in favor of bus travel for “bearing-challenged” people like me who have a tough time locating places on hilly terrains: It’s much easier to locate the bus stand than your car / taxi. Since you can’t carry mobile phones inside the temple, you’re likely to have left yours inside the car / taxi. Therefore, you can’t even call your driver when you return after finishing the darshan. If you travel by bus, you can at least ask around and reach the bus stand. You’d look stupid asking others where your car / taxi is parked! Tip to pilgrims traveling by their own vehicle despite this piece of advice: Don’t leave your mobile phones in the car / taxi. Instead, carry them with you and deposit them at the lockers available near the start of the queue. Upon your return, pick up your mobile and call your driver if you can’t find your way back to your vehicle.
  6. I found no improvement in crowd control compared to my last visit. In fact, this time I noticed that the pushing and pummeling started even before entering the temple’s main concourse. I’ve now begun to wonder if there’s some religious significance to this. I hope the temple authorities know what they’re doing because this is especially tough on the kids and elderly people seeking darshan.
  7. The legendary ‘Tirupati Laddu’ is now available for a price, not just bundled with the darshan ticket as was the case in the past. Not sure when this practice started but I only happened to notice it during my latest visit.