For mot international retailers, growth in their home markets have levelled out, forcing them to look to emerging markets. Markets such as India, backed by favourable demographic profile and rising income levels – have become destinations for these retailers.  This trend is expected to continue and India is likely to emerge as one of the fastest growing economies[1] in the world.

As per estimates, the Indian retail sector was estimated at US$ 500 billion in 2012 and is likely to grow to US$900 billion by 2017, at a CAGR of more than 12%.

The retail sector comprises of 12 million traditional retail outlets as well as organised retailers. Organised retail, undertaken by the licensed retailers for branded apparels, lifestyle products, etc, is an emerging channel and offers huge growth potential due to low penetration.

Food and grocery form the largest share of the Indian Retail Market, this includes retailing of fresh fruits and vegetables, dairy products, staples, cereals, processed foods, ready to eat meals, spices and other edible products. Apparel was historically dominated by unbranded retailers selling through small garment and textile shops.

However, with the entry of foreign brands and the liberalisation of FDI regulations in single brand, this scenario has changed.  Today, apparel is considered as one of the most

organised segments.  In 2012, the apparels and accessories market was valued at USD 51 billion and it is growing at a healthy rate of 15% per annum[2].

The Advent of Foreign Direct Investment (‘FDI’)

Intermediaries and middlemen in India have dominated the value chain. Due to a number of intermediaries involved in the traditional Indian retail chain, norms are flouted and pricing lacks transparency creating greater noise for reforms

In 1997, India permitted FDI in wholesale cash and carry subject to government approval. Subsequently, requirement for approval was relaxed for FDI in wholesale cash and carry and 51% FDI in Single Brand Retail Trading (‘SBRT’) was allowed subject to government approval.

In April 2010, the government issued certain operational guidelines for Indian companies with FDI engaged in wholesale trading activities.  In January 2012, the government further liberalised the policy on SBRT by increasing the FDI cap from 51 to 100%, subject to certain conditions. In September 2012, 51% FDI permitted in Multi-brand Retail Trading (‘MBRT’) (subject to Government approval) in ten states and union territories (now twelve states and union territories)favouring the MBRT.

Internationally, Retailers do not distinguish between the forms of retailing ie SBRT and MBRT, however, the Indian FDI regulations/ guidelines make this distinction. .Investment in both SBRT and MBRT are subject to a separate set of guidelines/ restrictions.

Hence, it is critical to examine the regulations governing the Indian Retail Sector.

Indian Regulatory Environment

As mentioned above, FDI under SBRT was permitted to the extent of 100% with the condition that the same required prior Government approval. However, since then, the regulations have been liberalized further as follows[3]:

• Upto 49% – permissible under the automatic route (no prior approval of Government of India required)
• Beyond 49% – permissible subject to prior GOI approval

The liberalization comes with a set of prescribed conditions to ensure that the foreign investor makes genuine contribution to development of Indian infrastructure and logistics.

Concluding Remarks

Given that India is at the cusp of consumerism and the demand for discretionary spending categories has been increasing faster than the overall consumption market foreign retailers are exploring the opportunity to enter the Indian Retail market in light of the Indian FDI guidelines.

This has provided an opportunity for Indian players to substantially enlarge their retail and consumer products business and foreign MNCs to establish their business presence in India.

Traditionally, the Indian consumption wallet has been dominated by necessities, such as food and home products. However, with changing socio-economic and demographic profile, discretionary spending has been increasing.  Though food is expected to remain as the biggest part of the Indian consumption pie additional spending on lifestyle, home products, branded/ high-end apparels and luxurious products/ accessories are giving rise to the next wave of consumerism.

Further, on-line retail has also witnessed substantial growth and some of the popular Indian online retailers are Flipkart, Localbaniya, Indiatimes and Rediff Easy.  It is not only the private sector but also the government sector which has woken up to the possibilities that the internet has in store. This means that today people can not only purchase clothing, utensils, furniture, electronics, books, movies, flight tickets, rent cars and thousands other products online, but they can also book railway tickets on-line.

Marching ahead along with the consumer products sector, the retail sector is also expected to tread the path of expansion. India’s vast and growing population and change in consumption pattern is seen as providing impetus to the growth of the retail sector that is already on a high growth trajectory.

“The play for any express logistic service provider, within ecommerce, is in the non-travel vertical. Since the entire gamut of e-commerce is not addressable for us, Blue Dart has identified the e-tailing market. By creating simplified solutions for our customers, we have a dominant market presence.” Says Anil Khanna, MD, Blue Dart Express Ltd.

E-tailing in India has taken off on the back of Cash on Delivery.  Credit card penetration is still less than 30% (at a population level) and there are concerns about revealing card details online.  Cash on delivery ensured that customer adoption of e-commerce was high – but it also increased the operational load on the e-tailer and the logistics partner.  At the same time, COD provides companies like DHL with a platform to differentiate themselves:  they are able to demonstrate better control over key risk points such the inherent risk of fraud, counterfeit, mutilation and theft.

“In order to cater to the demands of the growing e-tailing industry, Blue Dart introduced the COD service as an additional payment option to customers. The invoice value of the shipment is collected from the consignee in the form of cash at the time of delivery. The cash collected from the consignee is returned to the e-tailer to close the transaction thus completing the entire system.”

Blue Dart has partnered with Yes Bank to offer MPOS solutions – a mobile device based GPRS connectivity to facilitate debit/credit card payments.  This POS device when connected to any smartphone device can be used as a POS terminal to facilitate card payments.

Coverage v.s COD v.s. Logistics model

For e-tailers coverage is the key to growing sales.  While full service logistics providers like Blue Dart cover most of the cities and towns, for regions below the Taluka level,  they still need to tie up with local service providers.

This has meant that e-tailers have to manage multiple partnerships and balance growth with operational efficiency.  Out of this compulsion a natural progression of inventory models (and the corresponding logistics partner) has emerged:

Anil says, “The most common business model is the vendor based business mode;  as it is not very capital intensive. After receiving a set number of orders, the e-tailer purchases products from a local distributor, and then transports them to his own facility for packing and shipping. The advantage is that the e-tailer doesn’t have capital tied up in inventory or unneeded warehouse space, has all the shipping records on hand, and has a good idea of the distributor’s stock. The disadvantage is that the e-tailer is very dependent upon his distributor’s supplies, and may not be able to accurately reflect available inventory to his shoppers before they purchase.”

Warehousing is another business model followed by e-tailers. As the e-tailing business grows in revenue as well as product offerings, e-tailers prefer to switch to the warehousing model where the e-tailer develops its own warehouses to store inventory and is ready to dispatch as soon as he receives an order. “This approach is investment intensive, since e-tailers are paying for both warehouse space, and have capital tied up in inventory on the shelves. But it allows the best quality of customer service, since shipping and inventory records are maintained in-house.”, says Anil.

The choice of model depends largely on the size of the company and the amount of capital available; while large, well capitalized e-tailing players (e.g. Flipkart) have their own logistics divisions, the smaller ones work with multiple logistics providers. As the e-tailing industry is slowly pivoting to a marketplace model – most mid sized e-tailers are choosing to outsource their logistics to a market place model.

Range of Logistics options

Logistics companies also have a natural hierarchy in the industry.

• Full Service Logistics Providers like Blue Dart Express – They offer the widest geographical coverage to e-tailers. They also offer a wider spectrum of services such as API integration, POD, customer verification, data validation, fastest remittance of COD, low (Return to Origin) RTO’s, near ‘zero’ damages etc.
• Captive Logistics – A handful of e-tailing players choose to have their own logistics support that is managed in-house. Captive players are mainly used as cost control inventory and are used more in metros and easy to reach locations.
• Local Logistic providers – These include niche express service providers who cater solely to e-tailing shipments only. Such players focus on specific geographies and offer limited services, but are a good match for local / regional and mid sized e-tailers.

E-Tailer or Express Company?

“In today’s competitive landscape, while a self-owned logistics system may be a key differentiator, it’s not clear whether it will be a long-term solution, or a one size solution that fits all. Developing a self-owned logistics network entails a huge investment, besides requiring automation, innovation, investment in IT and also sufficiently trained staff, which should be able to provide value-added services to the network.”  – he explains.

This is an interesting ‘take’ on the market trend where companies like Flipkart have chosen to invest in the Logistics side of the business. Time will tell whether the move will enhance their valuation or whether they would have been better off continuing to work with multiple national and local express logistics partners.

Technology

The integration of technology on varied fronts adds to efficiency and visibility for the e-tailer. So what does Blue Dart have to offer on the technology front?

Blue Dart’s technology solutions have seen a high degree of customer adoption. 79% of Blue Dart’s regular customers use one or more of their solutions.

Home grown innovations like the COSMAT II (the tracking and ERP system), TrackDart (monitoring shipment status), MailDart (tracking shipments over e-mail), InternetDart (memory bank for shipments), PackTrack (tracking software for medium and large customers), ShopTrack (tracking and CRM tool for e-business portals), ImageDart (online download of proof of delivery challans/documents, to speed up the customer’s bill process, waybill issuance capability, customer directory, data upload and download of tracking information), among others have enabled the weaving of thoughtful information management into the logistics business.

Service Impact

The graphic summarizes the key impact areas / KPI’s of the express delivery service – for a e-tailer:

“Our sophisticated systems integrate seamlessly with processes to allow pick-up of shipments, move them across the network, deliver and convey information to the customer, invoice and maintain books of accounts. Blue Dart systems have been designed to monitor shipping patterns and sales trends of customers, locations and industry segments, month-over-month and year-over-year.” – concludes Anil.

Unfortunately, traditional tools for communicating between retailer, brand and trading partner are outdated. Many businesses still rely on ad-hoc spreadsheets, emails and phone calls throughout the transaction lifecycle, stacking up costs and delays in the supply chain.

Cloud Technology: A Good Fit for the Retail Supply Chain

As businesses start to embrace cloud technology, many global brands and retailers are finding that cloud-based solutions are a good fit for managing their global supply chains. Instead of sending separate updates to multiple trading partners regarding changes to an order, a collaborative model for the supply chain allows brands and retailers to post their updates in one place, where they are viewable by the entire supply chain network. This is the same network model of Facebook, LinkedIn, Pinterest etc. extended to your supply chain network.

Applying Cloud Technology to the Supply Chain

For Indian retailers, connecting the entire supply network in the cloud opens the door to new possibilities for speed, efficiency, savings, visibility and agility. As the availability and affordability of internet access for Indian businesses continue to improve, cloud technology becomes a simple, user friendly and low cost alternative for retailers and suppliers to exchange information. Processes from planning to purchase order, through settlement and delivery can be streamlined better when all parties are connected, sharing information in near real-time and on a single platform. Here are six examples of how global retailers are leveraging cloud technology for improved supply chain collaboration:

1. Improve Performance through Flexibility and Communication: Prior to each season a brand communicates its capacity and raw material needs with suppliers and mills. Each supplier validates whether it can meet that need or identifies lack of coverage early. At the time of PO issue, suppliers are prepared and all connected parties are instantly updated in case of changes.

1. Realize Full Margins by Eliminating Unexpected Delays: A brand’s sourcing department is automatically informed in real time of any significant delays anywhere in the goods sourcing process. Whether a delay originates in the availability of raw materials, during production or transportation, the brand is instantly alerted. The delay is identified and the brand has enough time to find the best possible solution to preserve a full margin delivery.

1. Increase Speed through Flawless Factory Floor Execution: A manufacturer uses a single platform that handles all of its customers’ requirements with regards to automated packing, scanning and shipment building to ship store-ready cartons or facilitate fast cross docking at its customer’s DC. At the same time, they improve packing accuracy and minimize chargebacks. Through the cloud, its factories have the tools to accurately pack customers’ orders, print or order compliant carton labels, and generate a customer compliant inbound shipping notice.

1. Mitigate Risk through Party Screening & Transparency: A global brand had a shipment of fabric scheduled to reach a vendor in North Africa. A name on the purchase order matched a name on a denied party list and the transaction triggered six red flags. A cloud-based sourcing solution that automatically tracks and scans transaction parties notified the brand immediately and the company halted the shipment. The brand modified its plans in time to ensure compliance.

1. Do more with the same: An outdoor apparel brand handles $500M in sourcing settlements with one person in accounts payable. A mid-size apparel company replaced all letters of credit with an open account platform without adding any staff to handle the supporting documentary process. Not only did they save their company a lot of money, they helped their suppliers save as well.

1. Optimize Capital: A global apparel provider utilizes a self-funded early payment program in the cloud and places information onto customs invoices to lower its duty payments. Using the cloud-based system, the brand obtains discounts from suppliers in exchange for delivering payment within 5 days from shipment, and pays duty on a lower invoice value. Suppliers obtain capital they need within days at rates 20-30% lower than financing available to the supplier locally.

Just as the global consumer, the Indian consumer is increasingly knowledgeable, tech savvy and demanding. In today’s omni-channel world consumers want the right product, at the right time, for the right price available through the channel of their choice.

An agile and collaborative supply chain can make all of the difference in meeting consumer demand and optimizing sales. A typical sourcing transaction involves 5 to 15 different parties and keeping all parties synchronized at all times has always been a hassle. Traditional methods of communicating are slow and inefficient – and cannot keep up with the changes occurring on the front-end. Cloud technology enables a collaborative model for the supply chain to enable all parties to communicate and transact in real time. With the right strategy, technology and support, your supply chain can move at the speed of the modern consumer. And that’s essential for optimizing your bottom line.

“Instead of sending separate updates to multiple trading partners regarding changes to an order a collaborative model for the supply chain allows brands and retailers to post their updates in one place where they are viewable by the entire supply chain network. This is the same network model of Facebook LinkedIn Pinterest etc. extended to your supply chain network.”

“Cloud technology enables a collaborative model for the supply chain to enable all parties to communicate and transact in real time. Brand can obtain discounts from suppliers in exchange for delivering payments quickly, and pays duty on a lower invoice value. Suppliers obtain capital they need within days at rates 20 30% lower than local financing.”