Thursday, January 18News That Matters

Snapdeal has to participate in Diwali sales to stay relevant in ecommerce: Ecom Express CEO

As Amazon and Flipkart gear up for Diwali sales, TA Krishnan, CEO of Ecom Express, one of e-commerce sector’s biggest logistics players explains why he is bullish on the festive season.

Krishnan explains the sale will be crucial for not only Amazon and Flipkart who are fighting to prove themselves as the market leaders, but also for Snapdeal that wishes to remain relevant.

How has the e-commerce market, especially the delivery segment, evolved in the last 3-4 years? What are your expectations from the festive sales this year as Amazon and Flipkart fight for dominance?

The year 2014 saw the kind of volume none of us had ever seen during the Diwali sale season. Shipments were pouring in and the industry did not know how to react. Forget about the logistics companies, even the ecosystem which is supposed to now deliver shipments collapsed. 2014 was probably the year which set the benchmark for the e-commerce industry growth.

The quality of operations is based on the quality of manpower you are able to on board, infrastructure you build and network which you have. 2014 was the first festival season which we saw and the volumes were something which we had never seen in the past.

We were averaging about 20,000-30,000 shipments and suddenly we saw a 1.2 lakh odd shipments.

We have had phenomenal learning in three years. It has prompted us to decide which portion of our business should be outsourced and which portion we should not. We have decided that network is something which we will never outsource.

You cannot afford to build an empire based on two or three months of sales. It has to be year-round growth. We cannot hire thousands and thousands of people only for 15 days of sales and then let them go when the volumes are not sustainable.

The two top firms (Amazon and Flipkart) which contribute to 60% of the market would now probably spend money to expand the market this year.

What sort of a volume is expected this festival season?

The market should see a peak of almost about anything between 4.5 million shipments to about 5 million shipments. This will at least be 60-65% growth than the last year when the industry touched a peak of about 3.2 million shipments.

On what parameters are you expecting this growth?

That’s on the basis of the kind of promotions and the kind of numbers the companies have planned for. My view — this will be the largest festive sale in the last four years in terms of sheer size.

Also, except for the May sale which happened for the 10th anniversary of Flipkart, there hasn’t been any significant sale in the last 8-9 months.

The industry hasn’t seen any campaigns, any serious promotions where two major players competed with each other for a larger volume. So this is the first time that is going to happen and both seem well funded. Everyone would try to consolidate their leadership position.

If Flipkart believes their forte and the leadership continues on the mobile side of the business, whether that segment makes money or not they would like to have the psychological advantage in being a leader in that field.

It will do everything to maintain that leadership position. Not that they will not focus on other categories but it becomes incumbent on a leader to now protect its turf and protect its position. A lot of it may not make business sense now, but eventually, it will start making sense.

So, if somebody is saying Amazon is very close to volumes in terms of what Flipkart churns out and Flipkart has been silent for the last 17-18 months, this would be a big opportunity for a full-fledged sale. Also, it may not be just be limited to one sale but could be followed by many sales in subsequent months.

What sort of capacity planning has been happening?
The capacity planning has been preponed by a month. We have started discussions with customers and the internal capacity planning since June and are expecting a much larger season to have so the pressure in on recruiting (temporary) employees. We have to put a whole lot of people and there’s a lesser time frame than what you normally get.

These employees will be under our control and will be hired for a period of three to four months.

How many additional people can we expect this year?

The workforce is going to go up by almost 100-130%. This time the season is much much bigger than any of it so far.

Will the slowdown in the order volumes of Snapdeal affect the overall sale season?

Volumes went down right from January and they are sticking to some numbers … because we are getting regular numbers from them. The kind of volume we are getting is decent and we are only at 33-35% player to them. If we are a 33% player and getting that kind of volume, their volume has to be much bigger than that.

My fundamental view is if Snapdeal has now decided to go on its own, for them to be relevant to this space and justify the existing the current valuation, they will have to participate in this festive sale.  There is no other way they can remain relevant to this sector.

Now to what extent they want to spend, they will have to figure out internally. But they will definitely have to play. Will the volume go up consequent to the promotions they will run? Yes, they will! But whether it will happen at the same proportion what will happen to Flipkart and Amazon that is something which is questionable.

Ecom Express was reported to be in talks to raise USD 150 million. Can you please clarify? 

Funds approach you in the ecosystem. So have I been approached by people too. Have been in discussions.

FY17 has been operationally profitable. We raised a substantial amount in 2015, so we are adequately funded for now and most of the expansion which we probably had to do, we have already done. My nearest competition is probably less than 50% of our coverage. We have service in about 17100 pin codes and the nearest competitor would be in about 8,000.

But what about in terms of volume?

It doesn’t really matter. What I am saying is that in terms of coverage, we see to the top 50 to 100 cities where eKart (logistics arm of Flipkart) and ATS (Amazon Transportation Services)  are available. They will not give the volumes to you unless there is a promotional plan, and the volume exceeds their capacity. So, you cannot build an infrastructure and live with that cost without adequate volume. Thus I am not too sure on the shared pin codes, which is common between let’s say ATS, Flipkart and courier partners.

So, the only way to expand is by going to places where they would not find it economically viable to operate. So, Tier II, III and IV cities are the places where usually none of them may have enough density of orders. Those places, we now fortify.

Fund-raising is a function of what plans do we have.

For most of the projects which we wanted to kick off have already been kicked off … so there is fulfillment service of ours, our network service or it is to do with our digital services which we are launching … and post this season, you will see in terms of expansion, we definitely have plans in November to fully cover six more states.

Earlier this year, you launched fulfilment business, how is that doing? Is it contributing to your immediate revenue?

It is building up very decent traction. But it is not a major contributor to the revenue. Its been just 6-7 months.

Will this be open for all the merchants you rope in?

My view is that I am not going to be competing with the merchants of let’s say Flipkart or Amazon or Snapdeal. Instead, Flipkart or Amazon wants me to do the warehousing for them I will be more than happy to do that. In places where they do not have their own or even in places where they have their own and they probably find a value in now engaging with us and they want to shift their operations, we would be more than happy to do that.

Currently, we have five customers and the demand from these five customers alone would probably make us open up lets say eight or nine facilities. These facilities are actually opening in the next two months time.

What sort of competition is coming from your immediate rival Delhivery? They are said to be offering comparatively lower rates.

The indirect subsidy doesn’t work. The customers are also smart, they know at what cost will it be feasible. I am not here for top-line growth. I can do the same thing what they are doing. I can ramp up but we are refraining from doing that because we don’t want to do that.

You briefly mentioned about digital? Can you explain what that is supposed to be? 

We are just in a test marketing phase. It is a different product and will only leverage the existing infrastructure. The profile of customers will also be very different from the existing customers. It is in business to customers segment. We should have a full fledged launch of the product in November.

 

source: moneycontrol.com

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