India’s top ecommerce retailer Flipkart is making a lot of losses and as a result, it has witnessed a decrease in investor confidence. The online marketplace was devalued numerous times and even saw the loss of top-level management. To slash its burn rate the etailer is spending less on promotions. The ecommerce company is also making other efforts to reduce its spending ahead of its next funding round.
Low-cost delivery project
To reduce expenses even further, Flipkart plans on introducing a low-cost delivery system. It will involve the use of low-cost delivery channels in main cities through the country. This delivery system is expected to go live across major cities this year as it was piloted successfully in a few in the previous year. About 50 cities will have this financially efficient delivery system from Flipkart. This will not only bring down logistics costs but also the pressure on the delivery network.
A Flipkart source mentioned, “We have tested the alternative delivery mechanism across 30 cities in India last year. The experience we have gained from this pilot has given us very good result and helped us cut down our logistics cost significantly. We are now doubling the number of cities in 2017.”
How will the low-cost delivery system work?
This system is expected to manage at least 20% of the total daily deliveries, a Flipkart source revealed. It will comprise of tech parks, kirana stores and large apartment complexes where last-mile delivery agents will be appointed to take care of delivery.
The etailer will first deliver orders to kirana stores or the other options mentioned. From there either the customer can come pick up his package at a time convenient to him or have it delivered to his doorstep, by the last-mile delivery agent.
According to sources, this model has already helped Flipkart reduce the cost of last-mile delivery in the cities where it has been introduced.
How is Flipkart cutting costs with this delivery system?
With its alternative delivery system in place, Flipkart no longer has to pay salaries to employ a large number of delivery persons. It can simply have a few kirana stores complete this task for a nominal commission.
Depending on experience in the field of parcel distribution and delivery, delivery boys make around Rs.500-Rs.12,000. Flipkart also makes sure its delivery team gets the benefits regular employees do.
Apart from its logistics arm Ekart, the online retail platform also uses third party logistics from ecom express, Delhivery and Bluedart. All these factors add to its logistics expenses.
Flipkart ships about 5,00,000 packages in a day. During the festive season, this number was at 8,00,000 parcels per day. With the help of different delivery models Flipkart managed to bring down its costs by 30% compared to its competitors.
In the past, Flipkart’s Ekart got into an agreement with about 300 Apollo pharmacy stores to serve as pickup centres to reduce failed deliveries. And, another 700 kirana stores help Ekart complete last mile delivery. Amazon also uses kirana stores to increase the pace of last-mile delivery. The foreigner is working on expanding its 2 hour delivery service which some believe it is impractical. Could this move cost Amazon and put Flipkart ahead of it again?