Can you run a successful Internet retailer in a country where people are reluctant to use their credit cards on-line? That’s the challenge in India where it is reported that 90% of retail transactions are in cash. That’s a deterrent to building an on-line business. On the other hand, you have a growing middle class and increasing Internet access. Today’s New York Times profiles FlipKart, one of the Indian firms rising to this challenge (In India, Online Retailers Take a New Tack, Sep 15). It aspires to be the Amazon of India (assuming that it can achieve that before Amazon itself comes to town). Here is a Wall Street Journal video from a few months ago with one of the firm’s founders discussing FlipKart and the challenges of dealing with customers who won’t blithely hand over their bank information.Vodpod videos no longer available.
So just how are they able to do business? Basically, they run their own delivery system with couriers ready to take payment in person.
While dozens of electronic commerce firms have recently sprung up to capitalize on India’s growing Internet use, they have a problem. Indians are not yet comfortable with shopping on the Web. Many of them remain unwilling to use credit cards online. So the Indian retailers have gone to great lengths to gain customers. Customers may pay in cash on delivery, and the company fields delivery squads to ensure shipments get to customers quickly.
One recent afternoon, four FlipKart delivery men loitered at a bungalow in the Koramangala section of Bangalore where the company started. When a small delivery van arrived from the company’s warehouse, the men rushed to take out two large duffel bags filled with packages that they put onto two tables in the house.
After scanning the packages with hand-held computers, they put the boxes into large backpacks, which they carried on their backs as they rode off on motorcycles to deliver them.
The drivers can then take payment in cash or credit card upon delivery. In the US, Amazon doesn’t charge your account until an item is set to ship. Here, you don’t pay until a guy is standing at your door ready to hand you your book.
This is obviously an interesting variation on standard e-commerce models. FlipKart has essentially been forced into it because of consumer behavior. It can afford to do it, in part, because labor is cheap and because the alternative of using independent courier services is relatively expensive.
[FlipKart has] set up delivery operations in 13 big Indian cities like Bangalore, Mumbai and New Delhi because Indian shippers do not have the delivery and package-tracking abilities that FedEx and U.P.S. provide for its American customers. They plan to expand FlipKart’s delivery network to 25 cities within a year.
Sachin Bansal, the company’s chief executive, said that by having its own staff, FlipKart avoids paying courier services’ commissions of more than 2 percent to accept cash on delivery, which make up about 60 percent of its orders. It can also track packages more accurately. And because labor costs are relatively low in India, its delivery cost is a modest $1 a package.
“More than 90 percent of retail transactions in India are in cash,” Mr. Bansal said. “People like my dad and my uncle, they are much more comfortable with cash. If we have to increase our customer base, we have to accept cash.”
I must admit there is aspect of this that reminds me of Webvan, one of the darlings of the first dotcom boom. Webvan’s mission was to deliver groceries to your home but they had dreams of being a “last mile” solution provider that could sell anything. FlipKart is a little different in that they don’t (it seems) have access to high-quality delivery firms such as there are in the US. Webvan was never going to have an operational advantage on delivering DVD over UPS but FlipKart seems to get a leg up over other firms by having its own delivery system. Conceivably, this operational capability becomes a barrier to entry for Amazon or any other firm that wants to take on FlipKart.
Would you ever see something like this in the US? I find that hard to imagine. And that is not just a cost issue. Paying on actual delivery works if there is someone home to make the payment. That requires that there is virtually always someone at home. That is not true in many American households. The Times article does not say how FlipKart deals with this but I wonder if it will become more of an issue in India as well if growth results in more two income couples or more workers in formal jobs away from the home.