Professional Documents
Culture Documents
August 2016
KPMG.com/in
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Table of contents
Introduction- Overview of the Indian
1 market
Way forward
4
Conclusion
5
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Foreword
Indias interest and curiosity in the e-commerce retail logistics is on a
rise. The e-commerce retail market is among Indias fastest-growing
markets and growth continues to be driven by various supply and
demand side factors. The increasing penetration of internet and
smartphones across the country, increase in the number of urban
households, ease of payment and compelling commercials and
discounts combined with the convenience, access and variety that
online shopping offers, act as market drivers.
The logistic needs of the industry are evolving rapidly with the changing
business requirements. The industry has been witnessing a rapid
scale-up in service orientation and complexity with an ever-increasing
emphasis on service levels, increased penetration in tier-II and tier-III
cities, surged Cash on Delivery (COD) services, geographic penetration
and supply chain security requirements. This evolution takes place while
coping with the legacy of infrastructure and regulatory woes, which
have long hampered logistics efficiency.
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Introduction-
Overview of the
Indian market
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 2
Others
USD1.4 billion
Source: KPMG in India analysis, based on industry observations and discussions, 2016
Note: Growth rate for categories, upto 2020
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
3 Fulfilled! Indias e-commerce retail logistics growth story
Large players are diversified across The share of electronics in online retail
categories and are building their is, however, expected to decline with
capabilities to service several of these higher growth in other segments such
categories. as apparel (CAGR approximately 50
per cent) and home furnishings (CAGR
In the coming years, the e-commerce
approximately 68 per cent) in the
The top three to four players retailing industry is expected to
coming next four to five years.5
witness the consolidation and
in the market currently emergence of few big players. Further, At present, the e-commerce retailing
command over 80 per changes in the FDI regulations could industry is witnessing approximately
cent of the market share also boost the penetration of major 1 to 1.2 million transactions per day,
in the overall domestic players and help them gain higher led by categories including apparel
e-commerce retailing space.5 market share by FY20. (approximately 43 per cent), electronics
(approximately 24 per cent), and books
Electronics is currently the largest
(approximately 22 per cent).5 The
segment in e-commerce retail,
number of transactions may however
projected to grow at a CAGR of
fluctuate with seasonal variations,
approximately 43 per cent till 2020.4
including holiday season and discounts.
04. KPMG in India analysis, 2015, based on industry observations and sector progress in 2016
05. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 4
Others
3% 100% = USD12 billion
Beauty and personal care
2% Electronics
Baby products 47%
2%
Books
7%
Apparel
31%
Source: KPMG in India analysis, 2016, based on industry observations and sector progress in 2016
2.5%
100%=USD37 billion
100%=USD3 billion
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
5 Fulfilled! Indias e-commerce retail logistics growth story
Source: http://articles.economictimes.indiatimes.com/2014-11-04/news/55757553_1_internet-and-mobile-association-iamai-
user-base, accessed on 19 November 2015
Despite the growth, only 19 per cent of which may not be the case with retail
the total Indian population has access store shopping.
to the internet compared to more than
Increase in internet-enabled
40 per cent in other peer countries,
devices: The rapid growth in affordable
such as Brazil, Russia and China.
electronic devices to access the
Moreover, out of this 19 per cent,
internet, including personal computers/
only 14 per cent of the population has
laptops, mobile phones (particularly
indulged in online shopping, compared
smartphones), internet television
to more than 30 per cent in other peer
and tablets are driving growth for
countries.9 While the numbers are
e-commerce retailing in the country.
currently low, there is a steady increase
Mobile phones (including smartphones)
in internet and mobile penetration,
internet users are likely to grow 2.5
presenting an attractive opportunity for
times by 2019, to touch 457 million10
e-commerce retailers.
thereby enabling a corresponding
Changing lifestyle of the Indian growth trend for the online shopping
consumer seeking convenience, industry in India. More than 50 per cent
comfort and variety: Online shopping of the orders for e-commerce retail
in metro cities is often associated with giants are generated via mobile apps.
ease and convenience, saving time In terms of traffic, bigger e-commerce
and a hassle-free options. Besides, retail companies draw as high as 50 to
products are delivered to customers 70 per cent of their total traffic through
either on the same or the following mobile.11
day of placing an order. For medium to In the coming years, potentially 40
small towns, online shopping stores million shoppers in the age group of 19
provide a wide range of domestic and to 24 years are expected to spend time
international brands, which may not and money online.12 This trend is rapidly
otherwise be easily accessible. Also, aligning with e-commerce retailing, to
e-commerce retailing sites offer better facilitate the sectors growth.
deals and discounts round the year,
09. KPMG in India analysis, 2015, based on industry observations and sector progress in 2014 11. #shooting for the stars, FICCI-KPMG in India report on Media and Entertainment, 2015
10. Impact of e-commerce on SMEs in India, KPMG-Snapdeal Report 12. http://www.consumerconexion.org/pdf/ACQ_OCTOBER_ISSUE.pdf, accessed on 19 November, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 6
CAGR 48%
USD0.46 billion USD2.2 billion
2016 2020
Others
1%
Books
Beauty and 3%
Apparels
personal care 1% 38% Baby products Apparels
Others 6% 36%
1%
Books
7%
Electronics
Baby products 29% Home furnishing
9% 23%
Source: KPMG in India analysis, 2015, based on industry observations and sector progress in 2016
13. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
7
Current state
of Indian
e-commerce retail
logistics
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 8
01. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
9 Fulfilled! Indias e-commerce retail logistics growth story
Cash on Delivery (COD): The adoption change in the future, with increasing
of electronic payments as well as penetration of wallets and increase in
credit card penetration is low in India as credit card penetration.
compared to global averages.2 This has
COD also adds to the complexity of
E-commerce retail returns
led to the adoption of COD services to
cash handling and leakages. The current are as high as 20 per cent.
increase the number of transactions Though COD has helped
remittance cycle of once in two weeks
and acquire first-time customers
rapidly. This also gives the consumer
is seeing a shift towards a 48-hour e-commerce retailing grow,
the choice to touch and feel the
remittance. On-time COD remittance is the chances of returns
crucial to reduce the lockup of working are higher in categories
product before paying for it. This option
capital. Usually, COD is a chargeable
is expected to remain a prominent
service and the charges can range from
with higher number of COD
mode of payment and could hold as
a fixed amount of INR21 to 35, to a 1.5 orders.2
much as 50-55 per cent share in total
to two per cent of the product value2.
shipments currently, with the growth
of e-commerce retail in tier-II and tier-III
cities2. The scenario may however
Source: KPMG in India analysis, based on industry observations and discussions, 2015
02. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 10
03. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
11 Fulfilled! Indias e-commerce retail logistics growth story
Inventory-led model
Source: KPMG in India analysis, based on industry observations and discussions, 2015
Source: KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 12
The marketplace model has two carried out by the sellers, and the items
variants - storage/warehousing by an are then sent for storage in the mother
e-commerce retailer and drop ship. In warehouse of the e-commerce retailer,
the marketplace model, inventory is or directly shipped to the customers The marketplace model
not stored by an e-commerce retailer. from the sellers warehouses. is being adopted for high-
Packaging and quality checks are value products, while the
inventory model is adopted
for relatively lower-value,
fast-moving products.4
Drop ship
Source: KPMG in India analysis, based on industry observations and discussions, 2015
Marketplace
Source: KPMG in India analysis, based on industry observations and discussions, 2015
04. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
13 Fulfilled! Indias e-commerce retail logistics growth story
The click and mortar share is relatively efforts of established players, and limit
smaller across categories primarily their expenses to publicise their own
because these companies strategically website/shopping pages.
plan to capitalise on the marketing Currently, 75 to 80 per cent of
e-commerce retail deliveries
E-commerce retail models by category take place within 7 to15 days,
while express and holiday
deliveries comprise of only
20 to 25 per cent of the
deliveries.5
Source: KPMG in India analysis, 2015, based on industry observations and sector progress in 2014
05. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 14
Source: KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
15 Fulfilled! Indias e-commerce retail logistics growth story
Now, 3PLs are coming up with Selection criteria for a cost of COD offerings, e-commerce
innovative logistics models such as retail companies also select a logistics
outsourcing last mile deliveries to
logistics service provider partner that offers a quicker cash
hyperlocal e-commerce logistics Reach is the primary step of filtration remittance cycle.
providers. There is also a growing trend used by e-commerce retail companies
Along with the reach and spread
of managing special services such in India. Currently, many logistics
of operations, the cost of delivery,
as time-bound deliveries, card swipe companies have an average reach
discounts offered and the cost of value-
at delivery and other in-house value of 4,000-5,000 pin codes, out of the
added services also play a major role in
added services, while outsourcing the 26,000 pin codes in India. A large
selection of a LSP. Players serving the
standard deliveries to the 3PLs. number of logistics companies are well
same locations at competitive rates due
penetrated in the metro and tier-I cities;
With the growing demand from to higher scale of operations could be
however, their reach is limited to smaller
customers and the need to attain preferred by both e-commerce retailers
cities and rural areas.6
a competitive advantage, quantum and vendors.
specialised services may increase in Value-added service offerings like COD,
E-commerce retailers also use certain
the near future, which could result in open and buy are critical in certain
performance parameters like on
outsourcing of these services to the deliveries and is generally the next step
time delivery, returns percentage,
3PLs as well. in shortlisting the logistics providers.
deliveries per million, success rates,
A few logistics companies offer this
etc. to profile and rank logistics
service in locations where they have
partners. The service quality of partners
their own branch and are not dependent
is measured by conducting random
on franchisees. These offerings are
customer surveys and accounting of
critical especially for segments like
complaint rates.
apparel and electronics. Beyond the
06. KPMG in India analysis, based on industry observations and discussions, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Trends shaping
the Indian
e-commerce retail
logistics sector
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
17 Fulfilled! Indias e-commerce retail logistics growth story
Technology in e-commerce
The boom in the Indian e-commerce e-commerce along with low credit and the food-delivery apps are charging
sector could be attributed to the debit card penetration has also led to an customers for delivery or reverse
enhanced use of technology, which increased usage of mobile wallets in the logistics. Some food tech-apps are also
has helped improve e-commerce in country. One of the largest player in the linked via GPS which allow the app to
areas across the supply chain, inventory mobile wallets market in India has more automoatically pick up delivery location
management, improved customer than 104 million users who carry out instead of manual entry by customer.
experience and loss prevention. From an over 75 million transactions per month2.
Integration of systems in case of
increased usage of mobiles and tablets,
Application Programme Interface a reverse supply chain: Returns
the availability of COD services, superior
(API) integration of e-commerce management is a key challenge
technology platforms, inventory tracking
retailers system with the 3PLs specially with e-commerce retailers
and automated fulfilment centres, etc.
system: The success of the providing options of try and buy, and a
have all been driving growth in this
e-commerce retail business is return policy of seven to 10 days and
sector.
dependent on the speed of the supply upto 30 days in categories such as
The increased penetration of internet chain. Data transfer for 3PLs is currently white goods. No 3PLs currently offer
services and faster internet services manual via e-mails, with little to no real-time visibility or updates on the
like 3G and 4G have contributed to the integration in the supply chain. In the status of reverse shipments. Now,
ease of selling and buying/purchasing near future, we can expect to witness 3PLs are moving towards dedicated
products online. Additionally, with an increase in usage of API and system returns management centres which
increasing smartphone penetration, the integration between the e-commerce carry out quality checks, relabelling
e-commerce retailers are also focusing retailer and 3PL for real-time and an and handover of cargo for return to
on mobile apps as against websites. uninterrupted exchange of data and warehouses of sellers or e-commerce
The use of digital marketing including information, for immediate action and retailers. The future is expected to
mailers, digital billboards, mobile query resolution. This is likely to help witness investment in technology by
messaging and e-mails also help to improve the visibility of shipments and e-commerce retailers and 3PLs for their
target specific potential customers with also ascertain reasons for delay, in case reverse logistics supply chain, along
special offers. of any. with a robust control environment
to tackle fraud and tampering during
Online advertisements and electronic Launch of Card Swipe on Delivery:
reverse logistics.
word-of-mouth via social networking The sector is expected to move towards
sites further entice people to buy Card Swipe on Delivery (CSoD) and At present, e-commerce retailers opt
products. For instance, certain mobile Point of Sale (PoS) machines for for superior technology platforms and
companies exclusively sell via websites payments at the customers end. integrated order management systems
and mobile applications. Transactions on CSoD are expected to for offering automated fulfilment
also increase due to a higher average centres. The sector is witnessing a shift
More than 50 per cent of the orders for
selling price of products. This could help with fast-moving mobile and social
e-commerce retail giants are generated
in ease of cash management required technologies. E-commerce channels are
via mobile applications. In this context,
in case of COD orders and help to drive integrating their customer relationship
the COD option has been instrumental
growth in the sector. management software, social
in driving retail e-commerce growth
media marketing and search engine
in a developing market like India, with Focus on tech-enabled logistics:
enhancement practices for better supply
low penetration of debit or credit cards Large retailers are now investing in tech-
chain management.
or even bank accounts to make online enabled start-ups. Several food-delivery
purchases1. Features such as online apps are now linked to the Google Maps
only discounts, online coupons and free app as well as to the taxi-apps, thereby
shipping facilities could further help in allowing users to track and monitor
expansion of this sector. The growth in deliveries from the restaurants. Also,
01. KPMG in India analysis, based on industry observations and discussions, 2015
02. Alibaba, Ant Financial invest about $680 million in Paytm, up stake to 40%, The Economic Times, accessed 6 Nov, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 18
At present, e-commerce retailers opt retailers, the sector seems to be Novel parcel delivery
for superior technology platforms and undergoing a modular shift toward
integrated order management systems outsourcing the fulfilment process.
models Parcel lockers
for offering automated fulfilment and PUDO (pick-up and
A shift to the marketplace model and
centres. The sector is witnessing a shift
convenience to vendors are expected drop-off) locations
with fast-moving mobile and social
to drive the demand for outsourced Similar to European markets, the Indian
technologies. E-commerce channels are
fulfilment centres. Category-specific e-commerce logistics market is now
integrating their customer relationship
focus and concerns further drive implementing the concept of PUDO
management software, social
e-commerce retailers towards (pick-up and drop-off) centres that
media marketing and search engine
outsourcing fulfilment. allow buyers to collect or return goods
enhancement practices for better
supply chain management. Further, large e-commerce retailers ordered online.
could manage their own fulfilment, For instance, existing outlets of
Shift towards outsourced but players who need the last mile some large logistics players are being
fulfilment, such as in case of furniture, converted into PUDO outlets, which
fulfilment models need to look at external fulfilment as will give online shoppers the option to
The Indian e-commerce retail sector they require hubs for the same near collect their orders from offline centres
continues to grow and evolve. In its their markets. located in convenient locations around
initial years, e-commerce retailers homes and offices. Indian e-commerce
Sustained growth in the e-commerce
dealt with low product volumes, with companies are also experimenting
retailing sector in India is expected
limited geographic reach, and hence with parcel pick-up from local grocery
to drive the requirement for higher
managing operations in-house was stores and petrol pumps to increase
warehousing space. Beyond a certain
relatively less complex. Higher costs convenience and reduce the cost of last-
scale, e-commerce retailers may find it
and limited external capability in case mile delivery.
difficult to manage multiple warehouses
of outsourcing fulfilment also drove
and move towards outsourcing. Below
several e-commerce retailers to manage
are the key drivers which help move/
their fulfilment in-house. However, with
enable outsourced fulfilment centres.
an increase in the scale of business and
the emergence of mid-tier e-commerce
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
19 Fulfilled! Indias e-commerce retail logistics growth story
E-commerce retailers are also testing Seller driven logistics up with innovative logistic models such
click & collect or automated parcel as outsourcing last mile deliveries to
delivery terminals, which will be used There is also an increasing number of hyperlocal e-commerce logistic service
to deliver and store parcels purchased instances wherein the sellers manage providers.
online. Customers can operate these packing as well as dispatch, depending
on the number of sellers, volume of There is also an increasing trend of
boxes using mobile phone apps or
transactions and geographical footprint e-commerce retailers managing special
one-time passwords that are generated
of the seller base. services such as time-bound deliveries,
on entering the airway bill number, to
card swipe at delivery and other
collect or return parcels at convenience. This program is however available to value-added services in-house, while
The services are aimed at offering sellers who have been associated with outsourcing the standard deliveries to
delivery security, flexibility and the marketplaces for a considerable 3PLs.
confidence to costumers, in addition to time and have been consistent in terms
of sales as well as customer feedback. However, with the growing demand
reducing missed/ failed deliveries which
from customers and the need to attain
push up the delivery costs significantly
for e-commerce retailers. All these
Differentiating loyalty a competitive advantage, specialised
programs services might increase in the near
ideas underlie the common theme of
future and thereby, result in outsourcing
addressing last mile delivery concerns Leading e-commerce retailers are these services to 3PLs as well.
that continue to the plague the rapidly also launching loyalty programs for
growing e-commerce retail industry. customers, with subscription policies Regulatory environment for
offering several benefits at a nominal
Faster delivery models annual charge. Some of the benefits e-commerce retail
There is an increasing trends of same- include free shipping and returns, The regulatory environment for
day, 1-day or 2-day deliveries in the discounts on same day deliveries along e-commerce retail sector in India is
Indian e-commerce retail market for with priority customer care. constantly evolving and being liberalised
most product categories. given the huge potential to attract
The loyalty programs as a differentiating
Additionally, international as well factor may be helpful in in tying back foreign investment and benefits to
domestic retailers are offering deliveries users to the site for purchases and consumers.
not only within a day or two but also increasing customer stickiness. In terms of the extant Foreign Direct
within a specific time-frame, 90 minutes Investment (FDI) Policy3, 100 per cent
The e-commerce retail market if also
to two hours, at an additional charge. FDI is allowed under the automatic
witnessing a host of experience stores
This model has been particularly gaining route in Business-to-Business (B2B)
focusing exclusively on specialised
popularities for grocery products. trading activities including through
categories, such as make-up, lingerie,
baby-products, furniture, eye-wear, e-commerce, which refer to buying and
Focus on rural distribution selling of goods and services including
etc. The increasing variety of products
Some of the largest e-commerce available online also have varied digital products over digital and
retailers in the country are now logistics requirements with increased electronic network. Such companies
focusing on rural distribution models opportunities for logistics service are only permitted to engage in B2B
to cater to tier 3 and 4 town customers. providers. trading through e-commerce and
Companies are building pick-up & drop not in Business-to-Consumer (B2C)
points by tying up with local shops The expectations of the customer e-commerce activities.
in rural areas and also employing base in India are now evolving. There
is an enhanced focus on delivery costs Until last year, there were ambiguities in
local youth to smoothen the delivery foreign investment in B2C e-commerce
process and also cut down on long than delivery time alone. The market is
witnessing a shift towards customers segment4 . The Department of Industrial
delivery times as well as keep Policy and Promotion (DIPP), Ministry of
delivery costs under check. Specialist willing to pay for logistics for speed,
reliability and convenience. Commerce and Industry, in November
skill development and employment 2015, permitted companies with
companies are helping to run these
centres in rural India and involve rural
Increased outsourcing of foreign investment engaged in Single
Brand Retail Trading (SBRT) activities
folks in the e-commerce growth story. logistics functions to undertake B2C sales through
Logistic service providers in e-commerce upon satisfaction of
e-commerce retail industry are coming prescribed conditions5.
03. Consolidated FDI Policy,2016 issued by the Department of Industrial Policy and Promotion dated June 07, 2016
04. Govt turns down FDI in retail e-commerce, Business Standard, 10 June 2015
05. Press Note No. 12 (2015 series) dated November 24, 2015
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 20
The key condition for carrying out online it has been further provided that the
SBRT sales is to setup at least one Indian brands should be owned and
physical brick-and-mortar store (offline controlled by resident Indian citizens
sales) in India. In addition to above, inter- and/or companies, which are owned and The market potential
alia, FDI in SBRT activities (including via controlled by resident Indian citizens. for fulfilment centres is
e-commerce portal) is subject to certain estimated to increase from
The above liberalisations in the FDI
stipulations including compliance with
the 30 per cent local sourcing clause
regime, especially in the context of retail about USD34 million in FY14
(for FDI beyond 51 per cent), sale of
trade, have significantly contributed to to approximately USD430
revival of the foreign investor confidence million by FY20, depending
products branded during manufacturing,
in India. This is evident from the fact that
execution of a legally tenable brand
up to March 31, 2016, the government
upon a commodity-wise
licensing agreement in India etc.
cleared 89 proposals for foreign preference to outsource and
Over the last couple of year(s), the investment in retail trade resulting into a vendor preferences.5
Indian government has also relaxed the significant FDI inflow into the country7.
sourcing norm in a calibrated manner.
Another significant development in the The rules governing sales tax for
Under the extant FDI guidelines6,
e-commerce space from a regulatory commercial and e-commerce retail
initially, the companies engaged
standpoint is the introduction of shipments also vary across regions
in SBRT activities were required to
guidelines [vide Press Note No. 3 (2016 with regards to the required forms,
comply with the 30 per cent sourcing
series) dated March 29, 2016] governing their validity, exemption levels,
norm as an average of five years of
FDI in marketplace e-commerce models. treatment of promotional schemes/
total value of goods purchased from
The new guidelines clearly lay down the discounts etc. Also, recently many
the opening of the first store in India,
definition of inventory based model of states (such as Bihar, Uttarakhand,
subject to adherence to certain other
e-commerce [inventory of goods and Gujarat etc.) have amended their
procedural conditions. However, for
services is owned by the e-commerce entry tax laws to levy entry tax on
the foreign retailers employing state
entity and is sold to consumers directly] e-commerce transactions. Some of
of art and cutting edge technology in
and market place model of e-commerce the e-commerce players have even
manufacturing of their products and
[provision of information technology challenged such entry tax provisions
unable to source locally from India,
platform by an e-commerce entity on a before High Court as regards their
the Indian government has recently
digital and electronic network to act as constitutional validity. Ambiguity and
introduced [vide Press Note No. 5 dated
a facilitator between buyer and seller], grey areas of interpretation of indirect
June 24, 2016] an option to seek a
thereby permitting 100 per cent FDI in tax laws are hampering the growth of
complete exemption from local sourcing
a marketplace model of e-commerce e-commerce retail sector. The Goods
for a period of three years, subject
under automatic route, subject to certain and Services Tax (GST) is however
to prior government approval. After
prescribed conditions. FDI in inventory expected to alleviate these concerns to
completion of the exemption period, the
based model of e-commerce on B2C a large extent.
SBRT retailer in the next five years will
basis is prohibited.
have to meet the 30 per cent sourcing Further, from a corporate tax
norm at an annualized average rate of The prescribed stipulations entail standpoint, it has always been a
the total value of the goods. Thereafter, prohibition on offering of discounts challenge to ring-fence the digital
they need to comply with the norm on or exercising ownership on inventory, economy and bring to tax the
an annual basis. no direct role in influencing pricing transactions in India. The Organisation
decisions of vendors, ceiling on each for Economic Cooperation and
It is important to note here that the
vendor/group company account to Development (OECD)s Action Plans9
Indian brands are equally eligible for
not exceed 25 per cent of total sales on Base Erosion Profit Shifting (BEPS)
undertaking SBRT. It has also been
effected through marketplace model have suggested some measures
provided that certain conditions of the
etc8. to adopt global taxation principles
FDI policy, such as products to be sold
for e-commerce viz. modification
under the same brand internationally In terms of indirect taxation, the excise
of PE concept, progressive tax on
and investment by non-resident entity/ tax is levied at the central level, while
the bandwidth usage of websites,
entities as brand owner or under legally sales tax at the state levels, along with
withholding tax by financial institutions
tenable agreement with the brand octroi/entry taxes in select jurisdictions.
while making payments for digital
owner, shall not be made applicable in
goods/services.
case of FDI in Indian brands. Further,
06. Para No 5.2.15.3 of the Consolidated FDI Policy, 2016 09. BEPS Action Plan 1: Address the tax challenges of the digital economy
07. Government clears 89 single-brand retail, 1 multi-brand proposals, Economic Times, August 01, 2016
08. Para No. 5.2.15.2.4 of the Consolidated FDI Policy, 2016
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19 Fulfilled! Indias e-commerce retail logistics growth story
In light of the recommendations of Currently, the specified services for such goods and different target
the OECD BEPS Action Plans, the have been defined to include online consumer profiles.
government recently introduced in the advertisement, any provision for digital
Against the above backdrop, certain
Finance Act, 201610, an Equalisation advertising space or any other facility
questions still remain unanswered while
Levy (EL) for taxation of digital or service for the purpose of online
new questions have been raised with
transactions. The EL is form of tax advertisement. However, the Indian
respect to the changes in the FDI norms
(although enacted through a separate Government may notify additional
with respect to e-commerce. The FDI
code in the Finance Act and does not transactions to fall within the purview of
norms fail to elaborate the meaning
form part of the Income Tax Law) to EL in times to come.
of maintaining level playing field
tax the e-commerce transaction/digital
A favourable regulatory environment and influencing price with respect to
business. The rate of EL is 6 per cent11
would be key towards unleashing the marketplace e-commerce activities.
payable on the amount of consideration
potential of e-commerce. The real Further capping the amount of sales
for specified services received or
and perceived benefits of allowing by a particular vendor creates distress
receivable by a non-resident not
FDI in the Indian retail sector such with big e-commerce companies who
having Permanent Establishment (PE)
as efficiency in operations, creation have merchants that account for large
in India, from a resident in India who
of jobs, investments in the back-end chunk of sales. The much-needed
carries out business or profession, or
infrastructure and its overall contribution capital infusion, however, needs to be
from a non-resident having permanent
to economy also hold true for the facilitated either by further relaxing the
establishment in India. The levy is
e-commerce sector. In the unorganised existing FDI norms applicable to multi
currently applicable only on business
retail sector in India, e-commerce is brand retail trading through e-commerce
to business (B2B) transactions, if
not a threat, considering factors such or by encouraging domestic sources of
the aggregate value of consideration
as a minimal product category overlap, funding.
in a year exceeds INR1,00,000
the perishable nature of goods sold at
(approximately USD1,500)12.
grocery stores, small transaction size 10. Chapter VIII, Finance Act, 2016
11. Section 165 of the Finance Act, 2016
12. USD1= INR 66.66
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Fulfilled! Indias e-commerce retail logistics growth story 20
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Way forward
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Fulfilled! Indias e-commerce retail logistics growth story 22
The e-commerce logistics sector increase in the future1. A growing trend warehouses of sellers or e-commerce
continues to evolve rapidly with changes towards the marketplace model has also retailers. The sector is thus expected
in the business environment. prompted e-commerce retailers to open to witness consolidation for better
fulfilment centres near the sellers, with services and profits.
With an expansion in reach and service
fulfilment centres in tier-I cities. This has
levels, LSPs need to evolve to offer a The e-commerce retail sector is also
led to outsourcing of fulfilment centres
portfolio of a range of services, as well witnessing new kinds of services
to 3PLs who have better presence at
as consistently innovate to keep pace such as slotted deliveries and evening/
these locations.
with the rapidly changing dynamics of morning deliveries to increase customer
the sector. In terms of mode of transport, air satisfaction. This is expected to add
transport has traditionally been the more responsibility on 3PLs and hence,
The sector is expected to witness
preferred mode for long distance they need to step-up their capabilities
increased penetration in tier-I and
movements.1 However, it increases to provide customers a better service
tier-II cities. More than 50 per cent of
the logistics cost per unit. However, experience.
e-commerce shipments are destined
with the prevalence of the marketplace
for cities/towns outside the regular E-commerce logistic service providers
model, long distance movements are
metropolis; with focussed local need to keep pace with the changing
expected to reduce, thereby leading to
campaigns being undertaken to increase needs of the business, whether launch
express surface movements becoming
buyers and sellers from smaller cities1. of value added services to match
the preferred choice of transport.
The increase in purchase through mobile growing customer expectations or
applications is one of the reasons for The sector is also expected to expanding reach into the semi-urban/
a shift in the customers base from witness increased focus on returns rural areas to enable new customer
metros to tier-I/II cities. management. Some 3PLs operate acquisition. In a nutshell, logistic service
dedicated returns management centres providers need to be flexible as per the
The share of COD transactions by
for end-to-end returns management, demands from the customers.
volume currently is between 60 to 70
including a quality check, relabelling and
per cent, but the volume is expected to
handover of the cargo for return to the
01. KPMG in India analysis, based on industry observations and discussions, 2015
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23 Fulfilled! Indias e-commerce retail logistics growth story
Procurement/inventory management
Multiple tax rates across geographies - compliance of sale invoices to tax laws
Monitoring delivery related service level agreements/pending orders
Products sold at higher than maximum retail price/negative margins
Promotion codes used after expiry/beyond the defined criteria.
Customer support
Reconciliations
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Conclusion
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Fulfilled! Indias e-commerce retail logistics growth story 26
The sustained growth of over 50 per support function, logistics here enables swipe at delivery and other value
cent in the Indian e-commerce retail growth in e-commerce retail with added services could be managed
sector underlines the need for efficient respect to strategy and execution. in-house, while standard deliveries
and sustainable logistics operations for could be outsourced to 3PLs. However,
Time-definite deliveries including same-
various sizes of e-commerce retailers in the long-term, with an increase in
day and next-day deliveries as well as
in India. The growing prominence of the specialised services, these could also
delivery with in a particular time window
marketplace model and the increasing be outsourced to 3PL providers.
could continue to gain prominence in
penetration of e-commerce are likely
the future. The service reliability for The governments plan to implement
to alter the way e-commerce logistics
these segments is expected to remain GST is a positive step toward simplifying
functions in India.
critical for the success of e-commerce the tax structure on sale of goods and
A combination of delivery speed, retailers and logistics providers. services. The government would require
upgraded warehousing infrastructure, The ability to handle cash for COD to study the taxation and jurisdictional
better service capabilities, technological transactions and timely cash remittance laws to address the multi jurisdictional
advancements and innovations could could be imperative for servicing the nature of e-commerce transactions
be some of the must haves for the sector. and provide a clarity on tax laws for
e-commerce LSPs in the longer run. transactions involving information
The increasing network of e-commerce-
products.
The growth in e-commerce in coming focussed retail logistics providers and
times shall be driven by rural and tier increasing emphasis of full-fledged The emerging trend of outsourcing
II III cites. These cities are expected to LSPs on the e-commerce retail sector e-commerce retail fulfilment centres
account for approximately 55 per cent are expected to lead to intensified to logistics providers could depend
of the orders1. E-commerce retailers competition in the market, putting on a commodity-wise preference to
are expected to continue to shift pressure on costs and margins. The outsource and vendor preferences.
towards the marketplace model, with concept of captive logistics arms The scale of operations could play an
multiple merchants across categories might be hived off since it is not a core important role in maintaining cost
from various parts of the country. business for e-commerce retailers. efficiency, and at the same time
Warehouses are being planned across Also, while the e-commerce logistics addressing delivery-related challenges
the country to serve a dispersed sector is expanding at a rapid level, it for e-commerce retailers. Henceforth,
set of vendors and customers. This might be difficult to scale the logistics logistics providers could expand
decentralisation of demand and supply infrastructure and capabilities at a strategically and functionally to capture
could also help improve the market corresponding pace; thus leading to an the opportunities emerging out of an
share of surface movement. increase in outsourcing as opposed to e-commerce proposition.
building in-house services.
Technology and logistics are key to the
success of e-commerce businesses. In the short-term, specialised services
Unlike other sectors where logistics is a such as time bound deliveries, card
Acknowledgement
We take this opportunity to thank our authors, Prahlad Tanwar and Kirtika Doger for helping us develop an insightful
publication. We also extend a word of gratitude to Jaideep Ghosh, Shreedhar Prasad, Anujesh Singh and Angad
Singh for providing strategic direction to the report and the initiative at large. We hereby acknowledge the efforts put
in by our Brand Management and Marketing Compliance team- Hussain Rahat, Priyanka Agarwal, Sharon Dsilva and
Sanjeev Bhar. We thank CII for their continued guidance and support.
01. KPMG in India analysis, based on industry observations and discussions, 2015
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Contact us
Nitin Atroley
Partner and Head
Sales and Markets
T: +91 124 307 4887
E: nitinatroley@kpmg.com
Jaideep Ghosh
Partner and Head
Transport, Leisure and Sports
T: +91 124 307 4152
E: jaideepghosh@kpmg.com
Prahlad Tanwar
Director
Transport and Logistics
T: +91 22 3091 3417
E: prahladtanwar@kpmg.com
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