Omni Channel distribution structure

The rhetoric on the GMV (Gross Merchandize Value) seems to be replaced with “Net Sales” as a more relevant metric for the online retailers in India. This is in a perfect sync with constraints on raising fresh equity. Further, Omni-channel distribution structure is also getting a re-consideration both by pure brick-mortar and online marketplace retailers. Put simply, the forward and backward distribution structure in Omni-channel structure will have DCs, Retail stores, End-users with options of:

a. Online ordering/return with direct to home delivery

b. Online ordering/return with Store pick-up/drop

c. Store ordering with home delivery/return

There is a dearth of empirical evidence to validate the efficacy of Omni-channel in terms of its commercial viability. The complexity of managing the logistics and inventory levels at different points of supply chain warrants higher cost and may even erode the ‘cost-effective’ value proposition of online retailing. Tata Cliq is one such retailer (as per my knowledge) to launch an Omni-channel retail structure in India.

In retrospective, I feel, just like in the case of a relevant performance metric, the organized retailers have missed out on the Omni-channel structure from the start. My reasons to believe so are:

  1. Unlike some of the developed countries from where most of the platform-based/marketplace business models have been adopted, the share of unorganized retail in India is far higher i.e. greater than 90%. This means a supply chain structure is already in place. With ownership wide-spread across the stakeholders in the supply chain, the ‘efficiency’ at each stage has addressed several challenges pertaining to distribution structure, inventory levels etc.
  2. The scope for organized retail is well represented with a chart but the interpretation of this chart has been misplaced. It has been used to highlight the scope of retailing in India under the premise that the unorganized market share will fall and be replaced with organized retail market. Pls see below chart. (Source: ibef.org)

The other key reading of this chart is that 92% of USD 400 bn retail market in India has been operating and has existed only because it has been profitable. We have these retail outlets well spread across any city at locations that are accessible for in-store purchases. Instead of attempting to replace this with online marketplace model, the Omni-channel structure will allow leveraging these retail outlets that over the time could serve as decentralized inventory centers facilitating quicker forward and backward distribution easily and most importantly, the ‘localization’ is achieved.

There are tech start-ups that are attempting to better the distribution structure operating in the unorganized retail space. So there is a need for the organized retailers to revisit their business models when evaluating the Omni-channel structure.