All e-retailers want to maintain good margin on all categories of products. But due to intense competition and getting higher sales, they tend to decrease their margins and offer the products at discounted rates to customers. Basically they sell the products at Market Operating Price (MOP) or slightly higher. MOP is the least price set by brands at which dealer or retailer can sell the product. In a way this provides customer more savings in their basket. But from e-retailers point of view it gets challenging to continuously offer products at low prices though on the other hand they are able to keep sales ticking with these prices.
E-retailers always negotiate hard with distributors so that they can garner higher margin. But if they continue selling at MOP they would lesser their leverage of profitability and will have to depend on the funding to scale their business.
Availability of Products -
Online customers are target oriented shoppers. If they don't find what they are looking for they would immediately switch to another website. E-retailers tie up with different distributors to make sure they can get stock of products when they require. There is high value items for which the demand is unpredictable. It would be highly unlikely e-retailers would order high value items in bulk from supplier and stock at their warehouse. In such cases they keep only limited stock of high value items or in some cases no stock and tie up with distributors/ vendors to have stock, so that if high value item orders are placed it can be fulfilled on time. The challenge arises when the regular distributors or supplier does not have the stock, and it has to be arranged from other distributors.
There must be forecasting done for each of the products. Based on this e-retailers can have at least minimum stock maintained at distributors to avoid stock out situation.
Logistics and supply constraint for e-retailers -
There are orders from metro cities and also from far off places. Increase in supply of products and lack of logistics in far off places can be a challenge for e-retailers. Few e-retailers have their own logistics network for intra-city and rely on third party services for inter-city. Others depend totally upon Third Party Service Providers (TPSP). Having warehouse at all places is also not cost effective solution. TPSP mostly use surface network to deliver the goods as this is the choice provided by e-retailers to keep their distribution cost low. Utilizing air network for delivery would be more costly.
The challenge for e-retailer is to provide timely delivery at far off places. Each TPSP have their own strength based on their delivery network and serviceable locations. Some pin codes can only be serviced by few TPSP. It would make sense for the e-retailer to tie up with 3 or 4 service provider based on his serviceable location pin code. E-retailers can carry out a one to one mapping for pin-code and service providers, which would be unique. Hence when the customer places the orders, based on his address pin-code automatically a delivery request will be directed to the concerned TPSP. Customer could eventually track their orders in third party service provider's website by providing the Way Bill number or Order number.
The above are my views. Please fill free to write about other challenges from your experience or views which the online retailers are facing.