The flat shipping costs are to encourage higher average order values since the platform has no minimum order value, the core member mentioned above said. This has worked in Udaan’s favour, with the average order value currently hovering between Rs 5,000-6,000 (~US$66-79.4), according to one former and one current executive.
“After it becomes more robust, we can change it again,” the core member said.
How Companies are Taking an AI Drive for Success?
The biggest issue with managing logistics, however, is that Udaan needs to handle returns. This is a huge problem for the company, which sees a 40-50% return rate across categories, according to employees both current and former.
While several buyers we spoke to said the flat fee was attractive, Udaan’s processing of returns meant it was not worth the bargain. “They don’t approve returns easily; out of 100 items, if 10% is spoiled, we need to dump it and absorb the losses,” said the Delhi-based buyer, who used the platform to procure groceries and vegetables. He has been waiting for a Rs 1,350 (~US$17) refund for the last four months and has instead switched over to one of Udaan’s rivals, Ninjacart.
A buyer who wants to return a product has to raise a request on the Udaan app, with clear pictures of the product in the original packaging and the damaged goods post unwrapping, said Sonu Shrivastava, a computer parts retailer. Shrivastava has been on Udaan since 2016 and his only grouse is the returns and customer service. Shrivastava paid 10% of the cost of an order in advance and is still waiting for a refund.
On the other hand, suppliers bear the cost of returns and non-delivery. One month before the lockdown, Udaan informed suppliers that packaging delays or cancellations will now cost them Rs 50 (US$0.7), Gupta said. Suppliers are also expected to take 360-degree videos of shipments before they are picked up if they wish to contest potential returns. This isn’t par for the B2B course. “Sellers have to take 360-degree videos to say it’s not my fault it was returned,” the formal zonal manager quoted earlier said. “Their logic was that it happens with Amazon and Flipkart, but B2B doesn’t work like that.”
With both sellers and buyers on the platform feeling hard done by, Udaan’s early gains are in serious danger of coming undone.
Charting a new course
Even Udaan’s most ambitious bet, providing credit to buyers and sellers, hasn’t panned out the way it hoped. Udaan was granted a non-banking finance company (NBFC) licence in 2019, which allows it to offer small loans—from Rs 10,000-2 lakh (US$130-2,650). The loan size is increased based on a buyer’s purchasing history and frequency of transactions, a former executive at the company’s credit unit said. While buyers are charged an interest rate of 3.25%, sellers don’t pay interest at all.
Lending to small retailers, though, means that defaulting is a serious concern. Udaan doesn’t ink any formal agreement to hand out credit. Instead, executives visit stores, clicking pictures of the shop and tracking the buyers on the app, two former employees said.