Buy a Samsung phone online in India and you get a brick

Laxminarayan Krishnamurthy figured a Samsung Galaxy Core 2 smartphone would make a perfect gift for his wife. When the package arrived from e-tailer Snapdeal.com, it contained a brick and soap. No phone.

The Mumbai retiree was told the phone was stolen by unscrupulous middlemen transporting the package. So Krishnamurthy did what a lot of annoyed consumers do these days: he went on Facebook and vented.

Online sales in India are exploding, but there are a lot of unhappy customers these days like Krishnamurthy. The logistics infrastructure -- warehouses, skilled workers, planes -- isn't fully in place to make online shopping the mostly seamless experience Americans and Chinese take for granted.

"Had ordered a samsung mobile through snapdeal and we got a soap bar!!!" he wrote on his page. "The worst customer service ever received!!!" His rant was shared more than 21,000 times as consumers chimed in with their own complaints of theft, damaged goods and lost or delayed orders from Snapdeal, Flipkart.com and Amazon.com Inc., India's biggest Web stores.

The shoddy service could undermine efforts by Web merchants to build customer loyalty in a market whose sales value may jump 70 percent to $6 billion next year.

"The customer can forgive you one time, but if it's a repeated thing they won't," said Pragya Singh, associate vice president for retail at consultant Technopak Advisors Pvt. "You will get branded as a player who says something and doesn't live up to that promise."

The stakes are high. Since July, foreign investors including billionaires Masayoshi Son and Yuri Milner have pumped a combined $3.6 billion into Flipkart, Snapdeal and Amazon. Flush with cash, online retailers are fighting a vicious price war to gain buyers, said Ritesh Chandra, an executive director at Mumbai-based investment bank Avendus Capital Pvt.

The three weeks leading up to the Diwali festival in October were among the busiest periods in Indian e-commerce history, as all the major retailers offered sales to woo customers.

Market leader Flipkart held its biggest sale ever on Oct. 6, running full page ads in national newspapers and television commercials promising discounts of as much as 90 percent. Amazon and Snapdeal held monthlong sales with additional offers on select days. The combined demand exceeded the retailers' expectations, with servers crashing and goods selling out in seconds.

"It's like organizing a party for 100 people. You're prepared for about 120 or 130. But if 300 people show up then it's a serious problem," said Vijay Ghadge, chief operating officer of delivery company Gojavas Ltd., which ships packages for all the major retailers.

Agencies monitoring consumer grievances also witnessed a surge of complaints, as shoppers took to the Internet and social media to gripe about delayed or lost goods and poor customer service. Akosha.com, a company that acts as a middleman in getting consumer grievances resolved, received almost double the number of e-commerce complaints in October, compared with the average of the preceding six months, it said.

The single biggest hurdle was a shortage of cargo space on airlines, said Neeraj Aggarwal, Flipkart's senior director for supply chain. Crates of shipments piled up at airports as planes ran out of space, and delivery companies couldn't meet schedules, the online retailers said.

"If you depend completely on air cargo as your only mode of transport, you are going to be asking for trouble," Bengaluru-based Aggarwal said in a phone interview.

Lakshmi Narayanan Baskaran in Chennai in south India decided it would be quicker to take matters into his own hands when the LED TV that he ordered at an 8,000 rupee ($129) discount on Snapdeal wasn't delivered three days after the promised date.

The 22-year-old software interface designer joined a friend and they visited three warehouses over two days, and finally found the TV at a temporary facility located about 18 kilometers (11 miles) outside the city.

"It was a super painful process," Baskaran said in a phone interview. "We were angry but there was no use complaining. The staff at the warehouse were all very tired and had been working for 24 hours straight."

India is projected to surpass the U.S. as the nation with the second-largest online population this month, according to the Internet and Mobile Association of India. Yet people are doing little Web shopping. Less than half a percent of the nation's retail sales come from the Internet, compared to 6 percent in the U.S. and 5 percent in China, according to Technopak.

Getting all those first-time customers to shop online means giving lots of discounts, and Web retailers are doing that by "burning cash" at a rapid pace, Avendus Capital's Chandra said.

"No one is making money now. That's the biggest issue," New Delhi-based Chandra said.

Losses for both Snapdeal and Flipkart more than doubled in the year ended March 31. Snapdeal's parent posted losses of 2.64 billion rupees, whereas Flipkart's two main entities lost 7.16 billion rupees in the same period, according to filings with India's Registrar of Companies.

Before online transactions picked up about three years ago, logistics providers in India were focused on shipping packages and cargoes between businesses. Building a delivery network for e-commerce has been more complex because there are millions of individual customers distributed across the nation's more than 100,000 zip codes, compared with a small number of corporate clients confined to business districts.

"In India, logistics is a very, very complicated business," Technopak's Singh said. "There is so much paperwork and rules, and every state is different."

E-retailers and logistics companies hired thousands of employees this year, though weak policing and monitoring processes have led to plenty of instances of theft or fraud, Singh said.

Companies are taking steps to prevent a repeat of this year's delivery nightmare. Flipkart, for instance, plans to depend more on trucks rather than airplanes alone, and hire college students for temporary jobs during the big sales. Delivery company Ecom Express is using airports at smaller cities like Pune near Mumbai where traffic is lighter. It is also acquiring high throughput sorting machines, co-founder Sanjeev Saxena said.

The lessons learned from the Diwali nightmare will be tested as Google Inc. kicks off its annual three-day online shopping festival starting tomorrow. The Web search company has recruited about 400 participants including brick-and-mortar and online retailers, restaurant chains and airline companies to offer sales. Delivery companies have hired more workers and equipment to handle the additional workload, Ghadge from Gojavas said.

For Krishnamurthy, the retired bank employee in Mumbai, the brick in a box was the last straw after more than 20 purchases on Snapdeal. An investigation by the company revealed that the seller and the logistics company had colluded to steal the phone, Krishnamurthy said, citing a conversation with a Snapdeal sales representative. The company eventually gave him a refund two weeks after the package arrived.

Anjana Swaminathan, a Snapdeal spokeswoman, didn't respond to e-mail questions about Krishnamurthy's order and other damaged and misplaced orders. In a statement, Amazon said the "unprecedented high volume" of goods movement during the festive season led to delays in shipments and the company is working to resolve all issues.

"I have stopped shopping online," Krishnamurthy, who used to work at state-owned lender Central Bank of India, said by phone from his home in Mumbai. "E-commerce in India has a lot to learn."

His online encounter wasn't a total loss. The dishwashing soap he received along with the brick was made by the Indian unit of Unilever Plc, and the company tried to rectify what it called the "negative consumer experience" by sending him the same model of the Samsung smartphone he had ordered for his wife.

"Here's a small gesture from our side to cheer you up," read a note inside the package which included two bottles of Unilever's dishwasher liquid.

"That was really something," Krishnamurthy said. "I can't believe how one Facebook post triggered all this."