Efficient Warehousing Delivers New Competitive Advantage to Etail Revolution

ContentsIntroduction .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..3

Etail boom .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..4

Factors driving warehouse consolidation .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..6

Same day delivery.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....6

Multi-channel to Omni-channel .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....6

Proposed GST Bill encourages warehouse consolidation .... .... .... .... .... .... .... ....7

A warehousing model well suited for India .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..8

Warehouse hotspots . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..9

Choosing the right warehouse .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 10

Choosing the right location .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....10

Infrastructure.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....10

Pricing.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....10

Make Sure You’re Ready to Scale .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....10

IntroductionThe new Etail marketplace is demanding that

deliveries be faster and more efficient. Most Etailers

are going back to their drawing board to work on their

warehousing efficiencies. While the fundamentals of

warehousing—receiving, put-away, picking, packing

and shipping—remain consistent, the location of the

warehouse and its ability to handle the demands of a

modern storing and forwarding facility is proving to

be a key factor to achieving this new demand—speed.

Etail companies in India are moving from a traditional

warehousing techniques which used the glorified,

regulated era “godowns” to a modern warehouse

which offers all facilities such as safety & security,

storage efficiency, ability to pick easily and quick

trucking.

Etailers are typically looking at land banks of about

100,000 sq. ft., which may be scaled up to

500,000 sq. ft.

3

Efficient warehousing and its location holds the key to riding the Indian ecommerce revolution..

NCR

Source: CBRE Research, Q1 2016. Approximate figures only (for grade A space).

Mumbai

Bangalore

Hyderabad

Ahmedabad

Kolkata

Others

0

2

4

6

8

10

12

2012 2013 2014 2015

SHARE OF E-COMMERCE COMPANIES

DEMAND FOR WAREHOUSING

YEAR-ON-YEAR INDIA WAREHOUSING AND E-COMMERCE SECTOR DEMAND

(Million sq. ft.)

0%

5%

10%

15%

20%

25%

30%(%)

33%

22%

17%

13%6%4%

3%

Note: Others include Jaipur, Pune and Chennai

DISTRIBUTION OF E-COMMERCE LEASING ACTIVITY BY CITY

Etail Boom

Indian e-tailing market has grown by 57% CAGR from 2009 to 2014 but

in 2015 alone it grew an estimated 3 times the previous year logging

$12 billion of GMV*. Surpassing all market estimates.

4

(USD Billion)

Source: Forrester Research, Q2 2014.Online Retail Spending Total Online Buyers

Reta

il Spe

nd

1816141210

86420

(Million)

Nub

er o

f Buy

ers

140

120

100

80

60

40

20

02012 2013 2014 2015 2016 2017 2018

19.927.9

39.153.8

73.5

98.4

128.5

*GMV = Gross Merchandise Volume

Though, 80% of this is controlled by Flipkart and Snapdeal, with

Amazon India upping its ante and Alibaba looking to enter Indian

market, e-tail sector is on fire.

The share of e-commerce is expected to jump from 2% in 2014 to

11% in 2019, while the share of physical, organized or modern retail

is expected to fall from 17% to 13%, according to “Think India. Think

Retail”, a report by the property consultant Knight Frank India Pvt.

Ltd and Retailers Association of India (RAI).

Retail spending in the top seven Indian cities currently amounts

to Rs.3.58 trillion, with organized retail penetration at 19% in 2014,

comprising physical stores at 17% and online at 2%. The share of

organized retail in the overall retail business will rise from 19% to 24%

in the next five years, driven by online sales.

Such spending is expected to touch

Rs. 83,900 crore

by 2019, from the present

Rs. 7,200 crore,

said the report.

5

INDIA RETAIL AND E-TAIL MARKET SIZE

Etail

Retail

2014 2019

2%

17%

13%11%

Source: Knight Frank India Pvt. Ltd.

6

Same day delivery

Options such as same day delivery are putting tremendous pressure

on logistics bringing warehouse location and efficiency into the

limelight. Because of this, companies are rethinking the location, size

and function of their distribution centres.

Multi-channel to Omni-channel

Today’s consumers move easily across channels -- propelled by

increasing internet access and internet capable mobile network --

have many retail and product options at their fingertips, and demand

full visibility into inventory and pricing. Omnichannel shopping is here

to stay, and we expect that over the next 12 months and the years

to follow, it will evolve in unpredictable, organic ways as consumers

increasingly create their own paths to purchase.What's Driving Etailing

COD

Free Delivery

Next Day Delivery

Insurance Cover

Easy Returns

44%10%

9%

14%

23%

Factors driving warehouse consolidation

Driving Factors

The battle in the Etail marketplace is actually won in

an efficient, modern warehouse, away from public gaze

7

Proposed GST Bill encourages warehouse consolidation

Under the current goods taxation structure, companies have to

pay central sales tax for transportation of goods across states and

companies are not allowed to claim tax credit for central sales tax

(CST). Because of this companies have set up warehouses across

states to save the CST, resulting in higher logistics cost.

Under the proposed GST (Goods and Services Tax) taxation structure

those restrictions go away and then it makes sense to consolidate

manufacturing and distribution to get economies of scale. It makes

sense to have few large warehouses rather than a number of smaller

warehouses.

Companies can close down unutilised warehouses and create

centralised warehouses which can become hubs to service multiple

states. This will not only lead to tax savings but also help companies

manage its supply chain more effectively.

Amazon leverages Hub & Spoke model

While Amazon promotes itself as the “Everything

Store,” it’s impossible to store literally “everything”

in every fulfillment center it operates. A hub-and-

spoke system would mean that each fulfillment

center could easily tap into the central hub to

quickly get products it’s not already housing.

Amazon has taken its hub-and-spoke model to

the next level. While it A fleet of leased planes

allow Amazon to create a “hub-and-spoke” model

for delivery in which it can fly inventory from

fulfillment centers to one central location and have

the planes transport products to other fulfillment

centers from the central location. So for example,

if a customer in Los Angeles orders a book from

Cleveland, the book will be flown from Cleveland

to Wilmington and then from Wilmington to Los

Angeles, along with everything else Los Angeles

customers ordered from fulfillment centers across

US.

Driving Factors

8A warehousing model well suited for IndiaThe key to a new new modern and efficient warehousing is the

integration of processes, information systems, infrastructure

including property, to enable the etailer to meet customer demand

from whatever location is positioned to provide the best customer

experience.

Most e-retailers in India are adopting the ‘hub and spoke’ distribution

model. They are setting up regional fulfillment centres (hubs) in key

cities such as Delhi, Mumbai, Chennai, Kolkata and Bangalore, and

smaller hubs in tier II cities such as Ludhiana, Hyderabad, Ahmedabad

and Jaipur. The ramp up plan involves the setting up of smaller hubs

in most state capitals and prominent consumption centres. This

network is supported by multiple local centers (spoke) in various

metros to fulfill the time definite service offering promoted by most

e-tailers as a differentiator. Large operators typically have a total of

8–10 hubs spread across key cities.

The average space uptake by hubs stands in the range of

150,000–500,000 sq. ft. whilst for spokes it is in the range of

5,000–15,000 sq. ft.

The Hub and Spoke model is characterized by 3 distinct activity-led centres:

1. Mega e-fulfillment centres: typically 50,000 sft where merchandize will be picked and stored

2. Parcel/Sorter center: Where merchandize will be sorted as per zip code or area code and kept ready for dispatch

3. Parcel delivery center: smaller units which handles last mile delivery to the customer’s doorstep

Sometimes, 1 & 2 will be co-located while 3 will be distributed across the region.

9

Warehouse hotspotsMany large firms are reportedly evaluating options for

warehouses across 8 Indian cities Ahmedabad, Bangalore,

Chennai, Delhi NCR, Hyderabad, Kolkota, Mumbai and Pune.

Together these cities account for 42% of India’s GDP. These

cities are considered natural primary warehousing hubs in India.

These cities are building modern logistic facilities with humidity

controls and user-friendly loading bases. Major Etail companies

are also looking at expanding their storage/warehouse presence

in tier II and III cities by setting up more spokes in these locations.

Indian warehouse landscape is witnessing emergence of Grade

A and B warehouses which require automation and safety in

operations and would feature vertical racking, reach trucks,

automated conveyor systems, and fire sprinkler and hydrant

systems and similar.

NORTH30% - 35%Consumer Market

EAST5% - 20%

Consumer Market

SOUTH25% - 30%Consumer Market

WEST25% - 30%Consumer Market

Geometric CG

10

Choosing the right location

Identifying the right parcel of land to house the warehouse is

crucial. The land should be well aligned with the arterial roads

and close to rail network and not to mention the local airport.

Aligning with a partner which brings in these expertise as part of

their support team and having land bank is an added advantage.

Infrastructure

Understanding and tracking closely government infrastructure

projects and identifying land parcels close to strategic points is

key. Knowing and understanding a City’s CDP (Comprehensive

Development Plan) which details the local government’s plans

to develop the city’s infrastructure that usually aligns with state

and union government’s initiatives is an invaluable asset.

Pricing

Can be tricky with real estate being largely a state subject without

uniform pricing guidelines. With continuous developmental

activities, one has to be diligent in identifying the right land

parcels for the right price.

Make Sure You’re Ready to Scale

Logistics heads are already asking the question, “Can We

Scale?” In essence, a warehouse should be built to handle rapid

changes in demand. And it is always positioning itself to scale, by

having all the tools in place to attract and retain customers, and

support new product releases. When all the basic operational

requirements are in place, scalability is often dependent on the

warehouse management software chosen.

Choosing the right warehouse

Embassy Industrial Parks, Embassy Point,1st Floor, 150, Infantry Road, Bangalore 560001, Karnataka, India

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