Efficient Warehousing

Delivers
New
Competitive Advantage
to Etail Revolution

Contents
Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Youre Ready to Scale .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .10

Introduction
The 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
warehousingreceiving, put-away, picking, packing
and shippingremain 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 demandspeed.
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.

YEAR-ON-YEAR
INDIA WAREHOUSING AND E-COMMERCE
SECTOR DEMAND
(Million sq. ft.)

(%)

12

30%

10

25%

20%

15%

10%

5%

2012

2013

2014

2015

DISTRIBUTION OF
E-COMMERCE LEASING ACTIVITY
BY CITY
3%
4%

6%
13%
17%
22%
33%

0%

DEMAND FOR WAREHOUSING

SHARE OF E-COMMERCE COMPANIES

NCR

Ahmedabad

Mumbai

Kolkata

Bangalore

Others

Hyderabad

Note: Others include

Jaipur, Pune and Chennai

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

Efficient warehousing and its location holds the key

to riding the Indian ecommerce revolution.

Etail Boom
57% CAGR from 2009 to 2014 but
in 2015 alone it grew an estimated 3 times the previous year logging
Indian e-tailing market has grown by

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

18
16
14
12
10
8
6
4
2
0

128.5
98.4

100
80

53.8
27.9

140
120

73.5

19.9

(Million)

60

39.1

40
20

Nuber of Buyers

Retail Spend

(USD Billion)

0
2012

2013

Online Retail Spending

2014

2015

Total Online Buyers

2016

2017

2018

Source: Forrester Research, Q2 2014.

*GMV = Gross Merchandise Volume

5
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).

Such spending is expected to touch

INDIA RETAIL AND E-TAIL MARKET SIZE

Rs. 83,900 crore

17%
11%

13%

by 2019, from the present

Etail
Retail

2%
2014

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.

2019

Source: Knight Frank India Pvt. Ltd.

Rs. 7,200 crore,

said the report.

Driving Factors

Factors driving warehouse consolidation

Same day delivery

Multi-channel to Omni-channel

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.

Todays 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

14%
9%

COD
44%

10%

Free Delivery
Next Day Delivery

23%

Insurance Cover
Easy Returns

The battle in the Etail

marketplace is actually won in
an efficient, modern warehouse,
away from public gaze

Driving Factors

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, its impossible to store literally everything
in every fulfillment center it operates. A hub-andspoke system would mean that each fulfillment
center could easily tap into the central hub to
quickly get products its 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.

A warehousing model
well suited for India
The 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
810 hubs spread across key cities.
The average space uptake by hubs stands in the range of

150,000500,000 sq. ft.

whilst for spokes it is in the range of

5,00015,000 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 customers
doorstep
Sometimes, 1 & 2 will be co-located while 3 will
be distributed across the region.

Warehouse hotspots
Many 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 Indias GDP. These
cities are considered natural primary warehousing hubs in India.

NORTH
30% - 35%

Consumer Market

Geometric CG

EAST
5% - 20%

WEST

Consumer Market

25% - 30%

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.

Consumer Market

SOUTH
25% - 30%

Consumer Market

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.

10

Choosing the right warehouse

Choosing the right location

Pricing

Identifying the right parcel of land to house the warehouse is

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

Can be tricky with real estate being largely a state subject without
uniform pricing guidelines. With continuous developmental

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.

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

parcels for the right price.

Infrastructure
Understanding and tracking closely government infrastructure
projects and identifying land parcels close to strategic points is
key. Knowing and understanding a Citys CDP (Comprehensive
Development Plan) which details the local governments plans
to develop the citys infrastructure that usually aligns with state
and union governments initiatives is an invaluable asset.

Make Sure Youre 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.

Embassy Industrial Parks, Embassy Point,

1st Floor, 150, Infantry Road, Bangalore 560001, Karnataka, India
Tel: +91-80-41799999 | E-mail: info@ embassyindustrialparks.com
www.embassyindustrialparks.com