1. Warehousing – the Next Force in India
Research Article by Vinita Jindel
The booming retail and ecommerce industry is the driving force behind the increasing demand
for warehousing space in India. According to CBRE, nearly 2 million sq. ft. of warehousing
space was taken up by e-commerce firms in 2015, which is a significant jump, as the share of
the sector rose from an insignificant 2% of the total warehousing demand in 2012, to around
22% during 2015.
The Indian government in March, 2016 allowed 100% foreign direct investment (FDI) in online
retail of goods and services under the “marketplace model” seeking to legitimize existing
businesses of e-commerce companies operating in India. Previously, Indian law permitted
100% foreign investment in business-to-business (B2B) e-commerce but not in retail e-
commerce which is business-to-consumer, or B2C.
As a result, the entry of International retail and e-commerce leaders is intensifying the
warehousing demand in India.
Adidas AG, renowned for its Adidas and Reebok sports brands, has become the first foreign
sports company to get government approval to open 100 per cent foreign-owned stores in
India.
Amazon India increased the area under its fulfillment centers by 60% to 4 million sq ft in the
first quarter of 2017 from a year ago by opening seven new warehouses dedicated to handling
sale of large appliances and furniture in April. This raises the overall number of centers run by
Amazon India to 41, with 14 additions this year, compared to Flipkart's 31warehouses.
US-retail giant Walmart is gearing up its India presence by expanding store strength from the
current 21 to 70 by 2020. For this expansion the company will invest $240 million to $300
million.
IKEA Group, the leading Swedish home furnishings company, plans to open 25 stores over next
10 years in India. IKEA plans to invest US$ 1.56 billion to set up 25 stores across India and it also
plans to double its sourcing from India to 600 million euros by 2020.
Massimo Dutti, a premium fashion brand from Spain, Neil Barrett, the leading Italian fashion
brand, Kate Spade from New York, Aeropostale, an American teen fashion retailer have already
entered the Indian retail market.
GST Transforming Warehousing Trend in India
The Indian government has implemented the GST (Goods and Service tax) from 1st
July, 2017.
GST is one indirect tax for the whole nation.
With GST, India would become a uniform, common market for Goods and services thereby
collapsing state barriers. This would onset the re-modeling of warehouse strategy by
2. manufacturers and suppliers. Decisions on location of warehouses will no longer be driven by
tax considerations (CST) as in the GST scheme, interstate transactions would be on par with
intrastate transactions. Warehousing decisions will now be driven by concerns like location of
major customer, market and optimization of goods movement.
At present, the companies feel the need to build at least one big warehouse in different states
because of different taxes being imposed in the states. This increases the storage cost and
affects the warehousing structure in India. With GST in place, there would be uniformity in
imposed taxes and companies would not require paying for taxes in different regions.
Companies will go in for hub-based warehouse system instead of having warehouses in all
major consumer states. Monitoring a shipment in such a complicated system was a logistical
nightmare. Advantages of the hub-and-spoke model will be that it will improve shipment
tracking and reduce the cost of shipping.
Future consolidated warehouses would be larger in size for accommodating more inventories
at a central location; these warehouses will gain from technological sophistication by
implementing state-of-the-art planning and warehousing systems which are not possible in
smaller and scattered warehouses. There would be indirect impact of GST on warehousing in
India, as IT costs of deploying ERP systems at smaller warehousing locations would be
eradicated. It will result in improved service levels at lower cost in overall supply chain.
The check posts at various state borders have already been brought down. All lanes at toll
plazas on National Highways will be equipped to process vehicles with smart tags by October-
end.
13% of GDP is spent on logistics in India, where as in developed countries the corresponding
figure is 9%. 65% of logistics in India moves by road and time spent at interstate check posts
due to difference in taxes between states accounts to idle time (60% of total journey time)
which will get eliminated in this new GST regime. Hence, transport time would reduce by 30-
40% and transport costs by 20-30% leading to fall in prices by 3-4%.
Negligible political risk, youngest population in the world and also the growing disposable
income of the middle class families are the magnets which are attracting the global leaders in
retail sector, to India.
Whereas, setbacks such as escalating land prices and unavailability of trained staff are few
hindrances to this industry but still India will remain one of the preferred destinations for the
companies around the globe.
Vinita Jindel
Integrated Logistics Solutions
Vinita@jindel.in
