Elevating The E-Commerce Game: The Game Changers

Elevating The E-Commerce Game: The Game Changers
15/11/2019 , by , in EXPERT ZONE

Authored by Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE

E-commerce in India accounted for almost 23% of the overall warehousing leasing in 2018, with the average size of an e-commerce transaction hovering around 170, 000 sq.ft

The continued growth of the e-commerce sector is a direct result of the growth in internet adaptation, smartphone growth, digital India initiative and the rise of the millennial population gaining access to the internet. The government’s deliberate steps to propel digital transactions, through policies such as demonetization proved to be a boon for e-commerce. As per IMRB, internet usage in the country has exceeded half a billion people for the first time, with 566 million internet users expected to reach 627 million by 2019 end.

The logistics sector in India has gone through a paradigm shift over the past decade. From an increasing number of policy incentives to tech-enhanced warehouses, the sector is now seeing a change in every aspect of its operation. The impact of e-commerce is witnessed on retail and logistics for some time now, however, it’s still quite relevant and will be for some time. The integration of retail and logistics real estate continues to unfold, with e-tailers looking for physical outlets and traditional retailers strengthening their online channels and restructuring their warehousing footprint.

Rapidly growing e-commerce sales is the primary driver for the surge in the demand for efficient logistics space. Additionally, unavailability of adequate modern logistics facilities has further expanded the potential ahead to keep pace with this rising demand. The trend of e-commerce players taking up larger spaces is corroborated by the analysis of the top 50 transactions (in terms of area) for warehousing in 2018. The total area of the top 50 warehousing deals in 2018 was more than 13 million sq.ft. out of which more than 35% was taken up by e-commerce players. If Third-party logistics (3PL) players are included in the same analysis (a significant portion of which caters to e-commerce players), the combined share of both these sectors (in area terms) rises to almost 70% of the top 50 transactions.

It is anticipated that warehouse leasing will rise going forward. This will largely be fueled by an anticipated rise in product sizes, continued demand from e-tailers, policy impetus to both sectors and higher demand from tier II cities. Advances in technology, particularly automation will enhance the specifications and operations of logistics assests, thereby pushing older, inferior grade properties down the demand pyramid. Also, we expect that the trend for e-commerce platforms to own and operate their own facilities which will result in more built-to-suit facilities, thereby taking off some “pure” leasing from the market.

In the era of the fourth industrial revolution, the logistics sector in the country is likely to witness further digitalization to improve supply chain efficiencies. The evolution of supply chains will be facilitated by the adoption of new technology integrated with industrial and logistics properties. The industrial and logistics sector is likely to be revolutionized the most by five megatrends-the increased use of IoT, big data, robotics, automation and over the course of time, blockchain.

In the long-term, the gradual normalization of e-commerce growth in India and pressure on the profit margin of 3PL players for faster and cheaper delivery will result in the stabilization of demand. Hence, in a bid to cut costs and enhance efficiencies, we may see interest of e-commerce players / retailers to share fulfillment centres. This may encourage the growth of small-scale warehouses, especially in close proximity to highly populated residential catchments. Additionally, the creation of a national e-commerce policy would provide a formal and clear direction for investments, legal frameworks and other stipulations for investors and various other stakeholders in the segment.

Hence, there is ample opportunity for the logistics and e-commerce sectors in the country. This is on the back of intrinsic strengths of India- the most important of which is the inherent consumer-demand led growth of both sectors and the continued willingness of all players to work together for creating cross-industry efficiencies. To conclude, the true question is thus not really if sustainability of the e-commerce and logistics sectors is a possibility, but rather how soon would these sectors reach their true potential and see heightened growth in the country.

 

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