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Why in-city warehouses play an important role in ecommerce businesses

Why in-city warehouses play an important role in ecommerce businesses

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There has never been a more exciting time for e-commerce businesses in India than now. The industry—which is already, sales-wise, among the top ten globally—is barely saturated. As a result, there is great potential for growth in scale and penetration, which is hardly surprising for the second-largest consumer market in the world. However, what is surprising is the speed at which the market is maturing, with customers increasingly preferring convenience over value while making purchase decisions. This trend is reflected in the burgeoning quick commerce segment, which is expected to reach 15 times its current size in less than five years from now. As a result, the most critical enablers of quick commerce and other convenience-centric retail models—in-city warehouses—are seeing unprecedented demand and will continue to do so in the coming years, for a number of reasons.

Increase in online buying frequency

To say that the pandemic-induced lockdowns have catapulted the online purchasing trend is an understatement. The pandemic has ramped up the growth of e-commerce, and has led consumers worldwide to buy online more frequently than they have done before. Within the last year alone, the e-commerce market size in India more than doubled, going from US$30 billion to US$84 billion during the period. The number is expected to multiply in less than a decade, pushing the need for storage and distribution centers further up. This increase in the sheer volume of goods being ordered online by consumers has led to increased demand for warehousing space in general, with in-city warehouses emerging as the latest frontier for expansion. What has added to the rise of in-city warehouses is the conversion of brick-and-mortar shopping spaces into e-commerce fulfillment centers—a trend catalyzed by the shutting down of physical retail operations in the past year. This move is complementing the growing demand for large grade A warehouses on the outskirts of major cities, which is also a trend that has transpired in recent years.

Rise of hyper-quick and hyperlocal delivery models

The events in recent years have not just multiplied the volume of goods and services being accessed online but have also expanded the range of offerings that consumers are comfortable buying from their homes. From being limited to largely discretionary purchases like books and apparel, e-commerce channels are now increasingly being used to buy daily staples like groceries and meat. Being low-margin items, the distribution of such products demands maximum efficiency to be sustainable. As a result, there has been an increase in delivery networks tailored to store these products. The items sold through these channels are sourced locally and stored in spaces close to densely populated consumption areas to make gains in unit economics. In-city warehouses form the core of such business models.

Need for shorter delivery timelines for e-commerce players

Even for discretionary purchases, consumers have an ever-increasing preference for same-day deliveries, even if it means paying a premium for it. With newly emerging quick commerce players expanding to offer non-essential products like electronics and apparel, there will be an increase in demand for storage. These players are setting new benchmarks for delivery timelines. Consequently, the expectation from traditional e-commerce players is also increasing. The larger and more competitive ones are already expanding their delivery networks into city premises to supplement the larger warehouses skirting city limits. In time, deliveries within hours for most products will become more commonplace, making in-city warehouses extremely valuable.

One can argue that gaining an advantage in the e-commerce industry is not a zero-sum game, as the demand for goods is a seemingly limitless flow variable. The same, however, cannot be said for physical real estate at strategic in-city spots, which will run out at some point in the future. This realization is leading to the rise in demand for and development of multistoried warehouses within constrained urban localities. In the race to gain more of the diminishing in-city spaces, the first and the fastest movers will have the advantage for a long time to come.

Authored by
Rajesh Jaggi
Vice Chairman, Real Estate – The Everstone Group
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