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April 2016CRISIL OpinionE-tail warehousing demand set to treble
CRISIL OpinionAbout CRISIL LimitedCRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratingsagency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.CRISIL's majority shareholder is Standard and Poor's (S&P). Standard & Poor's, a part of McGraw Hill Financial, is the world's foremostprovider of credit ratingsAbout CRISIL ResearchCRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indianeconomy, industry, capital markets and companies. We also conduct training programs to financial sector professionals on a wide arrayof technical issues. We are India's most credible provider of economy and industry research. Our industry research covers 86 sectorsand is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 5,000 primarysources, including industry experts, industry associations and trade channels. We play a key role in India's fixed income markets. Weare the largest provider of valuation of fixed income securities to the mutual fund, insurance and banking industries in the country. Weare also the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independentequity research in India, and are today the country's largest independent equity research house. Our defining trait is the ability to convertinformation and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. Our talent poolcomprises economists, sector experts, company analysts and information management specialists.CRISIL PrivacyCRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your accountand to provide you with additional information from CRISIL and other parts of McGraw Hill Financial you may find of interest.For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can viewMcGraw Hill Financial’s Customer Privacy Policy at http://www.mhfi.com/privacy.Last updated: August, 2014DisclaimerCRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information obtained byCRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data /Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendationto invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers / users/ transmitters / distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’sRatings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidentialnature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may bepublished / reproduced in any form without CRISIL’s prior written approval.
E-tail warehousing demand set to trebleCRISIL Research says mushrooming fulfillment centres are adding to theintensityWarehouses are turning even hotter as e-tailing (online retail and online marketplace) explodes and competitiondrives e-commerce companies to offer highly customer-centric services.On its part, e-tail is benefiting from increasing internet penetration, smartphone usage (with mobile apps), risingdisposable income, demand and consumer awareness.The upshot is that CRISIL Research foresees e-retail warehousing requirement surging at a compound annualgrowth rate of 45-50% over the next three years – or a trebling. In 2014-15, the requirement was estimated at 7million square feet.To cater to the rising demand and to maintain customer service quality, players will have to invest in supply chains.The warehousing requirement of an e-retailer hinges on its business model. The e-retail market includes productssold through online marketplace (which dominates with an estimated 65% share in value terms as of 2014-15) andonline retail.Chart 1: Warehousing intensity varies as per e -tail business modelE-tailTypical warehousingintensityOnline Retail(bears inventory risk)Online Marketplace(does not bear inventory risk)Fulfillment centresDirect shipmentHigher warehousing needNo warehousing needSource: CRISIL ResearchThe online retail model has higher warehousing intensity compared with the online marketplace, as online retailersbear inventory risk. An online retail store typically purchases inventory (goods) and becomes a reseller. The reselleris usually required to stock goods and assume inventory risk, resulting in high warehouse intensity.This provides online retailers flexibility in managing inventory and demand. Typically, they adopt a hybrid model bystocking fast-moving products and sourcing other products based on demand. For example, an online fashion retailerClassification: INTERNAL1 11
CRISIL Opiniontypically maintains an inventory of trendy fashion wear, but sources other apparel from distributors when an order isplaced. The hybrid model ensures a balance between service quality and investments.On the contrary, an online marketplace does not assume inventory risk – hence, does not have any warehousingrequirement - and merely provides a platform for buyers (typically individuals) and sellers (typically companies) totransact and earns a commission. Players such as eBay, Askme and Bazaar follow this model. However, large onlinemarketplaces players such as Amazon, Flipkart and Snapdeal have set up fulfillment centres to ensure quality andtimely delivery of products.Fulfillment centres are large central warehouses that stock products across a large number of categories. They areprimarily located near key consumption areas such as Mumbai, Chennai, Bengaluru, Delhi NCR and Kolkata, andspan between 0.1 million square feet and 0.2 million square feet.Online marketplace players source products to fulfillment centres either through their in-house logistics arms or thirdparty players, and perform quality and quantity checks. Upon receipt of orders, products are packed and sent tocustomers directly or to distribution centres.As demand grows and online marketplace players sign up more vendors, smaller warehouses are being set up neardemand centres, which are termed as distribution centres. These could span between 10,000 square feet and 50,000square feet where the primary work is to sort and forward orders. These warehouses are generally confined withinstate boundaries, as opposed to fulfillment centres that cover more than one state. With demand growing rapidly anddelivery times shortening, the thin line between a fulfillment centre and a distribution/sorting centre is fading quickly.Chart 2: Typical size of warehouses for large players operating in online market placeFulfilment centres100,000 to 200,000 sq. ft.Distribution centres10,000 - 50,000 sq.ft.Source: CRISIL Research2 2
Analytical Contacts:Binaifer JehaniArun VenkateshElizabeth MasterDirector, CRISIL ResearchAssociate Director, CRISIL LimitedManager, CRISIL LimitedEmail: binaifer.jehani@crisil.comEmail: arun.venkatesh@crisil.comEmail: elizabeth.master@crisil.comClassification: INTERNAL3 33
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CRISIL Opinion About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. . are also the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today the country's largest .
