Home Retail E-commerce firms to invest $2bn in infrastructure

    E-commerce firms to invest $2bn in infrastructure


    Even a casual glance at the e-commerce sector will show that 2014 was a phenomenal year. There is no doubt that the e-commerce sector would like nothing more than to continue with this heady growth. But here comes the hangover part— for e-commerce’s golden run to continue, the focus will have to be on building infrastructure capacity.

    E-commerce towards a heady growth

    Online retail is less than 1 per cent of overall retail in India

    In 2014, investments in the e-commerce sector were been about Rs.20,000 crore, four times the previous year, yet, the e-commerce sector’s share in total organized retail is much less than 1 per cent of total retail at present. The fact that regular brick and mortar retail giants were forced to take note of e-commerce’s big bang arrival is being seen as proof of its arrival. The truth is, however, is a bit different, and India’s journey has just begun. Online retail is still very small compared to both organized and the
    overall (organized and unorganized) retail sector in the country. Yet, miniscule as it is, mega sales in recent times have had brick-and mortar retailers worried, with many
    saying that their sales were badly hit, particularly in the festive months of Diwali when sales normally tend to rise. News reports in October spoke about sellers of mobiles and electronic items complaining about how their sales had been badly hit and blamed e-commerce sites for the decline. Book sales have as it is been declining for some years now, and as per a Crisil report, a retail firm of books and music had shut over 100
    outlets between 2011 and 2013. From a customer base of mere 8 million in 2012, e-commerce has climbed to 35 million in 2014, according to Google’s 2014 e-commerce in India report, which also claims that by 2016 India’s customer base will be 100 million — a phenomenal growth of over 12 times in just four years.

    Better infrastructure and logistics needed

    E-commerce growth in India faces a major handicap in its lack of infrastructure and logistics support. Sure, e-commerce firms don’t need fancy retail outlets in posh localities, but they do need warehouses outside towns from where goods can be shipped quickly to the customer, who may be located thousands of miles away. It is towards this aim that e-commerce firms are expected to invest up to nearly US $2 billion (or close to Rs. 1,200 crore) within the next three years in infrastructure, warehousing, and logistics. A detailed study of the e-commerce industry,conducted jointly by and (PwC), titled “Evolution of e-Commerce in India: Creating the Bricks Behind the Clicks”, which was released in the latter half of last year, said that the Indian e-commerce industry is expected to spend of anywhere between US $950-1900 million till 2017-2020 on infrastructure – the bricks and mortar aspect of e-commerce that tends to stay behind the spotlight. The report further says that the total spend on warehousing and sorting centres (few will deny that the key to effective delivery starts
    with getting the right product into the package with the right address) would itself be over US $450-900 million till 2017-2020. According to the report, e-commerce firms are
    entering into a paradigm shift in their business where the focus will be on infrastructure, logistics, and warehousing. What makes the need for strong infrastructure and logistics even more imperative is that firms are now working on ever-shortening timelines and quicker deadlines. The good news is that firms specializing in providing infrastructure and logistics support are also getting ready to ride the e-commerce wave. The biggest of these players is the ubiquitous India Post, which is considered one of the largest in the world with 155,000 (1.55 lakh) post offices across India, all of which can deliver, besides letters, e-commerce products. The use of such existing logistics and infrastructure services becomes even more important given
    that the next phase of e-commerce growth is likely to come from the Tier II and Tier III towns. Seeing the e-commerce boom in India, Deutsche Post DHL (DP DHL) decided last
    month chose India in the Asia-Pacific region to roll outs e-commerce logistics and infrastructure support services. The Assocham-PwC study indicates that e-commerce firms will have to invest in constructing large fulfilment centres and warehouses
    and downstream parcel and sorting centres, equipping these nodes with state-of-the-art technology and modern warehousing practices promoting viability across the logistics
    chain. The study estimates that over the next three years, there will be an addition of 7.5 to 15 million square feet in the form of fulfillment centres, which will be an additional 6 per cent to 12 per cent of all space available in organized warehousing today.

    Introduction of economical smart phones will expedite the growth of e-commerce. Improved logistics will play another important role in the growth as the reach of the e-commerce sales will extend beyond the current geographies.

    Infrastructure may be the weak link in India’s e-commerce story, but the good news is that serious effort is under way or will commence to correct this weakness.

    The evolution of an industry: what to look forward to in 2015

    2015 will also bring a new set of customers in the limelight that shop online for convenience and product selection rather than price. We at etailing India, estimate that these are the three big factors that will spur the growth of e-commerce in India in 2015.

    1. The introduction of economical smart phones will expedite the growth of e-commerce in India. A consumer that does not have a desktop, laptop or tablet can easily shop online with a smartphone.

    2. Improved logistics will play another important role in the growth as the reach of the e-commerce sales will extend beyond the current geographies. Even where e-commerce delivers today, efficiency of the logistics networks will help drive more sales and reduce returns which were related to delayed delivery of the product.

    3. India has a vibrant entrepreneurial community that has quickly picked up the fact that e-commerce will give retail and other industries to reach masses that they are still
    not able to reach; faster than ever before. SMEs stand to gain the most from e-commerce as they are able to now cater to a national and global audience rather than limiting to local audience. Expansion into other geographies will no more be an expensive investment for these businesses as e-commerce is a national and global medium. Sectors where “touch and feel”remain an integral part of the shopping experience – fashion and jewellery – should manage to retain their retail customers by building loyalty. Retailers into books and mobiles have reasons to be concerned at their future prospects- but an Assocham report warns that long term profitability for e-commerce firm, given their wafer-thin operating margins, remains distant. This
    will give retailers a much-needed opportunity to re-examine their revenue models.