For a market pegged at a little more than US$ 2 billion, India’s e-Commerce segment recently attracted US$ 3 billion in global investments within two days—and thereby hangs a tale…
The Indian e-Commerce industry witnessed the biggest consolidation earlier this year, when Flipkart acquired Myntra as competition for Amazon in the local market. Flipkart then went on to raise US$1 billion in fresh funding from new and existing investors this July, only to be followed a day later by Amazon announcing its intention of investing an additional US$ 2 billion in its India business. The third titan on India’s current e-Commerce turf—Snapdeal—has meanwhile raised more than US$ 200 million since January 2014, while its financial advisors are reportedly seeking an additional US$ 300 million from private equity investors.
Ever since the new government’s formal Union Budget announcement that FDI in the manufacturing sector will be on the automatic route—clarifying that, “…the manufacturing units will be allowed to sell its products through retail including E-commerce platforms without any additional approval…”, investors have been bankrolling India’s fledgling e-retail segment. Considering that India is predicted to be the third largest e-commerce market after the US and China, it is no wonder that international funding has been pouring into the segment lately.
As a positive fall-out of these recent developments, India’s real estate sector will probably stand to gain; since the growth in e-Commerce will most likely stimulate demand for warehousing/logistics space for building back-end infrastructure. A significant share of this fresh foreign fund inflow of US$ 3 billion is expected to get channelized into building warehouses, expanding product line, upgrading and expanding supply chain, and possible acquisitions. This will ultimately benefit our economy as a whole.
Amazon is already known to be planning to lease more than 1 million sq.ft of warehousing and logistics space by end-December, while Flipkart has reportedly leased around 500,000 sq.ft of space across the country. Looking at fundamentals, online user bases for e-Commerce platforms are expected to increase drastically in the coming years, according to CBRE’s recently released Asia Pacific Logistics Report, Shaping Trends in Logistics.
Between 2013 and 2020, the largest percentage increases in user bases are expected in India (~60% or ~100 million new users).
According to the CBRE report, with growth of e-commerce in the APAC region, the need for delivery efficiency, inventory management, and freight-forwarding will be driving the need for experienced logistics operators in the region. While China and Japan, the largest markets by sales turnover, have seen a marked increase in modern logistics facilities, potentially high-growth, emerging markets such as India remain undersupplied.
With these new investment trends in India’s e-Commerce segment, the major market players are anticipated to enter into agreements with logistics real estate developers for built-to-suit (BTS) warehouses. Although leasing warehousing space will very likely be the preferred route, since it is a cheaper and easier alternative for smaller and mid-sized players in the field. The peripheral micro-markets of India’s leading cities, with large tracts of available land parcels and their connectivity to key consumer markets, are expected to be the favored locations for building such BTS back-end infrastructure.
A key trend, meanwhile, has pointed towards rising activity in the online retail space. Global fashion apparel retailers, such as River Island, Dorothy Perkins, New Look, Blue Saint, and Vans, have entered into exclusive tie-ups with leading Indian online retailers for selling their merchandise, rather than setting up brick-and-mortar stores.Established fashion portals offer significant benefits to global brands, who would rather test the waters before investing in organized retail space in India, leaving the buying and stocking of inventory to the online retail partner. Going forward, one can only wait and watch for these developments to solidify in a more mature online retail environment.