After the onset of the COVID-19, businesses had to adopt new strategies for retaining their sales and generating profits. As lockdowns were imposed around the world, orders to remain indoors were mandated and retail stores were forced to remain closed for several weeks. This resulted in the exponential growth of the e-commerce sector since the majority of the retailers and store owners started shifting their businesses from brick-and-mortar to online platforms. This shift in business operations is expected to increase in the coming years and it would catalyze the demand for space in warehouses.
According to Shopify, the global e-commerce market is projected to expand further and sales from online purchases are likely to reach 20.8% in 2023. E-commerce currently requires three times the storage space of traditional storefronts. This is primarily because the majority of the inventory of online brands and retailers are kept only in warehouses instead of dividing the storage between warehouse and shops. Online retailers also maintain stocks of a wide variety of products, which is raising their need for warehouse space.
Due to the escalating demand for warehouse space, Cisco Systems, Inc., one of the leading companies dealing in supply chain management and logistic solutions, is providing comprehensive and innovative internet of things (IoT) based services for effective space and security management in warehouses. They are also offering industrial ethernet switches and security appliances, along with extended enterprise solutions, which are helping retailers in managing warehouse space, track assets, inventory, machinery, and shipping equipment, and maintain cybersecurity and video surveillance efficiently. These facilities are especially crucial for industries that are witnessing high demand rates, including the food and beverage (F&B) and the healthcare industries.
Recently, warehouses have been and will be in high demand due to the increasing online shopping activities of individuals for saving time and purchasing products at discounted prices. Apart from this, the widespread adoption of various innovative business models by e-commerce brands to attract a greater number of customers is also accelerating the demand for warehouse spaces.
Online grocers are experiencing a significant increase in their sales since the outbreak of COVID-19. Big Basket (Supermarket Grocery Supplies Private Limited) plans to increase their presence in about 450 towns in 2023 by investing fresh funds towards the expansion of their slotted grocery delivery business into newer cities and towns. This is primarily because consumers are preferring online grocers to buy daily staples, such as cooking oils, biscuits, and salty snacks, rather than visiting a physical store. They are also making improvements in their delivery system by setting a goal of delivering 80 to 100% of orders on the same day they are placed.
E-commerce companies offering other products are also experiencing significant growth in their sales as buyers are preferring to shop from the comfort of their homes instead of traveling distances and standing in long queues at stores and supermarkets. In addition to this, the transition of e-commerce brands from retail to online and bigger inventories will further increase the requirement for warehousing. This will also positively influence the growth of logistics and cold chain facilities.
Companies are expected to invest in Grade A warehouse facilities that provide compliance, robust security, and automation to manage inventory efficiently. We estimate that the demand for Grade A warehousing is expected to show a steady growth of 15% by 2025.
By increasing stockpiling inventory, e-commerce companies will spontaneously improve their inventory strategy to reduce the risks associated with the shortage in supply. This will immediately accelerate the demand for warehousing in India. In addition to this, companies are projected to be more interested in investing in warehouses located in tier 2 and 3 cities of the country to keep backup storage space for inventories and maintain the proper quality of the products for an extensive period.
At present, companies are keen on adopting work-from-home models to diversify their presence geographically and improve the productivity of their employees. They are also relocating to various Tier 2 and 3 cities, such as Surat, Nagpur, Indore, and Bhopal, as the cost of rental is low, cheap labor is available, and good telecommunication services are provided in those areas.
E-commerce brands are focusing on shifting to work-from-home (WFH) practices as this will help them reduce a considerable amount of cost that is spent on the management of offices, maintaining technology, and other requirements. This will also assist them in reducing overhead costs, such as electricity, rent, and maintenance expenses and improving teamwork and productivity.
The warehousing industry is constantly upgrading its facilities according to the demands of e-commerce brands and industry trends. It is incorporating efficient technology to automate operations and delegate daily labor-intensive tasks, thus enabling e-commerce companies to focus on other crucial aspects of business and save a significant amount of time. Furthermore, policy support from the government, along with GST implementation and permitting 100% FDI in warehousing and storage, has supported the growth of the industry and attracted a substantial number of investors.
The increased reliance on smartphones, along with the growing number of benefits provided by e-commerce businesses to their targeted customers, will further facilitate the demand for warehousing in the coming years.
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