E-tailers giving up warehouses to become capital efficient

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Mumbai | Updated: December 17, 2015 12:29:03 PM

Warehouses maybe the backbone of the e-commerce industry but several domestic e-retail companies are relinquishing their warehousing requirements to become more capital efficient.

Warehouses maybe the backbone of the e-commerce industry but several domestic e-retail companies are relinquishing their warehousing requirements to become more capital efficient.Warehouses maybe the backbone of the e-commerce industry but several domestic e-retail companies are relinquishing their warehousing requirements to become more capital efficient.

Warehouses maybe the backbone of the e-commerce industry but several domestic e-retail companies are relinquishing their warehousing requirements to become more capital efficient.

Domestic online furniture e-retail company, FabFurnish.com recently gave up all three of its warehouses, measuring 70,000 sq ft–80,000 sq ft each and opted for much smaller “processing centres” as the company moved from an inventory led model to a marketplace led model, the company’s co-founder, Ankita Dabas told FE.

FabFurnish will now have only 15,000 sq ft – 20,000 sq ft facility centres, where it will store some of its fast-moving items and handle some of the shipments, Dabas added.

Major online marketplaces are increasingly expected to re-strategise on their warehousing requirements. There is no one-size-fits-all approach that can be applied, said experts. “It makes a lot of sense to have a warehouse, storing fast moving items, whose demand can be consistently predicted but not for niche products,” said Prahlad Tanwar, director, transport and logistics at KPMG.

According to sources, Jabong, the online fashion retailer is also downsizing its capacity in the 150,000 sq ft Gurgaon warehouse as the company is going through a financial and managerial restructuring.  Another online marketplace, ShopClues.com is one more example of lean warehousing, sources added. This company uses one warehouse, mainly operating a point-to-point delivery system through logistics. FE could not independently verify the facts regarding ShopClues and Jabong.

Then there are companies like Askmebazaar.com, an online marketplace which follows a strategy of no-warehousing at all. “Our belief is that an asset light model is much easier to scale up,” said Manav Sethi, CMO of Askmebazaar.com.

Even though a number of these players are doing away with the hub and spoke model and adopting point-to-point delivery systems, such a business model raises several questions when it comes to after sales service. Point-to-point delivery refers to a process wherein an item is sourced from a local vendor, packaged and delivered to the customer after it has been sold online.

“Because so often companies leave to the local merchant to do the packaging, it is difficult to control both quality and consistency,” said Tanwar.

Besides, such models make one-day-delivery service a distant dream as companies have less low visibility on the products that it wants to ship and sell. To depend on the local vendor to pack and ship products was a logistical nightmare for Askmebazaar.com when it started out. “There were so many instances when merchants would suddenly not honour either the commitment of the product or the commitment of the discount,” said Sethi. “Instead of depending on the merchant to handle the logistics, we send the courier service now to pick up the product and monitor the movement ourselves. This resilience, we have had to build over time,” Sethi added.

Still, at a time when cost of acquisition is running into hundreds of crore, companies have to cut corners by persistently reinventing the supply chain. “Investors today are asking different questions than they were a couple of years back. The needle has certainly shifted from GMV numbers towards profitability,” said Sethi. Moreover, the e-retail industry is poised for consolidation, similar to what was witnessed between Myntra and Flipkart last year. “A number of retail websites are trying to achieve the best possible efficiency to arrive at a critical valuation, at which it becomes an attractive buy for a bigger player,” said Jasmine Singh, director of Industrial and Logistics at CBRE, India.

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