Storage problem puts profit for e-tailers in cold storage

The dilemma of where to store products and how much to store—and the cost involved—is one of the limiting factors that have restricted the profits of companies that sell products over internet.

Though experts express contrasting views on if a big investment on warehousing is necessary, most players in the market seem to be going for more warehouses. For instance, leading online retailer Flipkart told DNA in an earlier interview that they would be spending about Rs10 crore each on setting up warehouses and technology across the country. They already have six warehouses, in Bangalore, Mumbai, Delhi, Pune, Noida and Kolkata.

Myntra.com, an online shopping retailer focusing on fashion and casual lifestyle products and headquartered in Bangalore, also has plans to add another warehouse near Mumbai. It already has storage facility in Delhi and Bangalore.

Typically, most ecommerce companies look to focus on price (discount), availability (in stock) and shipping days (normally shipping in days lesser than or equal to the competitor), as part of their warehousing strategy.

Hence, by having a good network of warehouses, companies feel they are better equipped to tick all these boxes. However, many tend to go overboard in the process.

“When putting your finger on the ideal level of investments in warehousing, firms must consider: if they would manage to get economies of scale in purchases, which can then be passed onto the customer as discounts; what is the right quantity of stock to buy; and finally did they stock the products close enough to the potential customer,” explains Amit Nawka, associate director at PwC.
 

The delivery factor
The differentiating factor comes in the way a retailer delivers its products to the customer. Take the case of Malati Dasappa, who shops online frequently, “From a convenience perspective, I tend to shop for books online, as I am an avid reader. I prefer Flipkart over other portals as their delivery time is minimal,” she said.

India’s first ecommerce portal, Indiaplaza, believes that this aspect can be tackled differently—by having a better relation and network with their suppliers—rather than through warehousing. Likewise, Kyazoonga, online sports equipment company, follows what it calls a ‘smart asset light model’.

“Our strategy is to invest more heavily in technology for just-in-time delivery, where we deliver the product to our customers directly from the source or supplier,” said Neetu Bhatia, co-founder, chairman and CEO of KyaZoonga. This way, the company manages to save on cost of storage, real estate and capital. She added that, however, it is unavoidable for every ecommerce company to reserve some space for storage.