 

can witness slower growth in low single digit in FY21, CRISIL Research expect growth
to bounce back in the medium term

The organised retailing industry is expected to grow at a lower 8-10% during FY20 to

FY24 on account of a significant decline in FY21. However, post FY21, the sector will
~19% grow on the back of new store rollouts, increased penetration in Tier 2 and 3 cities and

increasing disposable income. GST implementation is also expected to bear fruit in the

long term to drive market share gain for organised players

Increasing formalisation in the logistics market, including warehousing and
3PL 12-14% transportation, is expected to aid this segment to grow at double digit levels in the near

to medium term

Organised retail
(physical)

 

 

Source: Industry, CRISIL Research —

Low rental rates and good connectivity to consumption centres to prevent any shift in key hubs post Covid-
19 in the near term

CRISIL Research’s analysis indicates that the GST implementation had led to consolidation of the warehousing
sector, driven by the consumer durables and FMCG industries. Post GST, companies are realigning their supply
chains for market efficiencies, and not for tax efficiencies anymore. Large format, technology-enabled warehouses
are preferred by corporates, leading to multi-user spaces with cost and scale efficiencies for 3PL players, who also
provide value-added services.

GST has triggered the consolidation of fragmented warehousing operations into fewer and larger warehouses.
Advances in technology, particularly automation, are pushing up the need for end-to-end logistics services. As a
result, the Indian warehousing segment is witnessing a favourable structural shift with a rise in demand for modern
warehousing.

CRISIL Research’s interactions with market participants indicate that GST-led consolidation has been adopted by
70-75% of consumer durable players, which led to a reduction of 15-20% in the number of warehouses required
with the smaller unorganised warehoused being hit harder. Players closed down captive warehouses/ distribution
centres in cities and now store products in mother hubs outside consumption centres. Lower rentals on the outskirts
have led to a 40-50% reduction in warehousing cost.

While some players have completely transformed their supply chain to benefit from the GST, some players are
executing it in phases and are yet to complete the transition and/or waiting to learn from other players who have
executed the same.

Consolidation of warehouses has occurred across the distribution leg of the value chain, where players have
decreased the number of small warehouses. Also, players in the consumer durables industry have started
incentivising large traders who take direct delivery from manufacturing, further reducing the need for warehousing
space.

Maximum consolidation has been estimated in the consumer durables space, followed by FMCG, owing to the
higher turnaround time (TAT) of ~48 hours for the former, in comparison with 24 hours for the latter.

In the FMCG sector, though, consolidation has been slower, as FMCG players continue to operate close to
consumption centres, as they did in the pre-GST era, due to the of need for on-shelf availability and lower TAT.
Industry participants indicated that FMCG players are maintaining close to 50% active inventory at their
distribution legs in order to service demand. Full potential of GST consolidation has not yet been realised due to
infrastructure bottlenecks.

Players across segments have witnessed a 15-20% reduction in inventory days and similar reduction in
transportation time post-GST.

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