NEW DELHI: A wave of consolidation is sweeping over the Rs 50,000-crore warehousing industry, thanks to the goods and services tax (GST). The rollout of the tax reform measure could reduce total number of warehouses in the country by at least 40% in the coming months, top industry executives said.
For instance, phone maker Lava, which stocked inventory in 28-30 warehouses earlier, has brought down the number to 18, industry sources said. Similarly, white goods company Whirlpool is working on plans to reduce its warehouses from 32 to 18. Other firms, including home grown FMCG major Dabur and electrical equipment manufacturer Havells, are also following suit.
“Before GST, companies rented warehouses in every state because each state would impose its own tax,” said Arvind Mediratta, MD & CEO of Metro Cash and Carry India. “With GST rendering those differential tax slabs redundant, it makes no sense for them to bear the expenditure of having so many warehouses scattered across the country.”
Dabur is shutting down smaller warehouses and will now operate out of larger ones. Dabur India CFO Lalit Malik said, “We are working on consolidating the number of warehouses.” He, however, did not share more details citing competitive reasons.
Only around 20% of the warehouses in India are large (above 75,000 sq ft), while the rest are small (below 20,000 sq ft). Safexpress MD Rubal Jain said, “Many small warehouses are lying vacant now with the owners approaching larger players like us to buy them out. The consolidation in the warehousing industry started much before GST.”
The move to reduce total number of warehouses in favour of operating out of a few strategically-located ones will help companies streamline distribution and save costs. Havells CMD Anil Rai Gupta said, “Currently, we are reorganising our warehouses. These steps will reduce freight cost and help business.” But despite the decrease in number of warehouses, demand for storage space is expected to flourish on the back of booming sectors such as e-tail. Sample this: The warehousing space requirement in top seven markets of India is estimated to grow at annual 8% by 2020 and storage requirements of the e-tail segment is expected to double during the same period, according to Knight Frank.