The local unit of the American e-commerce giant occupies 3.1 million sq ft of office space in India, more than four times compared with the 7 lakh sq ft that Flipkart has on rent. Flipkart is also building a campus in India.
This may not be an indication of the sales they post, but it does point to the aggressive expansion being carried out by Amazon, which entered India in 2013, six years after Flipkart started operations. To be sure, the American company also has services here that cater to its global operations, and that require space.
Amazon refused to participate in the story.
“We have 7 lakh sq ft in office space excluding our new campus,” said a Flipkart spokesperson, in response to emailed questions.
Last year, Amazon signed a 1 million sq ft office deal in Bengaluru, which people in the know said took the total office space it occupies to 3.1million sq ft. Flipkart – which in 2014 signed the largest office transaction by an e-commerce firm, for a 2 million sq ft campus – is in the process of surrendering half of it, even as it looks to cut cost and reduce losses.
“Flipkart has decided not to take up 50% of the office space in its new campus in Embassy Tech Village in Bangalore. The new campus will be delivered to Flipkart by the end of 2017 or early 2018 and can seat around 14,000 people once completed,” said a person with knowledge of the matter.
Once the campus comes up, Flipkart is expected to surrender the rented space.
Stiff competition in the e-commerce marketplace has driven companies to offer sharp discounts to gain market share, denting profitability and, of late, valuations of firms like Flipkart and Snapdeal.
Several online retailers are now working on space and cost efficiency, by consolidating offices or shedding excess space.
Flipkart has been taking up cost-cutting measures including employee layoffs, as the focus has shifted to profitability. The story for Amazon India has, however, been different. With the US parent leading multiple rounds of capital infusion -the latest being Rs 2,010 crore in December for Amazon Seller Services – the India arm has been on an expansion drive.
Amazon has also been serving the rest of the world from India. A fresh 3 million sq ft facility is set to come up in Hyderabad in two years to house technology development and back-end operations of Amazon’s global business.
Amazon has more fulfilment centres in India than the rival -27 facilities, compared with Flipkart’s 18. Flipkart though has more storage space, 8 million cubic feet, versus Amazon’s 7.4 million cubic feet. Meanwhile, real estate experts see fresh demand for space from the e-commerce sector to slow down.
“The share of e-commerce companies in office space deal is less than 5% in 2016. Eventually, there will be consolidation in the industry as e-commerce companies are not growing like earlier days. It will be cautious growth for e-commerce firms,” said Ram Chandnani, managing director for advisory & transaction services at consultancy firm CBRE South Asia.
That will be a big change as they were one of the drivers of demand in the office space. Now, most of the expansion is happening on the peripheral locations, as companies try to save cost. According to industry experts, a company can save as much as 25% on its operational costs by rationalising office spaces. In 2016, Quikr shut down Commonfloor‘s office in Bengaluru after acquiring it.
Snapdeal consolidated several of its offices in the National Capital Region into one central office spread over 4.5 lakh sq ft in Gurgaon. Zomato, Jabong and Housing.com all consolidated their offices in Gurgaon and Mumbai.
India’s office market witnessed all-time high demand with annual absorption of over 43 million sq. ft.in 2016, registering growth of 9% from a year earlier, said the CBRE India IndiaOffice MarketView Report-Q4 2016. Bengaluru and the NCR dominated leasing on an annual basis with a 47% share.
IT-ITeS firms continue to lead office transaction activity, accounting for about half the transaction activity in the last quarter.
“Small to medium-sized transactions (under 50,000 sq ft) remained the preferred format of occupation. The share of domestic corporates in transaction activity grew from 41% in 2015 to 43% in 2016,” the report said.