Online retail to catch up with physical stores in 5 years: report

Mumbai: As consumers shop online at Snapdeal, Flipkart and Amazon India, the share of brick-and-mortar organized retail as a part of the overall modern retail market will shrink in the next five years, a report has predicted.

The share of e-commerce is expected to jump from 2% in 2014 to 11% in 2019, while the share of physical, organized or modern retail is expected to fall from 17% to 13%, said “Think India. Think Retail”, a report by the property consultant Knight Frank India Pvt. Ltd and the lobby group Retailers Association of India (RAI).

Retail spending in the top seven Indian cities of India currently amounts to Rs.3.58 trillion, with organized retail penetration at 19% in 2014, comprising physical stores at 17% and online at 2%. The share of organized retail in the overall retail business will rise from 19% to 24% in the next five years, driven by online sales.

Such spending is expected to touch Rs.83,900 crore by 2019 from the present Rs.7,200 crore, said the report.

Almost all leading brands—Nike, Puma, Mango, Vero Moda —and departmental stores and retail chains such as Croma and Shoppers Stop Ltd are present online.

Close to 32% of Internet users in India now shop online, compared to 14% of them in 2011, according to a January report by Credit Suisse AG.

“One of the biggest disruptions this quarter has come from online companies,” said Govind Shirkhande, managing director, Shoppers Stop, while adding that the departmental store chain is now joining the online bandwagon by establishing its presence on Snapdeal, Flipkart and Amazon in the next 30 days.

“For fashion brands, online channel accounts for 10-15% of their overall sales. In electronics, brands like Xiaomi get a larger part of their sales from the online medium,”said Ashish Jhalani, founder of the lobby group eTailing India.

Considering the impact of e-commerce, the requirement for brick-and-mortar organized retail is projected to increase from 70.3 million sq.ft. in 2014 to 92.1 million sq.ft. in 2019, resulting in a moderate annual growth rate of 5.6% in modern retail space. As such, the top seven cities of India will require an incremental modern retail space of 4.3 million sq.ft. per annum during 2015-19.

Brick and mortar in organized retail accounts for space occupied by brands in both high street as well as shopping malls.

This was the first time that the study looked at the retail space covered by modern retail across malls and the high street. Hence, there is no comparative number for growth rate of modern brick and mortar retail in the past.

However, mall space addition was growing at the rate of 15-20% between 2000 and 2015, said Samantak Das, chief economist and director, Knight Frank India.

Moreover, malls are reinventing themselves to become lifestyle and entertainment hubs rather than just an aggregator of retail brands as they compete with e-commerce portals.

“Our emphasis is on experiential revenue drivers like games zones, food zones and movies,” says Kishore Bhatija, managing director and chief executive officer, Inorbit Malls (India) Pvt. Ltd, adding that the space for such experiential services has increased from 7-8% to 15% over the last 2-3 years and will increase further in coming years.

The national capital region (NCR) has the highest penetration of brick-and-mortar organized retail, at 23%, followed by 21% in Bengaluru. Mumbai has only a 12% penetration of physical, modern retail.

The study, based on a survey of more than 30,000 retail outlets, seeks to capture the footprint of 23 retail product categories across the top seven metropolitan centres—Mumbai, Delhi, Bengaluru, Chennai, Hyderabad, Pune and Kolkata.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.