Advantage India
Robust
Demand
*India is one of the most promising and developing marketplaces in the world. There is a great deal of desire among multinational corporations to take advantage of the consumer base in India and to enter the market first.
*Increasing purchasing power has led to growing demand.
*Nearly 60 shopping malls encompassing a total retail space of 23.25 million sq. ft are expected to become operational during 2023-25.
*India's retail sector boasts an impressive market size, ranking fourth globally and contributing over 10% to the nation's GDP.
Innovation
In Financing
*Collective effort of financial houses and banks with retailers are enabling consumers to go for durable products with easy credit.
*Many global investors are investing in the retail sector either by buying a stake in existing assets or through greenfield development platforms.
*According to EY, E-commerce companies raised US$ 2.44 billion in PE/VC funding in 2023 from 85 deals, down from US$ 5.36 billion across 162 deals in 2022.
Increasing
Investments
*Due to India’s wealth of resources, availability of labour at relatively low costs, and special investment wages such tax breaks, etc., foreign corporations prefer to invest here.
*Amazon is increasing its investment in India by US$ 15 billion over the next seven years, bringing its total investment to US$ 26 billion.
*India’s retail trading sector attracted US$ 4.63 billion FDIs between April 2000-March 2024.
*The retail sector in India accounts for over 10% of the country’s GDP and around 8% of the workforce (35+ million). It is expected to create 25 million new jobs by 2030.
Policy
Support
*To improve the business climate and make it simpler for foreign companies to register fully owned subsidiaries in India, the Indian government has implemented a number of rules, regulations, and policies.
*100% FDI allowed in single-brand retail under the automatic route.
*Liberalisation of FDI is expected to give a boost to Ease of Doing Business and Make in India.
Introduction
Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. It accounts for over 10% of the country’s gross domestic product (GDP) and around 8% of the employment. India is the world’s fifth-largest global destination in the retail space. India is the world’s fifth-largest global destination in the retail space and ranked 63 in the World Bank’s Doing Business 2023.
The sizeable middle class and nearly unexplored retail market in India are the main enticing factors for international retail behemoths seeking to move into newer markets, which will help the Indian retail business grow more quickly. The urban Indian consumer's purchasing power is increasing, and branded goods in categories like apparel, cosmetics, footwear, watches, beverages, food, and even jewellery are gradually evolving into business and leisure that are well-liked by the urban Indian consumer. The retail sector in India is expected to reach a whopping US$ 2 trillion in value by 2032, according to a recent analysis by the Boston Consulting Group (BCG).
India is one of the most promising and developing marketplaces in the world.
There is a great deal of desire among multinational corporations to take advantage of the consumer base in India and to enter the market first. Nearly 60 shopping malls encompassing a total retail space of 23.25 million sq. ft are expected to become operational during 2023-25.
India ranks among the best countries to invest in Retail space. Factors that make India so attractive include the second largest population in the world, a middle-income class of ~158 households, increasing urbanization, rising household incomes, connected rural consumers, and increasing consumer spending.
As of December 2022, there were 7.8 billion daily e-commerce transactions. Online shoppers in India are expected to reach ~500 million in 2030 from 150 million in 2020. Online shoppers in India are expected to reach ~500 million in 2030 from +150 million in 2020. The E-Commerce market is expected to touch US$ 350 billion in GMV by 2030.
India’s retail sector was experiencing exponential growth with retail development taking place not just in major cities and metros, but also in small cities. Healthy economic growth, changing demographic profile, increasing disposable income, urbanisation, and changing consumer tastes and preferences have been some of the factors driving growth in the organised retail market in India.
To improve the business climate and make it simpler for foreign companies to register fully owned subsidiaries in India, the Indian government has implemented a number of rules, regulations, and policies.
Market Size
As per Kearney Research, India’s retail industry is projected to grow at 9% over 2019-2030, from US$ 779 billion in 2019 to US$ 1,407 billion by 2026 and more than US$ 1.8 trillion by 2030. India’s direct selling industry is expected to be valued at US$ 7.77 billion by the end of 2025. Despite unprecedented challenges, the India consumption story is still robust.
India has the third-highest number of e-retail shoppers (only behind China and the US). The new-age logistics players are expected to deliver 2.5 billion Direct-to-Consumer (D2C) shipments by 2030. Online used car transaction penetration is expected to grow by 9x in the next 10 years.
According to recent industry reports, the e-commerce industry witnessed a phenomenal 36.8% YoY growth in terms of order volumes. As consumers prefer to shop online throughout the year, this fast-changing consumer preference towards online shopping reveals the mature status acquired by e-commerce brands in India.
India's retail sector boasts an impressive market size, ranking fourth globally and contributing over 10% to the nation's GDP.
As of December 2022, there were 7.8 billion daily e-commerce transactions. Online shoppers in India are expected to reach ~500 million in 2030 from +150 million in 2020.
India’s digital economy is expected to touch US$ 800 billion by 2030, and the E-Commerce market is expected to touch US$ 350 billion in GMV by 2030.
As per Crisil, Organised food & grocery retailers topline will grow at 14-15 % in FY25.
Investments/ Developments
The Retail sector in India has seen a lot of investments and developments in the recent past.
- French sports retailer Decathlon is accelerating its investments to ramp up production and enhance its retail presence further in India.
- Retail sales in June 2024 showed a growth of 5% as compared to the sales levels in June 2023, according to the survey by Retailers Association of India (RAI).
- As of September 2023, Swedish furniture maker Ikea was looking for omnichannel expansion with diverse retail formats besides kicking off online operations in Delhi-NCR by the end of 2024 as it enters the second phase of growth in the Indian market.
- Reliance Industries is likely to sell another 8-10% stake in Reliance Retail Ventures Ltd (RRVL) to fund expansion, retire debt and prepare for the initial public offering of the conglomerate's retail business.
- Reliance Consumer Products, the FMCG arm of Reliance Retail announced the launch of it made-for-India consumer packaged goods brand 'Independence' in Gujarat.
- IKEA, the Swedish furniture maker has drawn up plans to invest Rs. 850 crore (US$ 102.41 million) in its Indian operation.
- Swedish retailer H&M is set to launch its home décor and accessories products such as dinnerware and bed linen in India next month. H&M HOME will be available on the company’s website and through Myntra in March.
- Lulu Group, a UAE-based retail company, will invest Rs. 2,000 crore (US$ 240.96 million) to develop a shopping mall near Ahmedabad in Gujarat as part of its plans to expand business in India.
- India’s retail trading sector attracted US$ 4.63 billion FDIs between April 2000-March 2024.
- The annual inflation rate based on all India Consumer Price Index (CPI) number is 4.83% (Provisional) for the month of April 2024 (over April, 2023).
- In November 2022, Aditya Birla Fashion and Retail Ltd. entered a strategic partnership with the Galleries Lafayette to open luxury department stores and a dedicated e-commerce platform in India.
- In August 2022, Louis Philippe, India’s leading premium menswear brand from Aditya Birla Fashion and Retail Ltd., announced the launch of its outlet in Vadodara, Gujarat.
- In August 2022, Wipro Consumer announced the launch of traditional snacks and spices as it forays into packaged foods.
- In July 2022, Reliance Brands Limited (RBL) partnered with Maison Valentino to bring to India the most established Italian Maison de Couture.
- In June 2022, Reliance Brands Limited inks a JV with plastic legno spa to strengthen toy manufacturing ecosystem in India.
- In June 2022, Aditya Birla Group formally launches TMRW – a Digital First ‘House of Brands’ venture in the Fashion & Lifestyle space.
- In May 2022, Reliance brands limited (RBL) partnered with Tod’s S.p.A, the iconic Italian luxury brand to become the official retailer of the brand across all categories including footwear, handbags, and accessories in the Indian market.
- According to the Minister of State for finance, Total digital payment transactions volume increases from 2,071 crore in FY 2017-18 to 13,462 crore in FY 2022-23 at a CAGR of 45%
- In January 2024, UPI transactions were valued at Rs. 18.4 lakh crore (US$ 221.6 billion).
- Retail tech companies supporting the retail sector with services such as digital ledgers, inventory management, payments solutions, and tools for logistics and fulfilment are taking off in India.
- With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months.
Growth Drivers for retail in India
- Favourable Demographics: India’s large and young population, Rising Middle Class, Urbanization, Changing Lifestyle and Consumption Patterns and favourable government initiatives prove to be a growth engine for the retail industry.
- Rise in income and purchasing power: As of the most recent Purchasing Power Parity (PPP) calculations by the World Bank and the International Comparison Programme (ICP), India ranks 3rd in the world in terms of GDP by PPP. Along with improvements in general purchasing power of the middle class, and a low cost of living, India has also almost completely eradicated extreme poverty at the global PPP poverty level of US$ 1.9.
- Change in consumer mindset: The transition from traditional retail to online platforms in India has spurred a shift in consumer mindset. This change is characterized by a prioritization of convenience, a wider product selection, increased price sensitivity, growing trust in online transactions, reliance on reviews and recommendations, evolving loyalty dynamics, a greater embrace of technology, and heightened expectations for fast delivery.
- Brand consciousness: Brand consciousness in India is a multifaceted phenomenon shaped by economic, cultural, and technological factors. As consumer expectations continue to evolve, brands must remain agile and responsive to changing trends, ensuring that they deliver value, innovation, and authenticity to maintain their competitive edge in the market.
- Easy consumer credit and increase in quality products: Share of unsecured retail loans grew to 25.2% from 22.9% in March 2021-2023, while secured loans eased from 77.1% to 74.8%. Banks' unsecured loan portfolio amounted to close to Rs. 12 lakh crore (US$ 144.58 billion) as of July 2023.
Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in India. Some of them are listed below:
- In July 2021, the Andhra Pradesh government announced retail parks policy 2021-26, anticipating targeted retail investment of Rs. 5,000 crore (US$ 674.89 million) in the next five years.
- Government may change Foreign Direct Investment (FDI) rules in food processing in a bid to permit E-commerce companies and foreign retailers to sell Made in India consumer products.
- Government of India has allowed 100% FDI in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of E-commerce companies operating in India.
Road Ahead
The COVID-19 pandemic has caused changes in consumer preferences, habits, and attitudes over the past few years. This has a significant impact on how people buy and consume goods and services. Global retailers are now using cutting-edge business strategies to take advantage of new retail opportunities. Consumers no longer distinguish between offline and online consumption channels. Due to this, major companies are experimenting with different ways to design seamless retail experiences that are integrated across all channels. By utilising both established e-commerce platforms and traditional techniques, retailers are also experimenting with revenue models to improve their customer value offer.
E-commerce is expanding steadily in the country. Customers have the ever-increasing choice of products at the lowest rates. E-commerce is probably creating the biggest revolution in retail industry, and this trend is likely to continue in the years to come. Retailers should leverage digital retail channels (E-commerce), which would enable them to spend less money on real estate while reaching out to more customers in tier II and tier III cities.
Online retail market in India is projected to reach US$ 350 billion by 2030 from an estimated US$ 70 billion in 2022, due to rising online shoppers in the country Nevertheless, long-term outlook for the industry looks positive, supported by rising income, favourable demographics, entry of foreign players, and increasing urbanisation.
Note: Conversion rate used in June 2024, Rs. 1 = US$ 0.012
References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Consumer Leads report by FICCI and Deloitte - October 2019, News Articles, KPMG Blogs
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