Retail Industry 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. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10% of the country’s gross domestic product (GDP) and around eight% of the employment. India is the world’s fifth-largest global destination in the retail space.

India ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C) E-commerce Index 2019. India is the world’s fifth-largest global destination in the retail space and ranked 63 in World Bank’s Doing Business 2020.

India is the world’s fifth largest global destination in the retail space. In FDI Confidence Index, India ranked 16 (after US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

Market Size

As per Forrester Research, in 2020, India's retail sector was estimated at US$ 883 billion, with grocery retail accounting for US$ 608 billion. The market is projected to reach ~US$ 1.3 trillion by 2024.

Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is expected to increase by Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20. India’s direct selling industry would be valued at US$ 2.14 billion by the end of 2021.

According to the Retailers Association of India (RAI), the retail industry achieved 93% of pre-COVID sales in February 2021; consumer durables and quick service restaurants (QSR) increased by 15% and 18% respectively.

After an unprecedented decline of 19% in the January-March 2020 quarter, the FMCG industry displayed signs of recovery in the July-September 2020 quarter with a y-o-y growth of 1.6%. The growth witnessed in the fast-moving consumer goods (FMCG) sector was also a reflection of positivity recorded in the overall macroeconomic scenario amid opening of the economy and easing of lockdown restrictions.

India’s e-commerce market is estimated to record sales worth US$ 55 billion during 2021 with the addition of 40 million new online shoppers. The number of online shoppers for 2021 is estimated to reach 190 million compared with 150 million last year and is estimated to reach 300 million shoppers in the next five years. India is set to become the third-largest online retail market by 2030 after the US and China with an annual Gross Merchandise value (GMV) of ~US$ 350 billion.

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. During the festival period in 2020, Amazon, Flipkart and various vertical players sold goods worth US$ 9 billion despite the pandemic onslaught.

Development Scenario

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflow totalling US$ 3.47 billion during April 2000-March 2021, according to Department for Promotion of Industry and Internal Trade (DPIIT).

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.

India’s retail sector attracted US$ 6.2 billion from various private equity and venture capital funds in 2020.

In July 2021, DP Retail, a subsidiary of Darwin Platform Group of Companies (DPGC), entered the retail space with the launch of its first megastore in Andheri, Mumbai. The company would be opening other self-owned exclusive stores at five locations in Mumbai. The launch signifies the DPGC’s ambitious plan to leverage potential of the Indian retail space. DP Retail plans to invest Rs. 1,000 crore (US$ 134.43 million) in FY21 to expand in other cities and allocated Rs. 100 crore (US$ 13 million) towards market penetration across the omnichannel retail business (including an innovative franchise model).

In July 2021, Dyson announced to increase its retail presence to 12 stores.

Tanishq, Shoppers Stop and Bestseller India (sells fashion brands Vero Moda, ONLY and Jack & Jones) plan to add 10-35 stores in FY22.

In 2021, Lenskart received US$ 315 million funding from Falcon Edge Capital, Temasek Holdings, KKR. The company plans to use the proceeds to expand its retail footprint in Southern India.

In May 2021, Big Bazaar rolled out its two-hour delivery service in small cities, such as Bhopal, Mangalore, Raipur, Ranchi, Guwahati, Kanpur, Lucknow, and Varanasi, and recorded a boost in orders over the past weeks.

In April 2021, Flipkart expanded its hyperlocal delivery service Quick to six new cities including Delhi, Gurugram, Ghaziabad, Noida, Hyderabad, and Pune as the demand for essential goods on e-commerce platforms surges amid the second wave of the pandemic.

In March 2021, AP Group announced an expansion plan for their Italian brand – Just Cavalli in India with the launch of 200 offline stores in 2021.

In March 2021, Realme announced to expand retail footprint in India with flagship stores; it is planning to launch its first flagship store (over a 10,000 sq. ft. area) in Gujarat.

On March 25, 2021, Xiaomi introduced a new initiative ‘Develop with Mi’ (GWM). GWM plans to have 30,000 touchpoints in a year and 6,000+ retail stores in the next two years.

In March 2021, ASICS expanded its retail concept in India with a new store in Bengaluru.

In March 2021, Vivo announced plan to open ~100 exclusive retail stores across India in 2021; aims to cross the 650-store mark in India by 2021.

In March 2021, Unicorn, a premium Apple reseller, announced plan to launch 4-6 new flagship stores in India by FY22.

In March 2021, Mi India launched a Rs. 100-crore (US$ 13.62 million) support plan over the next two years for its retail partners.

In February 2021, Greyweave, a hand-made carpets and rugs brand, announced to invest Rs. 75 lakh (US$ 102,875.65) for the firm's offline expansion plan.

Government Initiatives

The Government of India has taken various initiatives to improve the retail industry in India. Some of them are listed below:

• 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.
• The government’s focus to improve digital infrastructure in Tier 2 and Tier 3 markets would be favourable to the sector.
• The Minister of MSME announced inclusion of retail and wholesale trades as MSMEs. Retail and wholesale trade will now get the benefit of priority sector lending under the RBI guidelines.

Road Ahead

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.

By 2024, India's e-commerce industry is expected to increase by 84% to US$ 111 billion, driven by mobile shopping, which is projected to grow at 21% annually over the next four years. In 2020, the most common payment methods online were digital wallets (40%), followed by credit cards (15%) and debit cards (15%). Online penetration of retail is expected to reach 10.7% by 2024 versus 4.7% in 2019.

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 July 2021, Rs. 1 = US$ 0.01344

References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Consumer Leads report by FICCI and Deloitte - October 2019

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