Graphic: Prajakta Patil/Mint
Graphic: Prajakta Patil/Mint

What retail will look like in 2016

The sector may get a boost if urban consumption demand remains strong and inflation pressures remain in check

Change may be the only constant for the retail sector. Rapid growth in online retail has meant significant losses for firms trying to woo customers. But, eventually, these firms will have to find ways to cut losses. On the other hand, offline retailers will continue to try and find a convergence between traditional and digital channels. The sector as a whole, though, may get a boost if urban consumption demand remains strong and inflation pressures, which eat into disposable spends, remain in check.

TRENDS TO WATCH

Experiments in omni-channel

Globally, apart from a few big exceptions such as Amazon and Alibaba, some of the top online sellers are traditional retailers who have put together a strong omni-channel business. This is starting to happen in India with retailers Future Group, Shoppers Stop Ltd as well as the retail arms of Aditya Birla Group, Tata Group and Reliance Industries Ltd experimenting with the online medium. As such, pure play is giving way to omni-play, with even pure-play online retailers Flipkart, Zivame, Pepperfry, FirstCry and Lenskart opening stores.

International brand launches

This has been picking up pace with the likes of Hennes and Mauritz AB (H&M) and American fashion retailer Gap launching stores in India in 2015. As the market starts picking up, local firms will find it increasingly difficult to win in a more competitive environment and they are likely to seek help from global firms. This will lead to a greater influx across categories ranging from food (with its regulatory limitations) to luxury. Of course, this will not be a race, rather a thoughtful testing of waters.

Travel retail

With the government approving 100% foreign direct invest (FDI) in duty-free shops under the automatic route, as well as due to the upgradation of airports, travel retail, which has been growing at a fast clip, will further see its growth accelerate in the coming years.

Luxury retail

DLF Emporio in Delhi, UB City in Bengaluru and Palladium at Phoenix Mills in Mumbai are the only three luxury malls in India, and this has limited the expansion of luxury retail in India. The new year will see new luxury retailers coming to India and new retail projects being launched. It is estimated that the supply of retail space for the luxury segment would double by 2019, and with the current demand significantly higher than supply, growth in this segment is expected to continue in the coming years.

Consolidation

In 2015, Bharti Enterprises announced the merger of its retail business Bharti Retail Ltd with the retail operations of Kishore Biyani’s Future Retail Ltd. Biyani also acquired Nilgiris earlier last year. Aditya Birla’s value retail unit Aditya Birla Retail Ltd acquired Jubilant Retail’s Total hypermarket chain in Bengaluru. Such consolidation will continue in 2016.

Collaboration of modern and unorganized retail

Modern retailers, in their pursuit for growth, will be collaborating more with traditional retailers, where the synergies benefit both, thereby providing a transformational push to the retail sector. Also small and medium enterprises will increasingly go online to sell their goods on marketplaces such as Snapdeal, Flipkart and Amazon.

COMPANIES & PEOPLE TO WATCH

Reliance Industries Ltd (RIL): The launch of services by Reliance Jio Infocomm Ltd (R-Jio), RIL’s ambitious telecom venture, will also mark the beginning of the conglomerate’s entry into e-commerce in a phased manner. So far, conglomerates have lost out on the high growth of online shopping and it will be interesting to see how fast they make inroads online and what will the impact of their entry be on the incumbents.

Zara: With the entry of H&M and Gap, it will be interesting to see whether the Spanish fashion brand Zara, which has crossed the $100-million sales mark, capitalizes on its head start in the Indian market. Expect the brand to step up on its expansion in 2016.

Photo: Bloomberg
Photo: Bloomberg

Arvind Lifestyle Brands Ltd: Arvind Lifestyle launched international brands such as The Children’s Place, GAP and Aeropostale in 2015. Expect the company to keep the momentum going in 2016, with the addition of new brands to its portfolio.

Future Group: Acquisitions, mergers, consolidation, integration, tweaking and reworking formats besides rolling out the omni-channel strategy and reducing debt—there is a lot under Kishore Biyani’s belt.

Decathalon: Having found its feet in India, this specialty retailer is now moving aggressively across India and may turn out to be one of the most successful international retailers in India.

Photo: Bloomberg
Photo: Bloomberg

Ikea: It will be four years since the company got approval for FDI in single-brand retail to set up its own stores in India in 2012. Now, with the recent tweaking in the single-brand retail policy for sourcing compliances, the retailer may speed up the launch of its first store in 2016.

Titan: Following its partnership with global luxury brand Montblanc International GmbH , expect Titan to add more brands to its portfolio as the company looks at new growth avenues and diversification into the lifestyle and accessories market.

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