While the overall retail market will grow at 12% per annum, modern trade will grow twice as fast at 20% per annum, and traditional trade at 10%
Mumbai: India’s retail market is expected to double to $1 trillion by 2020 from $600 billion in 2015 driven by income growth, urbanization and attitudinal shifts, a new report said.
While the overall retail market will grow at 12% per annum, modern trade will grow twice as fast at 20% per annum, and traditional trade at 10%, said the Boston Consulting Group and Retailers Association of India report titled Retail 2020: Retrospect, Reinvent, Rewrite.
Modern trade includes supermarkets, hypermarkets and other organized retail outlets, while much smaller grocery stores are classified under traditional channels.
Modern trade is expected to grow three times to $180 billion in 2020 from $60 billion in 2015 and e-commerce at an even faster clip to quadruple in the same time to become a $60-70 billion market, said the report.
By 2020, average household income will increase three times to $18,448 from $6393 in 2010. Moreover, urbanisation will increase to 40% from 31% and over 200 million households will be nuclear, representing a 25-50% higher consumption per capita spend. Also, attitudinal shifts will be seen as 75% of the population will belong to generation I, that is they were below 14 years of age when the economy started opening and hence will have higher consumption levels, said the report.
Additionally, digital is also shaping the way consumers buy. There are currently 35 million people buying online and this will increase to 100 million in the next two years, said Gaurav Kapur, head of industry for retail and automotive, Google India at the Retailers Association of India’s Retail Leadership Summit 2015 in Mumbai while sharing that the online growth is being driven by the tier III and tier IV cities. Consumers are buying everything online; even big-ticket items like houses, cars and two wheelers, said Kapur.
The rapid growth of e-commerce has retailers thinking of their multi-channel strategy. “E-commerce cannot be ignored," said Neville Noronha, chief executive officer, Avenue Supermarts Ltd, which runs the D’Mart retail chain, adding his company is evaluating its e-commerce strategy.
Even the Dubai-based Landmark Group which runs department store chain Lifestyle and Max in India is looking at leveraging different channels. “We want to invest in omni-channel," said Ramanathan Hariharan, chief executive officer, Landmark Group.
Currently, most brick and mortar companies don’t have a good multichannel offering and hence, in the short term, pure play e-commerce companies are winning, said Abheek Singhi, senior partner and director, BCG Mumbai while sharing that in the long term, multi-channel retail will gain ground.
Meanwhile, brick and mortar retail challenges remain. For instance, the sales per square foot at Indian retail stores at ₹ 1,500-2,000 per square foot is much lower than the international average of ₹ 8,000-12,000 per sq. ft. Even the gross margins are lower in India by 7-8% than the international standards and the rentals are higher by 1.5-3% on an average, said the report.
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