February 29, 2024
Despite short-term challenges and a dip in year-on-year growth, the organised retail market in India remains buoyed by consistent profitability and global alignment
Since 2010, the retail sector has surged over 200%, driven by a burgeoning middle class and the entry of international fashion and food chains
Success depends on retailers adapting delivery models, harnessing AI and analytics, and implementing robust cost management strategies
Consumers trading up for better products, with elite households driving demand for luxury goods, signalling a shift that retailers need to navigate
India’s retail market is on the cusp of significant growth, with estimates suggesting a remarkable leap to US$ 2 trillion in the next decade, a substantial increase from the US$ 820 billion recorded in 2023, as per a joint report by the Boston Consulting Group (BCG) and the Retailers Association of India (RAI).
This optimistic projection aligns with a notable shift in consumer behaviour, preferring experiences like travel and entertainment over traditional product purchases. This trend, influencing spending patterns in the last two years, forms a key aspect of the report.
Although some major retailers showed a subdued performance this quarter, resulting in a 5-10% dip in year-on-year growth, the sector still holds an optimistic outlook. The report highlights that profitability has remained consistent and largely aligned with global peers.
India’s retail sector has experienced a remarkable 200% surge since 2010, reaching a valuation of US$ 250 billion. A growing middle class and the entry of international fashion and food chains drive this growth. Projections for the next decade anticipate a 9-10% growth.
However, there are considerable performance variations among retailers, as highlighted by Namit Puri, Managing Director and Senior Partner at BCG. He emphasises that success hinges on retailers’ capacity to refine delivery models, leverage artificial intelligence (AI) and analytics, and implement robust cost management strategies.
BCG notes an 8-9% Compound Annual Growth Rate (CAGR) for goods, while services exhibit a faster growth rate of 11-13% CAGR from FY17-18 to FY23. The report delves into spending patterns across various categories, tracking trends in food, beverages, tobacco, clothing, footwear, housing, household products, transport, vehicles, maintenance, education, leisure, etc.
The report highlights a significant increase in household savings and investments, including a 30% rise in demat accounts between December 2022 and December 2023, coupled with increased health insurance penetration.
Consumers are investing more in experiences, signalling a shift that retailers cannot take demand for granted. Additionally, consumers gravitate towards premium products, driving demand for luxury goods. The report identifies higher spending by “elite households” earning over INR 20 lakh annually on items such as cosmetics, air conditioners, microwave ovens, water purifiers, beauty and health services, cars, and leisure travel.
Namit Puri further notes that competition for high-ticket categories, like jewellery or durables, will include mutual fund savings or holidays.
The report concludes by foreseeing continued store expansion and an increase in consumption across cities of all tiers, propelled by ongoing urbanisation
Source: Livemint