Indian retail sector has the potential to reach $2 trillion in the next decade

Indian retail has the opportunity to reach a size of $2 trillion in the next 10 years, buoyed by an increase in private consumption and amidst a shift in consumption patterns, a report by Boston Consulting Group and Retailers Association of India said.

The Indian economy is on a strong growth trajectory and the retail sector is seen growing at 9-10 per cent over the next decade. The retail industry is currently valued in the range of $820-840 billion.

• Also read: Retailers see sluggish growth in January

Consumption headwinds

Recent quarters have seen a slowdown in sales across segments such as fashion electronics, grocery, and quick service restaurants, with only the jewellery business bucking the trend. Retailers and have been lamenting the decline in like-for-like sale, especially in fashion, grocery and QSRs.

The report said that though there was a brief uptick in demand in the festival season, but this was not sustained and there is very little to indicate that there could be a significant change in the demand dynamics over the next two quarters. Part of the reason is attributed by retailers to low-income levels, a shift to higher savings levels and more people preferring to invest rather than to spend.

• Also read: Retail sector recovery slow as discretionary spends remain muted

The $2 trillion opportunity

Despite the headwinds there is a huge opportunity for the retail sector, and this can be captured by focusing on growth, profitability and taking advantage of the tailwinds.

Per capita income levels are showing a steady growth and consumers are shifting away from buying products to buying experiences. For instance, the service categories have grown 1.4 times compared to product categories. Retailers have to focus on this and give the customers what they want.

There are aspiring consumers in tier 2 and 3 cities, and this is a potential that cannot be ignored. Road connectivity with arterial highways is leading to urbanisation of smaller towns that are leading the consumption growth.

Among the well-heeled, there is a strong demand for luxury and premium brands. The boom in the stock markets as well a rise in residential prices has raised affluence levels providing ample scope for luxury brands to do well. Indulgence spending has seen a sharp spike as has spending on leisure and entertainment. Retailers are adding more stores but of smaller formats.

In order to survive and thrive retailers need to drive both growth and profitability for sustained value creation. Some of the key imperatives to achieve this are devising superior offerings to drive volumes, providing a better consumer experience, capturing new revenue streams to boost LFL growth and adapting the stores and offerings to cater to a wider audience.

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