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MOSL: RETAIL (THEMATIC)-The Land of Opportunities; Biz models rightly evolving to suit ‘New-age Retail’

Retail (THEMATIC): The Land of Opportunities; Biz models rightly evolving to suit ‘New-age Retail’

 

Huge runway for growth

The Indian organized retail market appears set for a stellar run, with its size likely to triple by FY25. While the industry is undergoing constant disruption, one thing has remained steady – consumers’ affordability is on the rise and aspirations are growing more than ever. This trend particularly bodes well for food & grocery (F&G) and apparel categories, which are likely to deliver a strong CAGR (FY17-21) of 27% and 22%, respectively. To cater to robust demand, ~4,000 new store additions will likely be required over the next eight years (2017-25), offering a huge runway of 15% CAGR in retail footprint over the next eight years. Household retail spends, too, are shifting from traditional kirana shops to modern retail formats, which are gaining share due to better price offerings and greater convenience of shopping. 

E-commerce – more a friend than foe

We believe the Indian retail industry is at the crossroads. The rising base of tech-savvy millennials, the improving internet ecosystem in India and the inherent benefit of convenience are undoubtedly fuelling demand for e-commerce. On one hand, this is creating cracks in the traditional brick-and-mortar business, but on the other, almost all companies are premising their growth strategies on developing their online channels – more so on building an omni-channel model. Many retailers and e-commerce firms are coming together to build a blended distribution network. Retailers appear to have ascertained that e-commerce is more of a friend than a foe. 

E-commerce also has its own restrictions. It has largely penetrated standardized categories like electronics, and to some extent, lifestyle and branded apparel. However, its relevance in F&G is limited due to factors like varied quality, customization, supply logistics and product perishability. Further, online shopping has plateaued, with maturing of sales in top 10-15 cities, which contribute 75% of total sales. To drive incremental growth, e-commerce companies need to expand to smaller cities, which will trigger a significant rise in their already high logistics costs. The new ecommerce policy also supports offline retail by disallowing online players to offer deep discounts, cash backs and exclusive product sale.