India's retail revolution a $2 trillion opportunity beckons

A recent report by the Boston Consulting Group (BCG) and the Retailers Association of India (RAI), ‘Unlocking the $2Tn Retail Opportunity in the Next Decade: An Activist Agenda,’ paints a bright picture for the Indian retail sector. Despite facing short-term headwinds, the report projects the market to reach a staggering $2 trillion by 2034, translating to a healthy Compound Annual Growth Rate (CAGR) of over 7 per cent.

Fashion/apparel retail a growth engine

The fashion/apparel segment is a key driver of this growth, pushed up by rising disposable incomes and a growing young population. The report estimates this segment will reach a market size of over $500 billion by 2030. The report highlights the booming fashion/apparel segment within Indian retail. This segment is expected to witness significant growth, driven by:

Increased brand consciousness: Consumers are becoming more brand-savvy, seeking quality and variety.

Shifting preferences: Athleisure and casual wear are gaining popularity, reflecting changing lifestyles.

E-commerce boom: Online fashion platforms are offering convenience and wider selection, particularly in smaller cities.

Metro vs. other cities, a tale of two markets

The report highlights a divergence in consumer behavior between metros and other cities. Metros are witnessing a surge in online shopping, with consumers seeking convenience and wider product selection. While metros boast established retail infrastructure and higher spending power, smaller cities present a vast untapped potential. Smaller cities still rely heavily on brick-and-mortar stores, but are increasingly adopting omnichannel strategies to cater to evolving preferences.

Metros are expected to continue to be major retail hubs, with a focus on premium brands, large-format stores, and omnichannel experiences (blending online and offline retail). Tier II and III cities will witness a surge in organized retail, driven by rising incomes and increasing mall penetration. Here, value fashion and smaller format stores are likely to thrive.

Understanding the changing consumer

The report emphasizes the importance of understanding the evolving Indian consumer. Key trends include:

Value consciousness: Consumers are becoming more price-sensitive, seeking value for money and exploring private label brands.

Brand affinity: Brand loyalty is shifting, with consumers open to trying new brands that offer unique experiences.

Sustainability: Environmental and social consciousness is gaining traction, with consumers increasingly opting for sustainable products.

Digital influence: Social media and online reviews heavily influence purchasing decisions.

Convenience seeking: Consumers are increasingly opting for quick and easy shopping experiences, favoring online marketplaces and proximity stores.

Key change drivers

"The Indian retail sector is at a tipping point," says Kumar Raj, Managing Director and Partner at BCG India. "Retailers who can adapt to the changing consumer landscape and leverage digital transformation will be the ones to thrive in the coming decade." The report identifies several key change drivers that will shape the future of Indian retail.

Digitalization is top of the list. Embracing technologies like Artificial Intelligence (AI) and data analytics will be crucial for personalization, efficient supply chain management, and targeted marketing. Adopting omnichannel strategy and creating a seamless shopping experience across online and offline channels will be key to cater to diverse consumer preferences. Localization and understanding the nuances of ‘Many Indias’ requires tailoring product offerings and store formats to cater to regional preferences. Moreover a growing urban population creates a demand for modern retail formats. And as incomes rise, consumer spending power increases, fuelling demand for discretionary products.

"The future of retail is all about creating a connected experience for the customer," says RAI Chairman, Manoj Chaudhary. "We need to invest in building a robust omnichannel strategy and fostering partnerships to unlock new growth opportunities."

The BCG-RAI report presents a compelling vision for the Indian retail sector. By capitalizing on the identified growth drivers and adapting to changing consumer behavior, retailers can unlock the $2 trillion opportunity and thrive in the years to come.