India’s retail consumption recovery strengthened in August, with smaller cities emerging as the principal growth drivers for fashion and lifestyle sector ahead of the festive quarter. The second edition of the Sanket (Spends & Key Emerging Trends) index, jointly published by the Retailers Association of India (RAI) and Innoviti Technologies revealed same-store consumer spending has gone up 9.6 per cent year-on-year in August, up from 7.1 per ent in July.

Based on over 70 million transactions across 100,000 checkout terminals in 2,800 towns the index indicates a broad-based improvement rather than a recovery restricted to metros.

Fashion regains momentum

Fashion & Lifestyle recorded one of the sharpest month-on-month improvements, with growth moving from 4.5 per cent in July to 8.5 per cent in August. Grocery & general retail grew at 9.9 per cent, while jewellery & accessories grew 8.4 per cent. Consumer Electronics remained at 5 per cent, reflecting continued pressure from import-linked costs.

Table: Categorywise retail growth July-August 2026

As Kumar Rajagopalan, CEO, RAI points out the August numbers indicate breadth in the recovery and give an early signal for the holiday quarter. For retailers, the improvement creates greater confidence around festive inventory planning, although global macroeconomic pressures remain a consideration.

Smaller cities lead

The most significant shift is geographical. Tier III towns recorded 11.9 per cent same-store growth in August, compared to 7.6 per cent in Tier I cities. The 4.3-percentage-point gap suggests that consumption momentum is extending beyond established metros. Tier II markets were particularly strong for discretionary categories. Fashion and apparel spending rose 13 per cent while jewellery increased 11.6 per cent. Regionally, Western India led with 10.7 per cent growth, followed by the South at 9.7 per cent. Northern markets recorded the sharpest month-on-month improvement, gaining three percentage points as retailers and consumers moved towards the festive cycle.

Table: Region wise growth pattern

Payment behaviour reinforces the shift. Innoviti founder as CEO Rajeev Agrawal explains UPI-linked same-store spending jumped 22.6 per cent year-on-year in August, while credit and debit card spending increased only 0.4 per cent. Outside jewellery, card spending fell across general apparel retail, indicating a growing role for digital payments in everyday discretionary purchases.

Value drives volume

The recovery, however, does not translate proportionately into revenue or margins. Crisil Ratings, which analysed 41 organised apparel retailers representing about 28 per cent of the organised industry, expects sector revenue growth to moderate to 12-13 per cent in FY27 from around 15 per cent in FY26.

The major reason is the increase of value fashion. Apparel priced below Rs 2,500 has grown at roughly twice the pace of premium merchandise over the past three years, increasing its share of organised retail revenue from 39 per cent to 46 per cent. This creates a volume-vs-value trade-off. Consumers are returning to stores, but their purchasing is more concentrated in affordable merchandise, limiting average selling prices and overall revenue realisation. Crisil’s senior director Anuj Sethi points out value fashion has become the principal volume driver, supported by aspirational demand and deeper penetration into smaller towns.

Margins under pressure

Input costs are complicating the recovery. Operating margins for organised apparel retailers are expected to fall by about 100 basis points to 14 per cent this fiscal as raw cotton costs and store overheads rise while pricing power remains constrained. CMAI trade surveys indicate that nearly 54 per cent of apparel manufacturers are absorbing raw-material cost increases rather than passing them through, while only 35 per cent are attempting price revisions.

Store productivity is another constraint. Revenue per square foot has remained broadly unchanged at around Rs 11,000 over the past three fiscal years, points out to Crisil director Poonam Upadhyay. This means expansion, rather than stronger productivity at mature stores, remains an important source of topline growth.

Festive bet

Retailers are therefore continuing to invest in physical expansion despite the margin pressure. Industry capital expenditure is estimated at about Rs 2,500 crore this fiscal, with a growing emphasis on Tier II, III markets. Gearing is expected at 1.3 times, while interest coverage remains around eight times. Physical stores still account for nearly 90 per cent of apparel revenue, underscoring why location-led expansion remains central to the sector's growth model.

The timing is critical. Fashion and apparel typically generate about 35 per cent of annual sales during the festive period, while CMAI trade-fair bookings show 52 per cent of manufacturers expecting higher turnover than last year. With overall consumer demand entering the festive season at a five-year high, retailers are preparing for a potentially stronger second half.

In fact, Trent's Zudio shows the merging of value pricing, smaller-city expansion and rapid inventory rotation. Its private-label merchandise, largely priced below Rs 1,500, has enabled the chain to expand into Tier II, III markets while keeping store costs relatively low. Their operating model emphasises rapid replenishment and localized inventory management rather than higher ticket prices. The strategy is particularly relevant as apparel companies confront cotton-cost volatility and consumers remain price sensitive.

The broader lesson for fashion retail is that India's next growth phase may depend less on extracting higher spends from metro consumers and more on widening the organised retail base across smaller cities. August's SANKET numbers suggest that this shift is already underway. The festive quarter will determine whether that momentum can translate into sustained revenue growth without corresponding margin erosion.

India’s retail real estate market is developing a sharp two-speed structure. While institutional Grade-A shopping centres are operating at high occupancy, a substantial stock of older malls is losing tenants, footfall and rental relevance. The opportunity emerging from this is not necessarily new construction, but the commercial reinvention of existing retail assets.

Knight Frank’s study ‘Think India Think Retail: Value Capture – Unlocking Potential’ covering 365 shopping centres across 32 cities and 134 million sq ft, identifies 74 developments as ‘ghost malls’ operational shopping centres with vacancy of 40 per cent or more. Together, these properties are around 15.5 million sq ft of underutilised retail space.

A split retail market

The presence of ghost malls does not point to weak consumer demand. Instead, it exposes a mismatch between legacy retail infrastructure and the requirements of today's fashion, lifestyle and beauty brands. Of the 74 distressed properties, Knight Frank identifies 15 centres spanning 4.8 million sq ft as high-potential turnaround candidates. Their reinvigoration could unlock Rs 357 crore in annual rental value. The opportunity is concentrated across both major metros and emerging urban markets. Tier-I cities account for Rs 236 crore of potential rental value across 2.9 million sq ft and Tier-II markets contribute another Rs 121 crore across 2 million sq ft.

For institutional landlords and retail operators, this creates an alternative to waiting for new development cycles. Repositioning an existing asset can provide access to established catchments while avoiding some of the time and land costs associated with greenfield projects.

When catchments shift

Many of the properties now classified as ghost malls were not inherently flawed when they opened. They were developed for the demographic, income profile and consumption patterns of their time. The problem emerged as cities expanded around them.

New residential catchments, rising disposable incomes and changing consumer expectations created demand for larger, better-curated and more experiential shopping destinations. When newer Grade-A malls entered the same markets, customers and anchor tenants migrated towards them. The departure of one major anchor can increase the decline. Secondary tenants follow, rental collections weaken and owners defer capital expenditure. The deterioration then becomes self-reinforcing.

For fashion and lifestyle brands, the consequences extend beyond sales. Store environment, adjacency and mall positioning influence brand perception and productivity. Today's international apparel, activewear and beauty retailers often require large contiguous stores, four-metre-plus ceiling heights, prominent frontages and sophisticated building services, requirements that many early-generation, fragmented or strata-owned malls cannot readily provide.

The current tenant mix underscores the importance of organised retail. Shopping centres have an average composition of 67 per cent domestic brands and 33 per cent international retailers.

Engineering the turnaround

Turning around an operating mall is not simply a matter of filling vacant stores. The physical structure, merchandising strategy and customer profile has to be addressed simultaneously.

Institutional operators typically approach the process in three stages. The first is structural realignment. Developers audit circulation, dead-end corridors, infrastructure and fragmented ownership. HVAC, lighting and vertical transportation may require upgrades, while multiple strata-titled units can be consolidated into larger institutional leasing formats.

The second is phased remerchandising. Rather than filling empty space with short-term tenants, operators gradually replace low-productivity categories with brands aligned to the surrounding catchment. This process can extend over 24 to 36 months.

The third is experience-led anchoring. Dining, entertainment and leisure are used to rebuild dwell time before fashion becomes the principal traffic driver. Food and beverage clusters, upgraded cinemas and family entertainment can establish evening and weekend footfall, creating the conditions for apparel, footwear and lifestyle brands to commit to longer leases.

Lessons from turnarounds

Pacific Mall Tagore Garden in West Delhi exemplifies how such repositioning can work. The property shifted away from legacy hypermarkets and undifferentiated local apparel stores while expanding food and beverage, upgrading multiplex offerings and combining smaller units into larger flagship formats.The strategy used dining and leisure to rebuild baseline traffic before attracting international and organised retail brands including Zara, Uniqlo and Lifestyle. The result was a more differentiated destination capable of generating stronger sales productivity.

A similar repositioning model has been applied to a previously underperforming centre in Pune's Koregaon Park, where tenant restructuring and capital upgrades transformed underutilised floor plates into a fashion-oriented retail destination. The common factor in these examples is not simply refurbishment. It is a reset of the mall's commercial proposition around the catchment it serves.

Knight Frank Chairman and Managing Director Shishir Baijal describes the situation as a supply-quality problem rather than a consumer-demand problem, with Grade-A assets operating strongly while older Grade-C properties experience high vacancies. For viable assets in dense catchments, he argues, disciplined capital expenditure and remerchandising can offer a faster investment route than waiting through a five-year greenfield development cycle.

That proposition is becoming more relevant as urban land values rise and prime development parcels become increasingly scarce. For institutional developers and retail REITs, adaptive reuse offers an opportunity to extract more value from existing real estate. For fashion, beauty and lifestyle companies, it can create additional stores in established neighbourhoods without waiting for an entirely new retail ecosystem to emerge.

The Rs 357-crore rental opportunity therefore is more than distressed real estate being brought back to life. It signals a broader shift in India's retail expansion model from building more shopping centres to making existing ones commercially relevant again.

India’s apparel retail market is entering the festive season with a consumer-confidence advantage that sets it apart from major global markets. The September Ipsos ‘Global Consumer Confidence Index’ indicates India’s confidence index rising 1.6 points to 66.9, close to its July peak of 67.1 and the highest reading among the 30 economies tracked.

The contrast with global markets is stark. The global average remained unchanged at 48.4, while the benchmark for established economies stood at 46.2. The US was at 50.5, Great Britain at 48.0, Germany at 41.6 and Japan at 39.4. Only India and Sweden, at 60, crossed the 60-point expansion threshold. For Indian apparel retailers, the timing is particularly significant. The September-to-December period covers Durga Puja, Diwali and the winter wedding season, traditionally one of the most important consumption windows of the year.

Confidence creates a festive tailwind

The underlying indicators strengthen the case for a consumption-led festive quarter. India’s employment sub-index jumped 3.7 points in September, while the current personal financial conditions measure rose 2.4 points. Investment and purchasing-climate indicators also recorded gains.

This matters because apparel is particularly sensitive to discretionary confidence. Improved perceptions of employment and household finances can shift consumers from essential replacement purchases towards occasion wear, premium fashion, accessories and higher-value baskets. The festive period could therefore favour brands able to sustain full-price sales rather than relying heavily on promotions.

Table: Highlights of global consumer confidence index

Source: Ipsos Global Consumer Confidence Index

Store expansion moves beyond metros

The confidence difference is also feeding into retailers’ physical expansion strategies. While fashion retailers in mature Western markets remain focused on rationalising store networks and protecting margins, India continues to offer room for additional retail penetration.

Prime shopping-centre space in Delhi-NCR, Mumbai and Bengaluru remains competitive, but Tier-II, III cities are becoming more important to the next phase of organised apparel expansion. Cities like Lucknow, Chandigarh, Ahmedabad and Kochi are attracting modern retail formats as consumers move towards branded and organised fashion. Reliance Retail, Aditya Birla Fashion and Retail and Tata Group’s Trent are among the large domestic players expanding across value, mid-market and aspirational segments.

The physical-store strategy also reflects changing strategy in fashion retail. Higher digital customer-acquisition costs have put pressure on online profits, while strategically located stores can generate stronger transaction values and offer consumers the immediacy and experience associated with fashion purchases.

Premium demand meets value-segment caution

The positive consumer background, however, does not imply uniform demand across the apparel market. Premium, aspirational and occasion-wear categories are better positioned to benefit from festive spending, while parts of the deep-value and unbranded market continue to face weaker volume conditions. This makes assortment planning critical.

Retailers that overstock basic mass-market merchandise could face higher post-festive markdown risks. At the same time, cotton yarn, synthetic inputs and logistics costs remain sources of margin pressure. Aggressive price increases could undermine the very demand momentum retailers are seeking to capture.

Consequently, shorter vendor lead times, tighter replenishment cycles and greater localisation of supply chains are becoming important tools for protecting gross margins.

Zara model highlights store productivity

The India performance of the Inditex-Trent retail partnership show the opportunity presented by a confident urban consumer. Zara’s positioning in prime retail locations combines frequent assortment refreshes with rapid replenishment, allowing stores to respond quickly to changing demand.

The broader lesson for apparel retailers is that India’s opportunity is not simply about adding stores. It is increasingly about extracting higher productivity from each retail door through sharper assortment, faster inventory turns and reduced dependence on markdowns.

Trent’s portfolio offers a broader example of this strategy. Westside and Zudio formats span lifestyle and value fashion, while its partnerships with Inditex bring Zara and Massimo Dutti into the Indian market. The group’s continuing expansion across metros and emerging urban centres reflects the depth of India’s organised fashion opportunity.

Festive quarter tests retail discipline

India enters the festive cycle with a consumer-confidence cushion that is unusual in the current global environment. But translating confidence into profitable growth will depend on how retailers manage inventory, pricing and store productivity.

For apparel companies, the opportunity is therefore two-sided: capture consumers willing to spend more, while avoiding excessive inventory commitments in weaker value segments. If the September confidence gains translate into sustained purchasing activity through Diwali and the wedding season, Indian apparel retail could widen its growth divergence from mature international markets. The festive season will ultimately test whether strong consumer sentiment can convert into sustained full-price sales, higher productivity and healthier retail margins.

India’s organised retail real estate market has entered a phase of scale, with larger shopping centres, office-integrated retail and fashion-led tenant mixes reshaping the business of physical stores. Organised commercial retail stock across the country’s top 12 urban markets has reached 186.2 million sq. ft, almost nine times the footprint recorded two decades ago.

Shopping malls account for the largest share at 114.3 million sq. ft, followed by office-led retail at 51.7 million sq. ft and high streets at 20.2 million sq. ft. The concentration is particularly strong in cities where technology, corporate employment and rising household incomes converge. Bengaluru leads with 29.2 million sq. ft of organised stock, followed by Gurugram at 27.4 million sq. ft, Hyderabad at 24.8 million sq. ft and Mumbai at 23.8 million sq. ft.

Table: Organised commercial retail space across top cities

Fashion takes the floor

The bigger change is taking place inside shopping centres. Apparel and fashion have increased their share of mall space from 25 per cent in the 2013-15 period to 35 per cent in 2023-025. The change reflects the evolution of fashion stores from transactional outlets into destination formats. Most brands want contiguous floor plates large enough to accommodate women's, men's and children's apparel alongside footwear, accessories, beauty and experiential elements. At the same time, shopping centres are broadening their consumer proposition. Food and beverage space has grown from 11 per cent to 15 per cent, while essentials and modern grocery have increased from 3 per cent to 11 per cent.

Table:

Shweta Rao, Head of Retail Tenant Strategy at commercial advisory firm points out the modern shopping centre is no longer an apparel rack under a concrete roof. Apparel brands are taking up 35 per cent of aggregate centre volumes because they are using large-scale formats to merge physical engagement with digital catalogues. The implication for developers is significant: fashion is becoming an anchor around which dining, entertainment and other consumer experiences can be organised, rather than simply another category occupying mall space.

Mega malls move up the pipeline

The next phase of supply is likely to reinforce this trend. Over 40.4 million sq. ft of shopping mall space is currently under construction, with Hyderabad and Gurugram together accounting for 51 per cent of the upcoming inventory.

More importantly, new malls are getting substantially larger. The average mall scheduled for delivery between 2026 and 2030 is estimated at 0.59 million sq. ft, more than twice the 0.25 million sq. ft average of malls developed before 2000.

For fashion retailers, this changes the store-size equation. Conventional 1,500 sq. ft units are being supplemented by 10,000-30,000 sq. ft stores and duplex formats. Global brands such as Zara, H&M and Uniqlo, as well as domestic chains including Reliance Trends and Westside, can use these larger spaces to create broader assortments and stronger visual merchandising.

The larger footprint also supports the transition from store-as-outlet to store-as-experience, with digital catalogues, assisted selling, click-and-collect and integrated beauty and accessories propositions becoming part of the physical environment.

Tech corridors become retail hubs

Office-led retail is emerging as another major engine of expansion. Such developments added 15.4 million sq. ft between 2021 and 2025, taking the overall office-led retail inventory to 51.7 million sq. ft. These projects effectively insert retail into Grade-A technology corridors and corporate campuses. For fashion and lifestyle brands, that creates a different traffic profile from conventional malls.

Weekday lunch-hour and post-work demand can support categories such as office casualwear, formalwear, footwear, travel accessories and athleisure. Retailers also gain access to affluent working populations without depending entirely on destination-led weekend traffic. This makes office-led retail particularly relevant as work patterns become more hybrid but office districts retain significant concentrations of high-income consumers.

Rents make store economics critical

The expansion, however, is not uniform. Mall rents across the 12 tracked markets range from around Rs 140 per sq. ft a month in peripheral locations such as Ghaziabad to Rs 438 per sq. ft in core Mumbai assets.

Vacancy also varies sharply. Institutional Grade-A developments report vacancy as low as 1 per cent in Thane and around 4 per cent in Mumbai, Hyderabad and Bengaluru, while Gurugram is at 13.6 per cent amid faster supply additions. For fashion retailers, the result is greater emphasis on store productivity rather than footprint alone. Hybrid lease structures combining fixed rentals with revenue-share components are gaining relevance, with revenue shares typically ranging between 7 per cent and 12 per cent. Store-level EBITDA thresholds are increasingly becoming a prerequisite for major capital expenditure decisions.

Trent shows the two-speed model

Tata’s retail arm Trent shows how retailers can respond to this changing real estate landscape through differentiated formats. Its Zudio business uses standardised 6,000-10,000 sq. fts tores to penetrate suburban corridors and emerging micro-markets, while Westside occupies larger 18,000-30,000 sq. ft anchor positions in premium shopping centres. The model allows the company to pursue two distinct growth pools: value-oriented consumers through a relatively standardised footprint and affluent urban shoppers through larger destination stores.

The broader lesson for India's fashion sector is that expansion is becoming less about simply adding outlets and more about matching store format, location and capital intensity with consumer density and purchasing behaviour.

Physical retail gets more strategic

With 40.4 million sq. ft of mall supply under construction and office districts functioning as consumer destinations, India's organised fashion market is entering a more sophisticated phase of physical expansion.

The next retail cycle is likely to be defined by larger floors, stronger fashion anchors and increasingly integrated physical-digital experiences. For brands, however, more space will only create value where productivity can justify the cost.

India's retail real estate story is therefore shifting from store availability to store economics with fashion brands, developers and landlords all reworking around the same logic: how much consumer value can be generated from every sq. ft.