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Growth Drivers: The great transformation of Indian retail


The Indian industry has witnessed tremendous growth in the recent years. Demographics, technology and foreign direct investment seem to be growth drivers for the industry. Moreover, massive smartphone penetration and relaxation in laws from the government for international players, the growth phenomena seems to be continued for 2015-2020 as well.

The great transformation of Indian retail
The millennials, in their early working years, changed the retailing landscape with their shopping behaviours.

Consumers are not shying away from spending on luxury over necessity: Millennials, in the age group of 21-35 years, dictated the pattern completely in the past five years. Though generation Z (those under the age of 20) comprise the majority of the population, the millennials, in their early working years, changed the retailing landscape with their behaviours.

One of the channels that benefitted the most due to the millennials in retailing were fashion and lifestyle retailers. And unlike the popular opinion this was not limited to the online channel only. Store and non-store retailers, both grew strongly, if present in the fashion and lifestyle space.

Millennials typically have no loyalty towards brands or channels, however they were more than happy to spend on themselves. They have higher disposable incomes and because of that were trading up their choice of brands from unbranded, to branded, to mass, to premium, and eventually – those who could afford it – to luxury.

Millennials had plenty of choices to spend money on, and were driven more by want than need for a product, or a brand. This change in consumer behaviour helped to drive the growth of luxury brands in India.

Luxury retail had a good period in India. Though not one of the biggest markets in Asia Pacific, India is the fourth fastest growing luxury retailing market in the region. The average expenditure on luxury goods in India per capita registered a growth of 20 per cent on a year on year basis since 2010.

Companies such as LVMH Moet Hennessey, Louis Vuitton SA, Kering SA, Burberry Group Plc, Hermes International SCA and PVH Corp were the top five global players in luxury retailing in India.

Between these five companies, brands such as Louis Vuitton, Gucci, Burberry, Hermes, and Calvin Klein amongst many others enjoyed strong consumer attention.

Small screens became the first point of contact between retailer and shopper: The availability of internet enabled devices helped change the face of retailing in the last five years. Though traditional retailing holds its ground strongly in the country, the path to purchase of shopping was completely different in 2015, as compared to 2010.

From the first point where the aspiration of owning something sets in, to researching and eventually purchasing, use of technology has become an integral part of the shopping process.

Small screen viewing and showrooming have become everyday retail practices among consumers. Most consumers will pick up their smartphones to compare features, prices and other specifications as part of research before purchase.

Technology provided consumers two key things which drove retailing growth to newer heights. Firstly information and secondly convenience. The millennial consumers were more aware of brands, pricing, discounts, and other such details due to higher connectivity. Part of it was driven by social media, and the other part was due to the availability of the copious amount of information online.

Convenience of course was another key to the growth of internet retailing in India. Internet and mobile usage allowed consumers to shop at their own convenience and at their choice of prices. As this new consumer was more open to spending, he was willing to shop more as well, as long as he got products at the best price and delivered to his doorstep.

Easement of FDI policies and retailing growth occurred hand in hand The retail scenario in India registered the paradigm shift since 2011 when the Government of India allowed 100 per cent foreign direct investment (FDI) in single brand retailing as long as 30 per cent of sourcing was done locally.

In the following year, the government allowed 51 per cent FDI in multi-brand retailing, subject to individual state laws, which meant in some states it was allowed. These developments were met with a lot of criticism from domestic players. However, this move changed the face of retailing in India. Imported brands are now easily available both offline and online, enabling Tier II and III cities access to the merchandise as well.

H&M opened their first store in India in October 2015 and clocked sales worth Rs 17.5 million in a day. The company is on its way to open the third store in the country, in Bangalore in March 2016.

Gap Inc has eight stores in the country already, and enjoys strong brand recognition among consumers.

Zara India in 2015 crossed US$1 million in sales, and became the first international apparel brand to do so. Ikea is expected to open its first store in 2016.

The competition between the domestic and international players was intense over the last couple of years, with leading domestic brands like Titan Company Ltd, Reliance Retail Ltd, Future Group, and Aditya Birla Retail Ltd among others feeling the heat from the international players.

With this move, the Government successfully pushed the envelope of growth for retailing to a whole different level, where the retail landscape, brand preference, style, design and quality was no longer the same, and consumers were more than happy to have more options to choose.

The growth in retailing is sustainable: These three main industry drivers – millennial consumers, technology and the expansion of foreign direct investment – are long term trends.

Millennials’ purchasing power will only grow as they progress in their careers and will have access to cheaper, better technology with which to research and purchase goods.

Whether India will open its door to 100 per cent multi-brand retailing or not, remains to be seen, but foreign brands that meet the current legislation will surely continue to grow.

As a result, the retailing industry in India is expected to grow by 50 per cent in the next five years — the second fastest growing retail market in Asia Pacific.

The next five years will be an interesting phase in the retail scenario for the sub-continent: the battle between traditional vs modern retail and domestic retailers vs. foreign retailers to capture the wallets of an empowered consumer.

ABOUT THE AUTHOR: is a Senior Research Analyst at . The views and ideas expressed in this article are her own.