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The Indian retail industry has seen tremendous growth, especially after COVID. Various research reports are quite optimistic about the potential of the industry to scale much bigger highs in the next decade. The retail market size in 2023 was $1200 billion and it had grown at a CAGR of 10% between 2020 and 2022. The retail industry contributes about 10% to Indian GDP and it employed 8% of the total workforce. The market has the potential to reach $2 trillion by 2032. India is currently the 4th largest market after the US, China and, Japan and it is set to become the 3rd largest by 2030. It also ranks as 5th largest global destination rank in the retail space.
India ranked at the 1st position on KT Kearney’s 2023 Global Retail Development Index. A fast growing middleclass, favourable demography, and increasing household income are the major factors which make India one the most attractive destinations in the world.
The Demographic Dividend
India is the most populous country in the world. The estimated population as of 20th August 2024 was 1.44 billion. The median age of Indians is 28.4 years. About 67% of the population is between the age of 15 and 64. The highest share of working age population in the total population will be reached in 2030. A large working age population will make sure that India shall remain productive and competitive. A large young population also means that consumption of discretionary items is set to stay strong in India.
Labor Force Participation Rate (LFPR) is set to rise with increasing number of women joining the workforce. India has the largest number of STEM (Science, Technology, Engineering and Mathematics) graduates in the world. The English speaking population in India is quite large. The Private Final Consumption Expenditure (PFCE) has also risen at a CAGR of 11.3% in the last 10 years. This indicates that consumption has been rising in India at a rate which is faster than the growth rate of nominal GDP.1
The Great Indian Middleclass
As the Indian economy is growing, so is the Indian middleclass. The household income is increasing and the discretionary spending is also growing. India has attracted almost all the big multinational companies from around the world since the liberalizations of 1992. From staples to consumer durables, the Indian consumer is lapping them all. The number of middleclass households is projected to grow from ~189 million in 2021 to ~301 million in 2030 which will be an increase of a little over 110 million.
The per-capita income has increased from $1,400 in 2014 to almost $2,500 in 2023. The per-capita income is expected to further grow to reach $4,300 by 2029 if the current rate of growth can be maintained. The median age of Indian working population will increase to 31 by year 2023 which will be among the lowest in the world.
The high income households usually spend 2.4 times higher as a percentage of their income on food and restaurant than the low income households. When it comes to consumer discretionary items like apparel and footwear, the high income households spend 2 times higher than the low income households as a percentage of their incomes. In case of Grocery, the trend is similar.
As the GDP of India is growing so is household consumption.
The Indian Retail Industry
The Indian Retail Industry has grown at a fast pace in the last one decade or so. Price remains the key factor while making shopping decisions. Price is followed by brand reputation, and online research and reviews. Consumers show a big tilt towards offline stores while shopping for gems and jewellery, furniture and home furnishing, grocery, and pharmacy and wellness products.
While making decisions related to consumer electronics and beauty products, more people rely of e-commerce platforms. E-commerce marketplaces are also the first choice for shopping apparel and footwear.
When we look at the goods sold through e-commerce marketplaces in 2021, we find that about 52% of the items are consumer electronics and appliances. Fashion related items are the second largest category of products sold through e-commerce platforms.
Most of the products sold in FY21-22 through D2C channels belonged to fitness and wellness segment, followed by home decor. More and more FMCG majors are starting their own D2C online stores. One such example is of ITC’s online store which sells FMCG products through their portal and mobile application. Offering products through own D2C channels improves margins as the commissions to marketplaces can be avoided through this mode.
The Retail Landscape
The retail landscape is quite vibrant and prospect is looking bright. Among the listed companies, we have names like Avenue Supermart, Reliance, Trent, Spencers, Aditya Birla Fashion and Retail, VMart, Electronics Mart India etc. who are doing exceedingly well and growing their network of stores rapidly. The retail majors are also growing in the online space. The online space is dominated by marketplaces like Amazon, Flipkart, Nykaa and Zomato. The competition is getting hotter with every passing day.
Organized retail in India is growing faster than the underlying category. The profit margin of the Indian retailers is in-line with the profitability of their international peers. Indian retailers are moving towards private labels as the profitability is higher. Consumers are preferring private labels as good quality products are being offered at up to 30% cheaper prices. The private label carries the retailer’s reputation.
The Prospects of Indian Retail Industry
It is estimated that India’s affluent population will grow by 2.1 times and elite population will grow by 2.3 times between 2019 and 2030. The rural consumption is expected to grow 4.3 times by 2030. A young population, growing middleclass, increasing household income, fast adoption of digital payment and ease of credit are a few of many factors which make India a sought after destination.
Almost all the major international brands and retailers have set shops in India either directly or indirectly with an Indian partner. The current policy limits FDI at 51% in case of multi-brand retail chains. In case of single-brand retail there isn’t any limit. It is mandated that 30% of the goods sold should be sourced from within India.
Organized retail will expand, but its share of the retail market will stay at 12% between 2022 and 2030, The biggest growth will be seen the the e-commerce space whose share will increase from 8% in 2022 to 17% in 2030. Traditional retail will still dominate the market, it its market share will drop to 71% in 2030 from 81% in 2022.
Indian retail market is projected to touch $2 trillion by 2032.
Conclusion
India is at a place where the growth of GDP and per capita income will lead to significant increase in household consumption. The per capita income in India is likely to break the $5,000 mark by 2033 which should result in significant rise in discretionary spending. India will have the youngest workforce in the world and it will also be home to the largest pool of skilled people who can join the workforce in the developed countries where the median age of working people will rise.
India is also attracting a lot of international brands and retailers who want to take advantage of India’s young market. Indian domestic retailers have also recognized the opportunity and expanding fast into the Tier 2 and Tier 3 cities. Rural India will be the growth driver for the retail industry in India.
We have also done an analysis on the the Indian footwear industry.
References
- Retail, IBEF, https://www.ibef.org/download/1721626039_Retail_May_2024.pdf
- Unlocking the $2Tn Retail Opportunity, BCG and RAI
- The 2023 Global Retail Development Index, AT Kearney research report
- Retail: Shaping New India’s Economy, InvestIndia.Gov.IN
- Future of Retail Emerging Landscape of Omni-Channel Commerce in India, A Deloitte report
