Kolkata

Confronting the burgeoning e-commerce wave, brick-and-mortar retailers are going ahead with store expansion plans, with a particular focus on expanding the footprint in the tier-II and III cities of the country.

In the evolving retail landscape, many e-commerce players are now opening stores and direct-to-consumer (DTC) brands are launching offline businesses for higher business growth.

“Every modern (organised) retailer has a very clear understanding that online and offline are here to stay. So everybody is trying to be available to the customers on an omnichannel basis. Now, when people keep saying e-commerce is growing at a fast pace, what they are not realising is that the size of e-commerce is very small when compared to the total offline industry. Obviously, when something is very new, its growth will look very big,” said Kumar Rajagopalan, CEO, Retailers Association of India (RAI).

‘Opening up stores’

The Indian retail sector is largely dominated by the unorganised segment comprising local kirana stores or mom-and-pop stores, with the brick-and-mortar organised segment accounting for around 12 per cent and e-commerce accounting for around 4 per cent of the total market size, according to rating agency ICRA.

“Those companies, who had earlier said that they are going to be only e-commerce players are now shifting to offline businesses. Many DTC brands are opening offline businesses. If they want to grow beyond the 10-15 per cent, the only way is to open up their own physical stores,” Rajagopalan told businessline.

It is not that physical stores and e-commerce cannot coexist. Both of them are necessary, as customers are buying from the same brandeither online or offline, he added.

Growth expected

Category wise, the industry is dominated by the food and grocery segment, which accounts for around two-thirds of the domestic retail industry, followed by the apparel, footwear and consumer durables segments. The share of organised sector is highest in segments like apparel, where it accounts for 33-35 per cent of the overall apparel market. For food and grocery, the share of organised segment is relatively low at around 6-8 per cent, implying that the sector is dominated by mom-and-pop stores. “Driven by retailers’ store expansion plans, with a particular focus on expanding the retail footprint in the tier-II and III cities, the share of organised segment is expected to increase going forward,” said Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA.

Talking to businessline, Suneja said retailers are augmenting their online presence to counter the competition from e-commerce. Online sales accounted for 7-8 per cent of the total revenues in FY2024 for ICRA’s sample set of 10 listed fashion retailers. “Penetration of online sales further expected to increase up to 10 per cent over the medium term. While entities will continue to focus on increasing their online presence, this will remain supplemental to brick and mortar store addition,” she emphasised.

Suneja said the offline mode of store expansion will remain the preferred mode to grow for the brick-and-mortar players, given the huge headroom for growth in the organised segment. And, large store expansion plans of the retailers are going forward as well.

Interestingly, as per the seventh edition of NeoInsights Study, released by NeoGrowth, around 90 per cent retail MSMEs prefer having a physical store either standalone or hybrid along with online selling. The study further reveals that around 77 per cent retailers eye expansion to propel business growth.

“Major volume of India’s retail market is underlying with the kirana stores. Despite the challenges, offline grocery retail remains a dominant player, with a projected growth rate of 8 per cent CAGR over the next five years. Many kirana stores are adapting to this changing landscape by modernising. Partnerships with online platforms have seen a 20 per cent year-on-year increase as kiranas look to enhance their operations while maintaining local presence,” said Arun Nayyar, Managing Director and CEO of NeoGrowth, a new-age lender, with a focus on MSMEs.

The Indian retail industry was estimated at $875 billion in terms of revenues in the last financial year, having grown at a compounded annual growth rate (CAGR) of 10-11 per cent over FY2016-2024. Driven by favourable demographics and rising disposable income, the industry is expected to grow at a CAGR of 10-12 per cent going forward to $2 trillion by CY2032, ICRA said.