Brick-and-Mortar Retail Returns
Reliance Retail, 65 million sq.ft. India's largest retailer, with numerous forms. Its best-performing outlets are not in Delhi, Mumbai, Chennai, or Bengaluru. Reliance Trends outlets in Jalpaiguri, West Bengal, and Pasighat, Arunachal Pradesh, are oddly enough. The two stores make above 4 crore per month. 8,000–10,000 sq.ft. businesses draw thousands of shoppers from nearby villages and towns. Guwahati, an 8-9-hour bus ride from Pasighat, is the closest city!
These stores disprove the idea that organised shopping is ideal for top 20 cities. Trent Retail, Shoppers Stop, Lifestyle, Aditya Birla Fashion Retail, Arvind Fashion, Raymond, Spencer's Retail, and V-Mart are also expanding. Reliance leads with almost 7,000 locations. The $110 billion organised retail industry's current playbook—expected to become $230 billion by 2030, according to Deloitte India's Future of Retail report—is to be where the consumer is.
In 2020, every store was scrambling to create an internet strategy to survive, and many feared brick-and-mortar was dead. Future Group, which operated Big Bazaar, FBB, and Central, fell insolvent. Three years later, e-commerce has increased consumption with 220 million consumers, but brick and mortar is returning with a bang. Retailers are merging offline and online platforms to give customers the best of both worlds.
India has the world's largest and fastest-growing consumer market. Reliance Retail, which opens 2-3 stores every day across formats, says V. Subramaniam, MD.
Reliance always wanted scale. In FY20, it earned 1.30 lakh crore across 22 million sq.ft. retail space. Retail area has nearly tripled to 65 million sq.ft. Trent Retail has 580 Westside, Zudio, and other lifestyle stores in 90 cities and villages. At 3,056 crore in FY20, the company had 330 outlets and revenues of less than half. The 12,418 crore Aditya Birla Fashion Retail (ABFRL) owns 3,977 Pantaloon, Style Up, Louis Philippe, Van Heusen, Allen Solly, and Peter England outlets in 10.8 million sq.ft. retail space. ABFRL has 8.1 million sq.ft and 8,788 crore in FY20. retail space.
Shoppers Stop has 4 million sq.ft., 98 departmental stores, 8 Home Stop outlets, and 25 airport gateways in 52 locations. FY23 revenue was 5,066 crore. Lifestyle Retail has 450 Max stores and 100 Lifestyle stores. Spencer's Retail, a 2,453 crore Kolkata-based company, with 152 outlets across 35 locations. 36 Nature's Basket premium grocery outlets. The grocery business debuted its value hypermarket concept to expand beyond 35 cities.
These retailers had a particularly good year in terms of growth and profitability. Trent increased 83% in FY23 whereas Reliance Retail expanded 54%. Shoppers Stop increased 60% and ABFRL 53%. Lifestyle Retail earned 12,000 crore, 50% more than FY22. Post-pandemic vengeance buying drove FY23's explosive growth.
Momentum has slowed. “Covid-19 caused 50-80% growth in Q1-Q2 FY23. From Q3 to Q4, growth declined. Govind Shrikhande, retail expert and former Shoppers Stop MD, says, "Normalisation."
Consumers now shop online and in-store. "However, when they make large purchases, they still prefer going to a physical store," says Shashwat Goenka, sector leader, retail and FMCG, RPSG, and chairman, Spencer's Retail.
Online retail is anticipated to be 2.5 times larger ($325 billion by 2030) than offline retail, according to Deloitte. Retailers are rapidly opening stores and experimenting with formats.
Ethnic apparel brands abound in Mumbai's Phoenix Market City Mall. Today, ethnic apparel boutiques like Ethnix by Raymonds, ABFRL's Tasva, Marigold Lane, and Avantra By Reliance are standalone. ABFRL acquired TCNS Clothing Company, which owns W, Aurelia, Wishful, Folksong, and Elleven ethnic brands for women. Indians value Indianness. Ethnic clothing is popular. Since October 2018, we've opened 75 Ethnix stores. Sunil Kataria, CEO of Raymond's lifestyle business, says "150-160 in 8-9 months."
Lingerie, beauty, etc. Now that Indian consumers are used to buying cosmetic products online, they can also obtain makeovers in stores. SS Beauty, Reliance Tira, and Nykaa are options. Reliance plans to develop Blush Lace, a beauty-cum-lingerie format for the public, alongside Tira, its premium beauty line.
Trent opened more Zudio outlets than Westside stores in FY22. Prayagraj and Ranchi now have Zudio. Value format Style Up is helping ABFRL enter these areas. The U.S.-based Authentic Brands Group licences it to sell Reebok in India.
Reliance's premium high street and contemporary product, Azorte, complements Trends. The company bought Hyderabad-based sari retailer Kalaniketan.
Big stores have bought designer brands in the past year. ABFRL owns significant shares in Sabyasachi Mukherjee, Masaba Gupta, and Tarun Tahiliani, while Reliance owns Manish Malhotra, Raghavendra Rathore, and Abu Jani Sandeep Khosla. Designer brands have a market. "The unique consumer would want to buy an eponymous label because it reciprocates their identity," says Reliance's Subramaniam. ABFRL has licenced Lafyette outlets in India for multi-brand luxury retail.
Retailers consider adjacencies. ABFRL's Van Heusen lingerie and US Polo's 200 crore footwear businesses are examples.
Our multi-channel, multi-format strategy lets us meet every consumer need nationwide. Organised retail is low across categories in India. Comparatively, clothes and electronics have 20-25% penetration, while food has 5%. Reliance's Subramaniam says there's room for growth across segments. Reliance Digital has 7,000 shops nationwide.
Rishav Jain, MD, Alvarez and Marsal, says retailers have widened their target group and consumers have upgraded. Even in tiny towns, consumers are becoming accustomed to organised stores. He/she wants a bigger space. Jain said format transformation is happening across product categories and price points.
Consumer demand is driving organised retail beyond the usual 20-30 cities. India's per-capita income rose from $1,400 in 2014 to $2,200 in 2022, according to Deloitte. The middle class will grow by 110 million families (from 190 million) between 2021 and 2030 due to economic growth.
Tier-II and III cities are driving the next phase of retail expansion in India, driven by changing consumer habits and rising purchasing power. Branded goods and superior retail infrastructure are driving retailers to expand beyond Tier-1 cities.
Trent Retail debuted its luxury ethnic brand Samoh in Lucknow, while Arvind Fashions wants to bring US Polo, Tommy Hilfiger, Calvin Klein, and Arrow to Tier-II and III towns. At least 200 metro and smaller market stores will open annually. Market demand converges. Smaller villages sell what big cities sell. Smaller towns don't sell distinct goods. Shailesh Chaturvedi, MD and CEO of Arvind Fashions, says consumers need a similar experience nationwide.
The retail industry is consolidating due to its journey. Regional players and national players are growing. Shashwat claims they can fit.
India will increase retail. "The urban young, led by millennials and Gen Zs, are changing the demography," says Deloitte India partner Anand Ramanathan.
Big stores are expanding cautiously. Expansion depends on store profitability. “I want to open more stores, but they should also get me the right sales per square foot,” Kataria of Raymond says.
“Retailers are calculated, not haphazard. "We are holding our ground and getting deeper into the value market," says Lalit Agrawal, MD of V-Mart, a 2,645-crore discount fashion retailer.
Retailers understand business. Opening stores was enough before. Retail is about knowing your brand, your consumer, and where they live, says Retailers Association of India chairman Bijou Kurien. (RAI) ABFRL has made many acquisitions in the past year to become a 25,000 crore brand by 2030.
Retailers are doing everything they can to be successful, including tight inventory, high sales per sq.ft., high rentals, and the proper assortment at each location. To make its grocery formats Reliance Smart and Smart Bazaar profitable, RIL localises assortments 40–50%. However, grocery margins range from 10% to 15% (against 35% in fashion and consumer durables), making profitability difficult. To avoid inventory buildup, Reliance removes new products from shelves after a few days if they don't sell. Subramaniam says local staff monitor consumer preferences based on replenishment.
After losing 267 crore in FY22, Arvind Fashions made 37 crore in FY23. Chaturvedi credits premiumisation and capital limitation. It scaled up its four premium brands—CK, Tommy Hilfiger, US Polo, and Arrow—and exited value retail (it sold Unlimited to V-Mart). Chaturvedi said he wants to focus on businesses that can be developed to at least 1,000 crore in two years. Inventory is monitored to boost stock rotation from three to four times a year. The collections are being built closer to the season. "In FY23, we grew 45% with almost the same inventory," says Chaturvedi.
Shoppers Stop, on the other hand, has grown to nearly 100 cities and towns and launched Home Stop, but it has shrunk its storefronts. It closed 14 unprofitable stores. “We gave up space for being there. Better brands boost productivity. "We have also reduced store inventory and made each private label a proper brand," says Shoppers Stop MD and CEO Venu Nair. Nair said the objective is to be an upper middle class luxury brand house. Premium boosts company margins.
Raymond will also avoid too many formats. Kataria says womenswear's immense potential tempted her. “We have chosen to focus on the growth potential within the men’s space,” he says.
Gen-Z consumers prefer style above brand when asked about their favourite brand. He/she is willing to buy an unknown Trends or Zudio brand if it has a higher style quotient than US Polo or Zara. Moreover, it's cheaper.
Private brands offer retailers margins above 50%, making them profitable. The first large-format store to become private brand was Westside. Westside sells self-sourced clothes, footwear, and home goods. Its value brand Zudio took a similar path.
Retailers are adding private labels as they grow into more cities and towns. Private labels can undercut national brands by 30% due to high margins. Reliance Trends sells 80% private label. Avantra By Trends and Azorte also use 100% private label.
Spencer's boasts 32% private label food and 65% private label clothes thanks to Shashwat. “Our goal was to be in a space where margin improvement was giving us the highest benefit at the bottomline, and doing more private labels was one way to improve margins. Shashwat says these approaches increased margins from 17% in 2013 to 31% in the third quarter of FY23.
Lifestyle International sells Ginger, Melange, and Code, whereas Shoppers Stop sells 21% private label. Tier-II markets want more variety and cheaper prices. "Electronic City customers are more value conscious than Indiranagar customers, so we have over-indexed the private labels," says Lifestyle International chairman Kabir Lumba. Private labels boost margins. “We have lower-priced products and higher margins from more efficient sourcing. Customers and business benefit.”
Kurien of RAI says fashion is better for private brands than food and grocery. Style defines fashion. Retailers aggressively promote private labels because the label doesn't show up as much as the apparel. He says customers want to know more about what they eat.
Future Group chairman Kishore Biyani had an aggressive FMCG brand strategy in his prime. He sold them at his own and mom-and-pop establishments. Reliance has acquired Campa Cola and Joy Chocolates to follow a similar strategy. Distribution is still a distinct game.
Every retailer wanted to be the largest grocery retailer a few years ago. All but DMart and Reliance Retail burned their fingers.
Grocery retail being a highly localised company, it is tough for national firms to carry it off', says a major retail CEO. This explains the rise of regional supermarket chains like Ratnadeep and Vijetha in the South and Jalan's Retail in the North. They source better and understand local consumer needs.
Amazon failed to incorporate More for local and hyperlocal delivery. E-commerce offers nationwide assortment, but grocery cannot because 45–50% of groceries are localised. Nobody will visit your Gujarat store without a five-kilogram makhana bag. Mumbaiites prefer 100-200 gramme makhana bags. "If you go to South, they need podis to eat, the same will not sell in Mumbai," the retail company CEO adds.
Amazon bought More from Aditya Birla and invested in Future Group (the controversial agreement that killed the latter) to become an omnichannel grocery retailer. The largest online retailer rarely discusses its grocery venture. Industry insiders say Amazon has written off its physical retail acquisitions and invested less in grocery. Walmart-owned Flipkart is content selling cash and carry in India. Trent India's Tesco-Star Bazaar partnership also fails. Tata Group acquired BigBasket to establish an omnichannel play.
Spencer's Retail is India's oldest organised retailer. In 2013, Shashwat inherited many unprofitable stores. He focused on its hypermarket concept and operated only in the south and east (later eastern U.P. and NCR). “We left west completely. We had two useless Maharashtra stores. Real estate and people were expensive there. Shashwat argues the unit economics were illogical. “Retail is capital-intensive, but if you limit it to a particular geography, then your investment whether you do one store or multiple stores is viable, as your backend remains the same,” he says.
Since non-food categories had higher margins, Shashwat reorganised inventory. 10% of 2013 offerings were non-food. 2023: 21%. These changes reduced Spencer's Retail's losses. It acquired Nature's Basket and opened neighbourhood value retail outlets. Shashwat anticipates value contributing 30-40% to the business. Omnichannel revenue is 15%-16% today. He adds research suggests that consumers buy for groceries 14 times a month at kirana stores, modern retail stores like Spencer's or Reliance Fresh, or even quick commerce.
DMart is India's most successful grocery retailer. Its concept of developing stores in heavily populated Western Indian neighbourhoods and serving local consumers worked. Offering products across categories but limiting brands has also worked successfully. Despite expanding by almost 33% in FY23, margins fell to 7.3% from 8.4% due to greater expenses.
“India thrives on diversity, but grocery retailers struggle with it. Subramaniam of Reliance Retail says they need localised assortments to meet local demand.
Sourjendyu Medda, co-CEO and founder of online food retailer DealShare, believes a physical presence is necessary to succeed. Medda said physical stores will still generate a lot of revenue.
India's organised retail story is particularly difficult in grocery, which may take longest to stabilise. The nation's consumption story is unavoidable. The average Indian wants the greatest online and offline experiences. She wants to visit the store, taste items, and enjoy the atmosphere as much as she wants to buy it online. Brick-and-mortar is back.