The Indian retail industry hascome of age, says Gaurav Khurana.

India has emerged as one of themost dynamic retail industries in the world. Accounting for over 10 per cent ofthe country's Gross Domestic Product (GDP) and approximately 8 per cent of theemployment, it is expected to nearly double from US$ 600 billion in 2015 to US$1 trillion by 2020. That would mean a Compound Annual Growth Rate (CAGR) of16.7 per cent over 2015-2020.

India's growing per capita income,a rising middle class, the changing demographic profile, urbanisation andattitudinal shifts in consumer spending pattern all indicate the retailsector's potential to be the real growth engine of the economy.

The retail industry, whichcurrently stands at US$ 625 billion, has evolved over the past decade withmajor domestic and international players playing a significant role. They havelong-term plans of expanding business across verticals, cities and formatsowing to a spurt in online retail activity in the last few years.

Online retail is catching on fast,not just in larger metros but also in the Tier II and Tier III cities. Thisgrowth can be attributed to increasing internet penetration and the smartphonerevolution. Today, the number of tech-savvy consumers who explore multiple channelsbefore making crucial purchase decisions has grown manifold.

Keeping in mind growing onlinepotential, not just brands but retail chains are upgrading sites to make itmore convenient for customers to shop online. Going forward, the total number ofonline shoppers is estimated to grow 3.5 times from 50 million in 2015 to 175million by 2020.

Consumer goods in differentcategories including electronics, food, grocery, apparel and home appliancesare available online and the range of products is expected to grow further. Aninteresting trend is that online fashion is emerging as the fastest growingcategory in India's booming e-commerce market, backed by strong technology andmarketing strategies.

By 2020, India is expected togenerate US$ 100 billion online retail revenue out of which US$ 35 billion willcome from fashion e-commerce. This clearly implies that online apparel salesare set to grow four times in the next five years and will contributesignificantly to the burgeoning growth in e-commerce.

This may surprise a few sinceIndian apparel shoppers have traditionally been skeptical about shopping forclothes online, as they loved the touch, feel and fit of their garments. Thisinitially deterred them from buying online. Today, that hurdle is a thing ofthe past. With increased awareness and easy-to-use applications, shoppers havelargely migrated to shopping online for apparel.

E-tailers are constantly tryinginnovative strategies to cater to the unique needs and preferences ofcustomers. They provide consumers quality products and services to strengthenthe trust. They have bridged the gap between retailer and customer throughonline to offline space leading to an enhanced shopping experience for thecustomer.

An interesting fact is that almost all the internet growth in India is happening on the mobile and is driving growth across platforms. By 2018, India is set to witness 500 million internet users and the 280 million smartphone users would be the key drivers for e-commerce portals.

The online retail sector has got a further boost with the government of India's Digital India initiative. The government will deliver services via mobile connectivity. It is expected to take Internet and broadband facilities to remote corners of the country, providing the underlying connectivity for e-commerce. This will further expand the reach of the e-commerce market into the country's Tier IV towns and rural areas. 

The government is also revamping the Indian Postal Service to develop it as a distribution channel for e-commerce services. This will significantly improve delivery services and cash transactions via cash on delivery payment options in more remote and rural areas, increasing the reach of e-commerce players and expanding the market.

Contemporary customers have an ever-increasing choice of products at the lowest rates. E-commerce is creating the biggest disruption in the retail industry. This trend will continue. The coming years are expected to bring transformation in technology usage as small and medium businesses make their online presence felt. With more and more businesses embracing e-commerce and many roadblocks like connectivity and logistics being sorted out, the Indian online retail arena will drive consolidation in the market.

Reference:

1. The Boston Consulting Group and Retailers Association of India report

2. PWC Report

3. Report - Digital Retail 2020 by Google and AT Kearney

4. Forester Consumer Research

5. Report - Internet and Mobile Association of India