India’s retail growth story has been remarkable. Retail has been one of the growth engines of the nation’s economy, with a double-digit contribution to the GDP and employing more than 40 million people, with its market size rising three-fold in the last decade. 

A NASSCOM-partnered study says India today is the world’s fifth-largest retail market, with the sector contributing around $800 billion to the country’s GDP in FY 2019-20. It is slated to grow to about $1.5 trillion by 2030 and add more than 25 million jobs. 

The unique feature of the Indian retail landscape is the growth of both O and O (Online and Offline) formats. The incentive of 100 percent FDI investment in single-brand retail has allowed parent companies to invest in real estate and other infrastructure, enabling them to open stores in metros as well as other cities.

Factors Driving E-Retail Growth in India

The e-commerce growth story of India is more fascinating compared with the overall retail story. According to an industry study, India is home to the third-largest online shopper base of 140 million people. The e-retail market is expected to grow to $120–140 billion by FY26, increasing at approximately 25–30 percent annually over the next five years. 

It is estimated that the online retail market in India is estimated to be 25 percent of the total organized retail market and is expected to reach 37 percent by 2030. Undoubtedly, COVID-19 has induced a huge inflection in e-retail, driven by an enhanced consumer need for safety and convenience especially during elongated periods of stay-at-home.

A deep understanding of the consumer shopping journey – from discovery to purchase – forms the bedrock of e-retail success for leading digital brands. In addition to cross-category shopping habits, the single brand e-retailers (typically apparel and consumer electronics categories) have started connecting with consumers across various online platforms to better understand consumer shopping behavior. 

DTC … and the Market Forces at Play

Over the past three years, many CPG companies have been adopting DTC (Direct-to-Consumer) across categories such as apparel, beauty, and personal care, luxury and fashion, electronics, home and kitchen appliances, etc. There is a clear shift in consumer attitude towards convenience, online purchase, and in their preference towards differentiated and innovative products.

According to a recent Capgemini Research Institute (CRI) report ‘What matters to today’s consumer,’ there is a significant shift among consumers to buy directly from brands. Many consumers believe they obtain more comprehensive information about the products sold directly by the brand. Additionally, consumers cite authenticity, better pricing, and availability of a wider assortment of products as key reasons for preferring to shop directly with a brand instead of making purchases online.

For brand companies, DTC helps to build a better brand-consumer relationship. Consumers' feedback reaches brands directly and companies respond to their requirements faster. DTC also helps companies to collect customer data, which helps in the personalization and launching of new product categories. It also puts the focus on subscription-based products and can build a loyal consumer base.CPG companies are working towards having a holistic customer experience across channels to acquire customer loyalty.

READ MORE: Top Emerging Trends that Retailers Need to Embrace in 2022

DTC brands focus on targeting new-age customers and millennials. This consumer cohort is underserved and not catered to by the incumbents. These customers prefer high-quality, environmentally friendly products. Women are also emerging as another critical customer group targeted by DTC brands, constituting 44 percent of all online shoppers. This category prefers buying products in beauty, hygiene, food, and fashion categories. We foresee DTC brands penetrating further among these categories and offering a large collection of mass premium products to these consumers in both metros and Tier 1 and 2 cities.

According to a survey by Deloitte, 50 percent of companies believe that consumers lose trust in brands that fail to engage with them in a personalized manner. Consumer products brands are changing their go-to-market strategies towards improving this practice. Digital engagement systems, including DTC platforms, are an important way to offer personalized service and share data on sourcing, labor, carbon reduction, safety, freshness, and more. 

Key success attributes for retailers 

In a highly competitive market, whether DTC or online, there are several key ingredients for retailers to win over the consumer.

•    Speed of Transaction and Delivery: An e-retail visitor spends fewer than 10 minutes per visit on a platform or brand website. Brands and multi-brand retailers have limited time to make an impression on the minds of consumers.

•    Brand Authenticity at Speed: It is the key element and enabled through technology, driving business agility and predictability and connecting the distribution channels.

•    Precise Search and Clutterless Presentation: Images are key; while one in two visitors browse image galleries, only one in 22 read product descriptions.

•    Hyper-Personalization: Enabling quicker and sharper recommendations through real-time analytics is critical to holding consumer interest.

•    Vernacular Voice Search: Given India’s linguistic diversity, one in 10 consumers uses voice search, and one in three new e-retail users visit through a vernacular platform interface. Voice and vernacular searches will increasingly become mainstream.

•    Investments in Digital and Technology Platforms: This is essential for demand forecasting, fulfillment, and product returns. Real-time inventory monitoring via IoT, advanced analytics, and usage of AR/ VR (Augmented Reality/ Virtual Reality) for apparel are other important areas.

•    Social Commerce and Association with Brand Influencers: Peer and community influence will play a significant role for the next wave of online shoppers. Social commerce gross merchandise value (GMV) (approximately between $1.5 billion to $2 billion in FY20) could grow at 55–60 percent CAGR over FY20–25, per research by Bain & Company.

Indian Retail Industry: The Future Roadmap

While multi-brand retailers must look at retaining brand authenticity to improve their credibility across the supply chain, brand companies need to improve ‘speed of delivery’. Single-brand companies can establish distribution hubs in the neighborhoods for accelerating speed to delivery with authenticity. They need to step up their e-commerce push for resilient digital platforms and also step up to match retailers shopping experience.

The power of technology is enabling an ecosystem of hyper-personalization and customized solutions. This has helped retailers in channeling unique customer experiences for boosting their sales. In the coming years, we will see the widest implementation of new-age tech in AI and analytics for better consumer engagement and personalized shopping experiences across online and retail stores. 

While brand loyalty will drive growth, omnichannel strategies will offer better insights into the consumer’s mind by combining information across sales channels. A Harvard Business Review survey of more than 46,000 customers found that 73 percent used multiple channels during their shopping journeys before deciding to make a purchase. Similarly, flexible payment options including cash on delivery and purchase on EMI will play a role in attracting and retaining consumers. In short, consumers need to be engaged as individuals if traditional CPG companies are going to compete and grow.

COVID-19 has forced retailers to relook at customer journeys. Today, the new customer journeys are driving modernization across business processes. Retailers need to go the extra mile to better understand changing consumer behavior and accordingly adopt technologies that can add value, efficiencies, and innovation to ensure the expected shopping experience for consumers.