About a year ago, many — that included some of India's largest organized retailers — were in near denial that India would feel the impact of e-tailing in the near future. Today, the pendulum has swung to the other extreme. Some of India's oldest and largest brick-and-mortar retailers believe that the newly arrived e-tailers are their biggest threat now. Various associations that represent the interests of India's over 16-million independent retailers are now actively lobbying against etailers, including India's homegrown ones. The same associations had long reserved their vitriol only for multinational retailers despite the fact that the top-three organized retail businesses in India, each having revenues in excess of Rs 15,000 crore in 2014, are Indian owned while the largest multinational retailer in India is struggling to cross even Rs 1,000 crore in revenues.
To better understand the current and future impact of e-tail on India's physical retailers, it is important to gain a measure of what India is currently consuming and how that consumption is split between rural and urban populations.
India's current consumer spending on merchandise (and hence the size of India's retail market) is about $525 billion. If India sees a real compound annual growth rate (CAGR) in the next 10 years, and the consumer price inflation remains around 6% CAGR in the same period, India's merchandise retail spending will touch about $1,100 billion by 2020, and $2,100 billion by 2025. It is easy to see what is driving this strong growth in retail consumption — a relatively young population, convergence in lifestyle aspirations across urban and rural India and rise of dual (or multiple) income households especially in urban India.
Consumption Patterns
To better understand the current and future impact of e-tail on India's physical retailers, it is important to gain a measure of what India is currently consuming and how that consumption is split between rural and urban populations.
As the chart Retail Consumption Across KeyCategories shows, even 10 years from now, almost two-thirds of India's retail spending (not total consumer spending because that also includes services such as housing, healthcare, transportation, education etc) is on food, followed by about 9% on apparel, then jewellery, and then consumer electronics, including mobile handsets.
Of this retail spending, rural India (spread across over 6,60,000 villages) accounts for almost 52%. Even by 2025, rural spending would still account for 43% of spending (see Distribution of Consumer Goods Spending). India will see very strong growth in all channels of retail: the traditional independents, the modern corporatized chains, and e-tailing not only in the coming 10 years but indeed, even much beyond that. Those who fear for the demise of traditional retail from corporatized retail (whether Indian or foreign owned) and now from e-tail will do well to note that Indians who are currently consuming merchandise worth $479 billion from independent mom-and-pop stores will consume more than four times (goods worth about $2,125 billion) from these stores by 2025. The corporatized retailers do not have much to fear either and they are likely to increase their own collective revenues (only from physical stores) from about $46 billion today to over $100 billion (excluding e-tail) by 2020 and perhaps over $345 billion (physical retail and e-tail) by 2025.
As far as e-tailing is concerned, notwithstanding its immense appeal for the metros and other parts of urban India, and notwithstanding its visible impact in select categories such as mobile phones and consumer durables, it will continue to have a fairly small share of the overall retail spending in India even after 10 years (see Current and Future Impact of E-tailing in India).
Negligible Share
To put simply, if seen only from the perspective of a few categories such as consumer electronics, apparel and footwear, furniture and home furnishings, and a few others (and that too largely in the top 15-20 cities and for products targeted towards the middle and upper-middle-income socio-economic strata), there is already a measurable impact of e-tail channel on physical stores in 2014. And no doubt, this will become more significant by 2025. However, if seen from the overall consumer spending perspective, the share of the e-tail channel by 2020 is expected to be around 3% on a net sales value (and perhaps 4% by gross merchandise value) and no more than 10% by 2025.
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