Over the past fiscal year, a dozen prominent retailers and fast-food chains experienced their most sluggish rate of store expansions in at least half a decade, with growth slowing to 9%. This downturn mirrors a waning appetite for discretionary and lifestyle goods among consumers.
According to their latest investor presentations, as of March 31, these companies, which include Reliance Retail, Aditya Birla Fashion & Retail, D’Mart, Tata’s Trent, Titan Co, and Starbucks, collectively operated 33,219 stores. This figure marks an 18% increase from the previous fiscal year’s count of 30,551 stores.
During the last fiscal year, these companies expanded their network by approximately 2,700 stores, averaging about 7 new stores per day. However, this figure is nearly halved compared to the 13 stores added daily during FY23.
The year-on-year retail sales growth rate experienced a decline in every month of the previous fiscal year, indicating subdued consumer sentiment across various sectors including apparel, footwear, and quick-service restaurants (QSR). The Retailers Association of India (RAI) reported that the slower growth rate of 4-7% observed in the previous fiscal persisted into the current year, with April recording a modest 4% increase, as per their survey of the top 100 retailers.
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Consequently, many retailers have closed numerous unprofitable stores, a trend anticipated to persist as companies aim to enhance profitability.
Selective Expansion Strategies Amid Market Dynamics
Lalit Agarwal, chairman of hypermarket chain V-Mart, stated to analysts, “We are not pursuing an overly aggressive strategy, but rather adopting a prudent and analytical approach. Our focus is on opening stores that can maintain the return on equity (ROE) and return on capital employed (ROCE) levels we anticipate. Therefore, we are being highly selective in our expansion efforts, as market dynamics have become somewhat distorted with competitors offering higher rentals and more favorable terms to consumers.”
The relaxation of pandemic restrictions witnessed a surge in sales across athleisure wear, apparel, and lifestyle products, fueled by pent-up demand as consumers refreshed their wardrobes following the reopening of offices and increased socializing and dining out. In response, retailers hastened their store launches, with many opting for larger spaces in prime locations to capitalize on the booming demand driven by revenge shopping.
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Rajeev Varman, the CEO of Restaurants Brands Asia, which operates Burger King, stated, “Our guidance remains at 700 restaurants by FY 27, and we are steadfast in our commitment to this goal. We firmly believe in responsible growth and will always prioritize this principle. If we deem it necessary to moderate our growth rates in any given year, we will do so. Our approach is not reckless; instead, we emphasize responsible and disciplined growth, which we will uphold moving forward.”
Shift in Focus: Retail Sector’s Embrace of E-commerce
In 2023, the retail sector acquired 7.1 million square feet of space across the top eight cities, a figure expected to decline to 6-6.5 million square feet in 2024, as reported by CBRE, a commercial real estate services firm. Additionally, retailers are shifting their focus towards ecommerce, which now constitutes 8-10% of the total retail market, according to the India Phygital Report 2024, with projections indicating it will reach 14% by 2026-27. This increase in market share is attributed to a growing active user base, estimated to be between 275-312 million, which is anticipated to rise to 439 million by 2026-27, as outlined in the report.
The India Phygital Report was formulated through surveys conducted across 500 stores representing 200 brands, along with the analysis of 4.4 million e-commerce transactions from 350 brands. It revealed that apparel and accessories accounted for 18.8% of e-commerce penetration, while home furnishing stood at 6.1%. However, the penetration rate remained low for jewelry, at just 2.1%.
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