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Brick-and-mortar retailers are growing and driving e-retail growth too

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  • Physical retailing is growing 14-16% this fiscal year, driven by continued expansion in the segments – food, grocery, apparel and consumer durables, according to a CRISIL report.
  • Retail capital expenditures are expected to increase by 8-10% this year, led by the apparel segment.
  • These store additions will drive revenue growth of 18-20% this fiscal year, the report said.
  • Retailers are planning small format stores in tier 2, 3 and 4 cities.

In just two years of nearly losing the battle to e-commerce players and the pandemic, brick-and-mortar retailers in India are making a spectacular comeback. One of India’s largest retailers, DMart, added 50 new stores last year – the highest number ever.

Many more retailers are reaching historic peaks in store numbers. Domino’s, run by Jubilant FoodWorks in India, opened 58 new stores in 12 cities in the first quarter of this year. At least ten top retailers have said they are looking for rapid expansion.

“Brick-and-mortar retail is growing 14-16% this fiscal year, driven by continued expansion in segments – food, grocery, apparel and consumer durables – and return to normalcy from the Covid-19 pandemic,” a research report said. from CRISIL. In its last fiscal year, store expansion was up 21%, the report said.

These store expansions will drive revenue growth of 18-20% this fiscal year and the full impact of the expansion will be seen in the coming years.

Retail investment is expected to grow by 8-10% this year, with the apparel segment expected to lead the way in this growth. “Companies stated that there was a strong recovery in the (first) quarter as a result of improved visitor numbers and decreasing impact from Covid. As a result, businesses are now resuming their store expansion plans,” said a report from Motilal Oswal.

CRISIL also said retailers’ credit metrics support their expansion plans. “The credit ratio moderated in FY21 due to the pandemic impact. Decreasing pandemic-related disruptions resulted in a sharp recovery in FY22,” the report said.

Brick-and-mortar is also expanding online

Not all of their extensive investment will go to brick and mortar stores, however, as most of them like to offer a hybrid experience.

Brick-and-mortar retailers are increasing their online presence with apps, warehouses and more, which is also likely to fuel growth in e-retail. Last year, e-retailing grew 26% and this year it will grow somewhere between 27-32%, according to CRISIL.

The rating agency also said omnichannel strategy will be the way forward, as lower footfall in stores can be offset by higher online sales. The number of retail visitors is still at 85-90% of pre-pandemic levels.

“Stores can display a limited stock. That is why an omnichannel is a must,” according to the report. Retailers will tend to sell last season’s merchandise at higher discounts online.

Table: Top Retailers Expansion Plans

Retailer Store additions/other growth plans
DMart Plans to add 135 stores by March 2024
Aditya Birla Mode Already added 7 stores in July. Plans to add more than 70 stores in FY23.
Titan Plans to add 35-40 Tanishq stores in FY23 if they find suitable properties.
V-Mart Plans to add more than 60 stores in FY23
Westlife Development Has 12 McDonald stores under construction and on track to add 35-40 in FY23
Devyani International The goal is to add more than 100 KFCs and Pizza Huts each, and more than 40 Costa Coffees in FY23.
Asia restaurant brands Plans to have 390 Burger Kings in India by FY23, effectively adding more than 100 stores
Barbecue Nation Added 10 outlets so far and on track to add 35-40 outlets this year. Will also add 5 Toscano stores this year. Plans to launch Biryani brand for delivery this year

Source: Motilal Oswal . research report

Focus on Franchising, Tier II, III & IV Cities

Retailers are also switching to franchising, although they will make about 5% less profit from such stores. “Retailers are willing to part with it because of the lower risk and disproportionate gain of increasing brand awareness,” the CRISIL report said.

Major retail expansions are also planned in Level II, III and IV cities, where retail penetration is below the national average of 0.8 stores per million inhabitants.

“Different store formulas are being used in tier II and tier III cities. Usually the store size is much smaller. Favorable rental costs and increased private label demand make Tier II and Tier III cities more attractive for driving sustainable growth,” the CRISIL report said, citing excerpts from a webinar with retailers.

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