Indian retail industry 2023: Growth, challenges and opportunities (2024)

The market after 2021 has been an eye-opening time for the Indian retail sector. The industry saw a decline of 8.5% in FY 2021, but it recovered in 2022 to reach $836 billion with 81.5% contribution from traditional retail. However, the COVID-19 disruptions led to a rapid increase in e-commerce and digital adoption. Now, brands across segments are concentrating on increased online presence and direct sales as customers continue to shop online.

Quite interestingly, shoppers from Tier II and Tier III cities make up over 61 percent of the total market share in FY 2022 in comparison to 53.8 percent in FY 2021. While Tier I cities have a lesser growth rate for e-commerce at 47.2 percent, tier II and III cities showcased growth of 92.2 percent and 85.2 percent, respectively. In 2023, tier II and III cities dominance is likely to continue. Looking at the way Indian retail industry is moving, 2023 will be the year to watch.

Encouragingly, India has had a boom in attracting international companies over the past few years; it is now the fifth-largest global destination for retail. The industry growth is riding on several factors, including rising disposable incomes, exposure of Gen Z to international brands, and ease of doing business.

Even if we only consider the government’s initiatives from 2021, the retail sector is in for fascinating times as we enter the new year. These actions would soon show their benefits; the transformation has already begun, paving the way for a more noticeable impact. The adoption of digital payments pushed by the new framework for retail digital payments in offline mode has created a more accurate and efficient environment making it easier for customers to make purchases or complete transactions. Time is money, as they say, and the digital transformation has ensured that the time saved is compounded by allocating additional resources to other parts of business improvement.

The central government has allowed 100 percent FDI in the online retail of products and services via the automatic route. Additionally, we have news on the inclusion of retail and wholesale trades as MSMEs, which would give these trades access to loans for the priority sector. The government’s promotion of digital transformation on the war front has been the best thing to happen, and the retail industry is just one of the many sectors that have benefited from this revolutionary innovation.

Let us talk about trends

Retailers are deluging the market in droves to invest in cutting-edge technology and take advantage of the chance to empower the gen-Z, tech-savvy, and millennial consumer-driven market. A Forbes report says that global AR/VR investment will most certainly reach $72.8 billion in 2024. Additionally, consumers will engage in more conversational commerce, increasing the use of chatbots. The chatbot industry is anticipated to reach a market value of over $102 billion by 2026, with a CAGR of under 35%.

Today’s consumers seek out white-glove customer care and demand experiences going beyond the typical shopping experience. According to various market studies, 32% of customers are more willing to interact with in-store experiencing moments. Through experiential retail, companies can give their customers unique and cutting-edge experiences — both online and in-person.

Retailers can use AR/VR technology to provide immersive shopping experiences focusing on in-person interactions, enhancing the relationship between the brand and the consumer. Virtual navigation, virtual fitting rooms, virtual shopping, and in-store displays are just a few cutting-edge ways; businesses may make the most of this technology that boosts contactless transactions and encourages interaction.

Digital-led challenges

However, the digital transformation is also leading up to consumer behavior which may emerge as a major challenge for the retail industry in 2023. Maintaining brand loyalty will be a tough job in the coming year; the Indian consumer, who has an ingrained attitude of trying multiple things before settling for one, has more ammunition in his kitty with smartphones or access to the digital world. Though traditional customer loyalty programs will still be effective, brands have to look for solutions to address the growing personalization trend.

Secondly, the retailers have to sail through the labyrinth of tech solutions in the market to find the perfect one for themselves. Most retailers strive for software to streamline their operations, but frequently make poor decisions. Business owners need to understand what the software offers and whether it fits the needs of their business model. A company that manages just fine without a complicated software platform may experience cost increases and internal discord. The solution is to look for software created exclusively for retail enterprises for the best outcomes.

Thirdly, many retail businesses struggle with efficiency, effectiveness, and quantifying the results of their marketing strategies, including paid media, local SEO, enterprise SEO, content strategy, and social media. The sector or company must crack the codes about leveraging digital channels to generate leads, sales, and MRR.

Opportunities-led growth

Over the past two years, the COVID-19 pandemic has led to changes in consumer preferences and attitudes; this has changed how consumers buy and use products and services. Consumers are no longer differentiated between offline and online consumption channels making large corporations experiment with various strategies to create seamless retail experiences integrated across all channels.

Retailers will use digital channels to increase customer reach in tier II and tier III cities while spending less on physical estate. Small-sized retailers will benefit from the continued popularity of third-party e-commerce platforms or marketplaces as they continue to rule the D2C market in 2023 and beyond. The most prosperous D2C companies and online merchants will have a few characteristics in common, such as being modest, highly skilled at using SEO and SEM tools and having great brand-building and digital marketing abilities.

However, the industry’s long-term prospects are promising, supported by rising affluence, favourable demographics, the entry of foreign competitors, and increased urbanization.

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