Retailers must learn to strike a healthy balance between investing in physical stores versus digital channels, manage rising costs without compromising quality, writes Vijay Bansal, Managing Director (MD) at Cantabil Retail India
As 2025 comes to a close, India’s retail scene has evolved considerably from where it stood a year ago, and the change is more than growth. It has been about pivotal shifts as consumer aspirations, government regulations, and geographic expansion converged.
To put the scenario into perspective, let’s look at the numbers, considering a prime example: India’s grand festive season. Festive retail sales in 2025 increased by 10 to 12 per cent. But what really catches the eye is the fashion and apparel segment witnessing an impressive 71 per cent surge in peak-day sales during the Diwali period. Yet, when we delve deeper into these numbers, there exists a more detailed story that shows how and where Indian consumers are choosing to spend.
The geography of growth
One of the most notable shifts in the retail segment has been the expedited growth in Tier 2 and Tier 3 markets. Leasing volume in these markets rose during the third quarter, signalling a profound change in consumption patterns. Consumers in smaller cities are doing more than just window shopping; they are now investing in lifestyle experiences and aspirational products that were once considered primarily accessible to metropolitan shoppers.
This geographic democratisation of retail has pushed brands to rethink their expansion strategies. Understanding local tastes and communicating in regional languages isn’t just nice to have anymore; it’s become absolutely critical for success in these markets.
Physical Retail’s Resilience
Despite ecommerce gaining a substantial market share in the retail segment with predictions pointing towards an ecommerce-dominated future of retail, traditional physical stores have been incredibly resilient, accounting for 85 per cent of overall festive trade in 2025. Clearly, Indian shoppers still love the experience of browsing stores in person, especially during important occasions like festivals.
Fashion and apparel have been particularly dominant, taking up 35 per cent of retail space leased in major cities during Q3 of 2025. This shows consumers are willing to spend on quality and brands they trust. And there’s another layer to this transformation: government regulations have started reshaping the landscape, too.
Goods and Services Tax (GST) 2.0 made retailers scramble to adjust their operations. But there was a silver lining: household items got moved to lower tax brackets, and some duty structure issues got ironed out, which should eventually help retailers manage their working capital better.
Although the adjustment period was difficult to navigate, it tested the resilience of company supply chains and financial systems. Brands that moved quickly to adapt found themselves heading into 2026 with much more predictable cash flow. Those that lagged behind? They faced shrinking margins and had to make some hard choices about pricing right in the middle of their busiest selling periods.
The Textile Tariff Dilemma
It was the textile tariffs that hit brands importing man-made fibres particularly hard, creating a domino effect. Companies now had to rethink where they sourced materials from and how they priced their products. Some businesses began diversifying their supply chains early in the year, cutting down on relying too heavily on imports from any single source and looking at what they could get domestically.
The impact varied significantly across categories. For instance, footwear saw an exceptional year because input costs stayed relatively stable, and India’s domestic manufacturing is strong in this space. It is, in fact, one of the most promising categories going forward.
Navigating 2025 taught the retail industry important lessons, and the biggest one was that having a flexible supply chain is a necessity for survival in an increasingly competitive market. Companies that had diversified their sourcing handled the tariff uncertainty much better than those stuck with inflexible supply arrangements.
The second lesson was that the desire for premium products isn’t limited to big cities anymore. Shoppers in smaller towns are ready to pay more for quality, as long as brands genuinely understand and respect their local preferences and culture.
Looking Ahead to 2026
The retail sector is at a turning point. Retailers must learn to strike a healthy balance between investing in physical stores versus digital channels, manage rising costs without compromising quality, and stay on top of ongoing regulatory changes. All of this requires clear strategic thinking and operational excellence.
The brands that will thrive in the upcoming year will be the ones that truly understand the modern-day consumer and build operations that can adapt, shift, and adjust to unexpected disruptions. After all, brand success boils down to learning to stay flexible when change becomes the only constant.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.
