Store first, digital later the new growth formula for India’s retail giants

India’s leading lifestyle and department store chains are prioritising physical expansion over aggressive digital scaling as the economics of omnichannel retail continue to favour brick-and-mortar operations. Despite years of investment in digital infrastructure, online channels remain a relatively small contributor to overall revenues for most traditional retailers, prompting companies to redirect capital towards store expansion in emerging consumption markets.

An extensive Economic Times research analysis of annual reports, investor presentations and corporate disclosures indicates that the contribution of e-commerce to overall revenues has largely plateaued across major retail chains. While online transaction volumes continue to grow in absolute terms, physical stores are expanding at a comparable or faster pace, preventing any meaningful shift in the overall revenue mix.

Digital contribution hits a growth ceiling

The findings suggest that India’s traditional retailers are facing limitations in their digital businesses. For many companies, online sales have stopped gaining share despite broader consumer adoption of e-commerce and mobile shopping.

Table: Digital growth friction

Source: ET Research, company filings and investor disclosures

Among the major players, Westside’s online contribution has remained unchanged at 6 per cent for three consecutive years, well below the 7 per cent peak achieved during the immediate post-pandemic period. Avenue Supermarts has also seen limited progress, with DMart Ready contributing less than 6 per cent of overall revenues despite continued investments.

Arvind Fashions stands out with digital revenues approaching 29 per cent of sales. However, a significant portion of this contribution originates from business-to-business and wholesale digital channels rather than direct-to-consumer e-commerce. At the other end of the spectrum, Shoppers Stop’s direct online business has remained negligible, highlighting the challenges traditional department stores face in building scale outside their physical networks. The data suggests that while consumers increasingly browse and engage online, the final transaction continues to be heavily influenced by store-based experiences, particularly in apparel, footwear and lifestyle categories where product touch, fit and trial remain critical.

Profit drives capital allocation

The persistence of physical retail stems largely from a focus on profit and store-level economics. Unlike digital-first marketplaces that have so far relied on heavy discounting and customer acquisition spending, traditional retailers have prioritised margin protection. Most established chains maintain pricing parity between online and offline channels, avoiding the deep promotional strategies that characterised earlier phases of Indian e-commerce. This disciplined approach has helped preserve profit but has also limited rapid digital adoption.

Experts argue the operating pattern of legacy retailers was originally designed around physical stores. Inventory planning, merchandising systems, workforce structures and customer engagement models are all optimised for in-store sales. Integrating a logistics-intensive e-commerce operation into this framework often creates inefficiencies that can dilute margins. As a result, many retailers view digital platforms as complementary customer engagement channels rather than primary growth engines. Online stores serve to increase brand visibility and convenience, but capital deployment remains closely tied to businesses capable of generating predictable returns.

Global digital gap

The Indian retail sector also differs significantly from developed markets where department stores have successfully integrated digital commerce into their core business models.

Table: Global Benchmarks: Department store e-commerce revenue share

Retailers in the US and the UK have spent years building unified inventory systems that seamlessly connect stores and digital platforms. Companies like Macy’s transformed physical outlets into decentralised fulfilment hubs capable of processing online orders directly from store inventories. This approach reduces delivery times, improves inventory utilisation and lowers fulfilment costs.

In contrast, many Indian department store operators continue to maintain separate supply chains for online and offline businesses. The resulting duplication increases operational expenses and restricts scalability. Consequently, digital channels remain supplementary rather than transformative for most retailers.

The contrast highlights an important challenge. While Western retailers leveraged omnichannel capabilities to strengthen store productivity, many Indian operators continue to treat e-commerce as an adjacent business rather than a fully integrated retail model.

The store vs online dilemma

Traditional retailers also face a deeper conflict. Their businesses have been built around attracting customers into physical stores through merchandising, experiential layouts and destination shopping environments. Encouraging consumers to shift online can potentially cannibalise higher-margin store traffic. Physical shopping often generates larger basket sizes through impulse purchases and cross-category discovery, advantages that are difficult to replicate digitally.

This creates a balancing act for management teams. Investments in online growth must be weighed against the risk of weakening store productivity. Consequently, many retailers position digital channels primarily as customer acquisition and convenience tools while retaining stores as the centrepiece of growth strategies. The outcome is evident in the revenue data. Even as online sales increase in absolute terms their share of overall business remains largely unchanged because store revenues continue to expand at an equal or faster rate.

Real estate the preferred growth bet

The difference between traditional retailers and digital-first companies is becoming more visible in capital allocation decisions. Quick-commerce and digital commerce platforms continue to attract significant funding as investors prioritise scale and market share. Traditional retailers, however, are directing resources toward store expansion, particularly in Tier-II and Tier-III cities where organised retail penetration remains relatively low.

For established chains, opening stores in emerging consumption centres offers a more predictable route to growth than competing in an intensely contested online market. Physical expansion provides direct customer access, stronger brand visibility and clearer profitability metrics.

Avenue Supermarts’ relatively modest investment in DMart Ready compared with its broader store expansion strategy reflects this mindset. Similar trends are visible across lifestyle and apparel retailers, many of which are accelerating store openings while maintaining measured digital investments.

The broader message emerging from the sector is clear: despite years of omnichannel transformation, physical retail remains the most reliable growth engine for India’s traditional department store operators. As long as stores continue to generate stronger returns than digital channels, capital will increasingly flow toward expanding retail footprints rather than chasing online market share. For legacy retailers navigating a highly competitive consumer landscape, brick-and-mortar remains not only relevant but central to future growth.