Tier II and III cities to lead India’s $1.3 trillion retail revolution in 2026
27 December 2025, Mumbai
As India consolidates its position as the world’s third-largest retail market, the sector is pivoting from volume-led expansion to a high-margin, tech-integrated era. By 2026, India’s retail industry is projected to surpass US$1.3 trillion, with a striking 65 per cent of online demand expected to originate from non-metropolitan areas. This ‘Bharat surge’ is fundamentally reshaping the landscape, as Tier II and III cities like Raipur, Indore, and Lucknow transition from secondary markets to primary growth engines for global fashion brands.
Premiumisation and the value retail boom
The upcoming fiscal year will be defined by a dual-track growth strategy: the aggressive rise of value retail and a deepening trend of premiumisation. While value players like V-Mart and Zudio have more than doubled their footprints to tap into the price-sensitive middle class, premium brands are witnessing a 90 per cent Y-o-Y growth in leasing activity. As noted by industry experts, the shift is no longer just about access but about ‘principled consumption,’ where Gen Z shoppers in smaller towns are increasingly demanding sustainability and global trends at competitive price points.
Operational resilience amid rising hurdles
Despite the optimism, the industry faces a 2026 marked by ‘margin-led’ discipline. Retailers are battling rising rentals and a 10–12 per cent talent shortage in specialized retail roles. To counter these, leaders like Reliance Retail and NewMe are leveraging Generative AI to optimize supply chains and offer hyper-personalized ‘Quick Commerce’ for apparel. Structural reforms, including GST rationalization on garments under Rs 2,500, are expected to add a 200-basis-point boost to organized retail, providing the fiscal cushion needed for this massive infrastructure leap.
The Indian retail sector is a diversified US$1.1 trillion powerhouse currently shifting toward a formal, digitally-enabled ecosystem. Dominated by apparel, food, and electronics, the market is moving toward ‘Experience Retail’ with 16.6 million sq. ft. of new mall space arriving by 2026. Historically fragmented, the industry’s outlook is now ‘highly optimistic,’ targeting a 12.8 per cent CAGR through 2030, supported by record-low inflation and robust urban-rural consumption.
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