Some of the country’s top retailers from Reliance Retail to Aditya Birla Fashion, Shoppers Stop and Arvind Fashions have pressed the store expansion button in FY26. Many have also guided for more stores in FY27 after staying largely muted in FY24 and FY25. The resurgence comes as demand conditions improve in urban areas, following a spate of policy measures in 2025 including income tax and GST cuts and easing of interest rates to boost consumption.
Yet, a new study by Vector Consulting, released at the Retail Leadership Summit in Mumbai on Monday, notes that despite the enthusiasm to set up new stores, at least 28-40% of a retailer’s store network remains unprofitable.
Profitability Paradox
“Retailers protect margins tightly, so they often tolerate long lead times and pursue opportunistic bulk buying,” P. Senthilkumar, senior partner, Vector Consulting Group, said. “At the same time, they continuously expand their SKU portfolios. Together, these practices increase inventory,” he said.
For instance, ageing inventory continues to occupy a significant share of shelf space across categories. Around 48% of on-shelf inventory in mobile & consumer electronics remains beyond its optimal selling window, apparel & footwear reports 24%, home & furniture 40%, and jewellery & personal wear 43%.
“This erodes shelf productivity and shortens the full-price selling window for new launches. When correction finally becomes unavoidable, the sheer volume of stock involved makes the potential loss feel unacceptably high,” Senthilkumar said.
Some retailers and experts see unprofitable stores as an inevitable reality of retail. “For a business like ours, which is constantly changing and transforming in terms of customer proposition, we need to move to the centre of gravity. To that extent, the ones which are not representing the customer experience will be weeded out,” P. Venkatesalu, MD, Trent, said.
Precision over Proliferation
Consulting firms such as AT Kearney say that a hyper-local approach may work in a business that thrives on the advantages of location. “Some pan-India retailers reported 10–15% store closures in FY25, linked to location and format decisions that did not align with local demand,” AT Kearney executives said.
The consultancy has devised a retail index covering eight key categories across 800 cities and 8,000 urban pin codes. Using demand and supply indicators, it maps areas with untapped potential as well as areas with high saturation, helping retailers identify where expansion is more likely to deliver stronger returns and where a more cautious approach may be warranted.
Bosting Consulting Group (BCG) officials note that retailers may need to define clear focus segments, make deliberate trade-offs and align business decisions to deliver a distinct core proposition. Disciplined execution of store expansion plans may also reduce revenue leakage, BCG says.