What?

India's retail sector is heading into the 2026 festive season on firmer footing than it has seen in months.

The sector grew 8% year-on-year in July, compared to the same month last year according to the Retailers Association of India's (RAI) Business Survey Round 73.

The RAI's SANKET report, prepared with payments partner Innoviti, showed genuine store-level demand recovering to 7.1% growth in July, its strongest reading since the quarter began and up from subdued single-digit growth seen earlier in the year.

The recovery was uneven across regions. The northern and southern parts of India posted 9% growth, while the western and eastern parts showed a more moderate growth of 6% each.

Kumar Rajagopalan, executive director and CEO of RAI, told The Core that footfall at retail stores were improving but retailers remained guarded. "Festive footfall is showing signs of recovery... [but] retailers continue to remain cautious in their planning, given the uncertainty around macroeconomic conditions and the risk of overstocking," Rajagopalam said.

He expected double-digit festive growth, but called it "measured recovery rather than complete confidence”.

FMCG demand is projected to rise 9–11% between August and November, found Equirus Capital's July 2026 Consumer Sector Tracker, even as retail inflation ticked up to 4.45% in July and food inflation climbed to 5.52%.

The improvement is already showing up in corporate results.

Tata Group's Trent posted 19% standalone revenue growth in Q1 FY27 on continued Westside and Zudio expansion, while Shoppers Stop was back to profit with 10% revenue growth after a loss a year earlier.

For apparel retailers specifically, the stakes are high.

"The festive and wedding season typically accounts for about 35% of annual apparel retailers' sales," said Poonam Upadhyay, Director, CRISIL Ratings. "It is also the period when spending extends beyond everyday purchases, with stronger participation from mid-premium and premium categories."

Why?

The optimism rests on a few pillars. Equirus's tracker notes that a period of relatively low inflation has helped restore consumers' real purchasing power, creating a favourable backdrop for festive spending, even as companies navigate elevated input costs and intensifying quick-commerce competition.

Festive hiring is expected to climb 15–20%, according to TeamLease's Festive Season Workforce Report 2026, led by quick commerce and retail.

Channel dynamics are shifting too, but not into a simple online-versus-offline story. "Online channels continue to gain traction in apparel retail, particularly in value fashion," Upadhyay said.

According to the Clothing Manufacturers Association of India (CMAI) survey, online apparel sales are also expected to gain momentum during the festive season.

With online currently accounting for around 12% of apparel sales, its anticipated growth challenges the traditional assumption that festive apparel shopping will remain predominantly offline.

“However, festive and wedding shopping tends to see greater participation in mid-premium and premium categories, where many consumers still prefer to see, feel and try products before making a purchase." Upadhyay called it less a battle between channels and more consumers "moving seamlessly between digital and physical channels”.

What Next?

Not everyone is convinced that the momentum will hold.

Retail expert Rohit Bhatiani struck a cautious note, pointing to the monsoon, the West Asia conflict, and sharp inflation in onions and sugar as headwinds.

Two kitchen staples have complicated the inflation picture this year. Onion prices have surged sharply, with the all-India average retail price up over 22% year-on-year by mid-July 2026, prompting the Centre to plan a buffer-stock release from September to ease festive supply and curb hoarding.

Sugar prices have also climbed steeply, rising from about Rs 48 per kg in July to nearly Rs 56 per kg by August 2026, adding political heat ahead of key elections next year.

When staples like onions and sugar get expensive, households tend to cut back on discretionary spending, leaving less in the budget for clothes, electronics and other festive purchases.

“Rising raw-material costs remain a concern. Around 54% of respondents in CMAI’s survey are absorbing higher costs by reducing margins, while only about 35% have increased prices. This indicates that higher festive sales could come with continued pressure on profitability”, said Santosh Katariya, President, Clothing Manufacturers Association of India.

On the positive side, GST rate cuts rolled out since late 2025 on apparel, footwear and consumer durables have continued to support affordability, though mid-premium apparel priced above Rs 2,500 has seen softer demand after facing a higher GST slab.

"The current situation is looking subdued... the essentials are continuing to rise, so discretionary would go down. It's a bit subdued," Rohit Bhatiani said.

While growth has been driven by value-led categories, rising inflation could mute demand in other categories.

"A healthy festive season typically sees stronger participation across apparel segments, particularly occasion-led purchases," Upadhyay said, adding that the extent of the discretionary uptick will be key to the sector's performance.

For context, last year's festive window (Navratri to Diwali) generated a record Rs 6.05 lakh crore in trade, per CAIT, a 25% jump over 2024.

Whether 2026 matches that pace now rests on how much essentials’ inflation eats into festive discretionary budgets.