Talent crunch hits retail sector in tier 2 and 3 cities

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Brick-and-mortar chains like D-Mart and V-Mart are expanding into smaller cities, but a growing shortage of skilled staff is emerging as a major challenge. Executives say this is impacting customer handling, particularly as formal retail penetrates newer markets.

Retailers like D-Mart, Vishal Mart, and V-Mart are on an expansion spree, competing with e-com and quick-com players in tier 2 and 3 cities. However, the lack of trained personnel to handle newer, often inexperienced customers is becoming a challenge amid the rapid formalisation of the retail sector, their executives pointed out in post-earnings calls with analysts.

"The quick commerce sector is rapidly growing in tier 2 and  3 cities, creating huge demand for blue-collar jobs (drivers, warehouse workers, etc), which increases wages. In order to compete, retailers are offering bigger salary hikes and bonuses to retain talent amid high attrition, pushing up costs. Therefore, while the workforce is expanding, there is a significant shortfall of skilled workers, including in retail and logistics," said Kartik Narayan, CEO-Staffing, TeamLease Services

Retailers are grappling with a shrinking talent pool as India’s booming gig economy lures workers away, making it more expensive for both offline and online players to hire and retain staff. "Quick commerce firms are hiring more temporary staff while scaling operations rapidly, especially for delivery and dark store roles. This is causing an unusual spike in labour demand," Narayan added.

Avenue Supermarts owned D-mart, often considered the bellwether of Indian retail, listed a surge in entry level wages of skilled labour due to a demand / supply mismatch as one of the key reasons for its shrinking margins.

Value retailer V-Mart echoed similar concerns. The company reported a 45 percent spike in manpower costs for Q4FY25, driven by ESOP expenses and incentives. But beneath the numbers lies a deeper operational reality. V-Mart serves an inexperienced customer base that requires assistance inside stores — from styling guidance to helping them navigate their way for their requirements.

“It is not just about the front-end retail manpower, but the overall manpower – how do we generate higher productivity from the same resources. That is what we are trying to work on. Though yes, largely this will be a front-end expense,” said Managing Director Lalit Agarwal.

Narayan explained that the issue is largely in the north and northeast, while manpower is available in the south and west of India.

At Vishal Mega Mart, now running quick commerce operations from 656 stores across 429 cities, the challenge is foundational. “The availability  of trained manpower  is very limited in retail, because it is a very nascent industry. Therefore, players like us who are rolling out rapidly across the country have to own the task of recruiting and training people on a continuous basis to staff our new stores at every level,” Managing Director Gunender Kapur told analysts last month.

According to a report from the Retailers Association’s Skill Council of India, a major proportion of the manpower demand is in front end profiles in stores. Hence, it is expected that store operations will account for 81 per cent of the manpower demand in modern retail by FY26.

Roles such as customer service associate, distribution manager, and visual merchandising manager are booming in modern retail. Graduates and post-graduates account for 35 percent of the manpower demand in the sector.

The report added that modern retail is expected to demand 3.6 million workers by FY26, with a significant reliance on 12th pass and graduate-level talent, reflecting the sector’s growing need for a semi-skilled and customer-facing workforce.

However, with deep-pocketed players entering the fray, retailers may get pushed to offer heftier incentives and more attractive salaries to hold on to talent.

Employees in these sectors are often viewed as dispensable due to lower skill levels, but this mindset leads to high attrition and frequent wage negotiations — issues that companies can address through a multi-pronged strategy: enhancing productivity through training, offering access to formal social security as an incentive, and creating an aspirational path to becoming core employees, according to Narayan.

"While urbanisation is one factor driving this demand, the rapid expansion of retail and quick-commerce are also creating opportunities in tier 2 and 3 towns and cities. The increasing density of retail outlets and broader geographic coverage by companies will only heighten the demand for such a workforce," he added.