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BW Businessworld

Retail 3.0: Booming Retailers In Small-towns

The overall retail market is expected to grow at 12 per cent per annum

Photo Credit : Reuters


The Indian retail industry has emerged as one of the most dynamic and fast-paced industries with the entry of several new players. The retail sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. According to a recent report by India Brand Equity Foundation (IBEF), India is expected to become the World’s third largest consumer economy reaching US $ 400 Billion in consumption by 2025. India’s retail market is set to increase by 60 per cent to reach US$ 1.1 trillion by 2020. At Present, India leads in terms of per capita retail store availability making it a favourable market for retailers.

Most of India’s retail brands are largely concentrated in the top seven metros of Delhi-NCR, Mumbai, Bengaluru, Pune, Chennai, Hyderabad, and Kolkata because of the presence of more affluent shoppers there. However, these cities have hit saturation as limited mall supply and a high concentration of existing retailers are prompting brands to look at newer markets.

India’s potential lies in the growth of smaller cities that have been witnessing transformation over the years. While the metros will continue to witness emergence of new malls and lifestyle stores, almost a third of new development will happen in the tier-II and -III cities. Even stand-alone stores opt for greater emphasis on visual displays, staff training and modern ambiance with their entry into even smaller towns.

Various global and local brands are planning expansion in tier-II and -III cities with factors such as rising incomes, lifestyle changes and increased digital connectivity. The overall retail market is expected to grow at 12 per cent per annum. 

Availability and cost of retail space is another major consideration in the development of organised retailing. Prime locations in tier-II and -III cities are 30 per cent cheaper than their counterparts in the metros. Average rental values for ground floor space are much lower when compared against bigger cities.

New age retailers have contributed in making tier II and tier III cities the future centres of retail growth in India. The retail sector in tier II and tier III cities has drawn an investment of $6,192 million between 2006 and 2017 as against $1,295 million that was drawn by tier I metro cities during the same period. 

Penetration into smaller cities needs an in-depth understanding to predict the buying behaviour of customers. Retailers have adopted Big Data Analytics to understand buying behaviour and sentiments of customers thus enabling a focus on customer centric marketing.

Retail Industry has managed to introduce a range of products which were initially unavailable in the tier II and tier III cities. Making quality products available to customers at reasonable prices is the reason behind the success of retail industry in these areas.

Entry of retailers into smaller cities has helped improve the living standards of the local population by practices such as contract farming, local sourcing, aiding the growth of ancillary industries and by providing employment to locals.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Jayprakash Shukla

The author is Co-founder and CEO, 1-India Family Mart

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