• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
BW Businessworld

Retail: Store Shopper

Retail giants are making a beeline for tier-2/3 cities

Photo Credit : Shutterstock


Five years ago, at a conference in the capital, Varghese Chandy, VP, Marketing and Ad Sales of Malayala Manorama announced, ‘Regional is the new national’. With the metros and larger cities increasingly witnessing intense competition, retail brands are either trying to consolidate their presence in the regional markets or creating a window for themselves.

Sharing his thought about the untapped potential of non-metros, Kishore Biyani, Group CEO, Future Group, says, “We believe in the market potential of each and every city and town we are present in — and quite evidently most of them are tier-2/3 cities.”

There are several cities in India which are still untouched by retail companies, but have the potential to drive the growth. However, things are slowly changing. Large and small retailers are heading to non-metros on the back of purchasing power of these cities.

Manohar Samuel, president, marketing at Aditya Birla Cellulose, says that cities such as Jaipur and Surat have great potential. “We have seen rapid growth in almost 90 per cent of the top 50 cities in the last four seasons,” he says.

To invest in these cities over the coming years, Aditya Birla is focusing more on specific areas through large multi-brand outlets (MBOs) and standalone super stores and are targeting 50 cities.

Mohit Bhayana, retail head with Marks & Spencer, sees commonality between the customers in tier-1/2 cities. Currently, 22 of 57 M&S stores are located across 17 tier-2 markets. He says that the continued growth in the sector along with the increase in disposable income and changing attitudes towards international fashion presents an opportunity to reach customers across tier-2/3 markets in India.

At present, tier-2/3 cities contribute to 44 per cent of M&S’s online business through Myntra and Amazon.

Shift from Unbranded to Branded

The rise in the per capita income of the middle class in these cities has resulted in the movement of consumers from unbranded to branded segment. Rising brand awareness and higher disposable income have helped tier-2/3 cities to emerge as the new growth centres. Low rentals is another factor that attracts the majority of retailers to small towns.

Harkirat Singh, MD, Woodland, sees immense potential for the retail sector in tier-2/3 cities. “We plan to set up 50 more stores this year, the majority of which will be in non-metros and tier-2/3 cities,” says Singh. Apparel brand Raymond is bullish about their presence not only in tier-2/3 markets but they have open outlets in tier-4/5 markets as well. Mohit Dhanjal, Director, Retail, Raymond, says, “We have now embarked on our second phase of expansion in tier-4/5 markets. We plan to cover another 300 of these high potential towns in the next couple of years.”

Retail brands are highly dependent on distributors but the non-metro cities have brought a change in the country. This change is convincing major brands to open their exclusive stores.

Multi-brand retail chain Lifestyle International has already established its presence in cities such as Nagpur and Jaipur and recently entered Visakhapatnam and Nashik. Kabir Lumba, MD, Lifestyle, says, “We are actively looking at expanding in these and other cities. On an average, we invest about Rs 10 crore to set up a new store.”

Shoppers Stop is going a step further and plans to train its staff in both English and vernacular languages as senior tier-2/3 customers could prefer the local language. “This strategy is emblematic of the aspirations and buying power, which exists in tier-2/3 markets,” says Govind Shrikhande, CEO, Shoppers Stop. “Challenges are there too. For instance, such markets rely on their local high-streets and are not accustomed to the department store experience and/ or our brand equity,” he adds.

Apart from high-end brand stores, offbeat retail chains have also seen a good amount of demand from non-metro cities. For example, Chumbak’s offline presence grew to large format stores in tier-1 cities and the brand opened its stores in new wave cities such as Kochi, Chandigarh and Jaipur. “The contribution from stores in these cities has been exemplary and growing quarter-on-quarter,” says Chumbak CEO Vivek Prabhakar. Currently, new wave cities’ contribution for Chumbak online is 30 per cent.

The country is set to continue its double-digit growth on the back of rising disposable incomes, rapid urbanisation and the growth of organised and Internet retailing. It would be interesting to see how these non-metro cities will surpass the metros in terms of growth.

Tags assigned to this article:
retail Magazine 15 April 2017 kishore biyani

Top themes and market attention on: