Retail Projects

TIER II AND TIER III CITIES – UNTAPPED POTENTIAL FOR RETAIL EXPANSION

Retail industry in India has seen an enormous change from the slowly changing preferences of the consumers, not just in the metro cities but also in tier II and tier III cities. This consequently is also shifting the choice of retailers in terms of the products they are producing and also the shopping experience that they are offering. The traditional or unorganised retail sector, though still prevalent is slowly losing its hold on the modern consumer.

What are the consumers in tier II and tier III cities looking for?

Due to the increased digital connectivity, consumers are more aware of the choices available worldwide. Therefore they demand more variety at a lesser price which can only be provided by bigger brands and companies through discounts and festive offers. The consumer here is also demanding the richer shopping experience and is ready to pay a premium price for it like his metro city counterpart. As much as 35% sales of luxury brands in India are coming from non-metro cities – CII-IMRB report on the luxury market in India.

This change has led retailers and reputed brands to look for spaces in malls and shopping centres in tier II and tier III cities. The surge of shopping malls in metro cities for the past 10 years has resulted in the retail market being steady, but almost saturated. Whereas, the tier II and tier III cities with its availability of land at cheaper rates, lower rentals and premium consumer base are making these an appealing destination for the retailers.

Attractive destinations for retailers to plan an expansion or entry

Currently, the emerging organised retail in tier II and III cities account for a very small portion but has high potential. The market trends indicate the national and international brands showing their willingness to expand into these cities but are facing a shortage of organised mall spaces. Due to this, reputed brands are also looking at stand-alone commercial spaces to open their outlets. The retail fund flow is another positive sign for tier II and III cities being amazing prospects for retail expansion.

Kerala to ride the retail boom

As per Public Affairs Index 2018, Kerala stands as the best governed state for the third consecutive year since 2016 among the larger states in the country. Kerala with its high tourism prospects, rising per capita income, literacy rate and technology penetration has the advantage in terms of leading a retail revolution. Cities like Kochi, Calicut, Trivandrum and Thrissur are already seeing a major influx of retail growth with opening of world class malls like HiLITE Mall in Calicut, Lulu Mall in Kochi, Mall of Travancore in Trivandrum etc. The success of these malls is a sign that the consumers here are seeking out a richer shopping experience and quality products. The greatest advantage that the consumers in tier II and tier III cities enjoy compared to their metro city counterpart is the low living cost in the suburban cities. This means that they have higher disposable incomes which make them the ideal prospects for bigger brands.

With the success stories of brands like H&M, Amazon India, Future group, Reliance, Bata, Landmark group etc. who have all seen enormous success from their expansion into tier II and tier III cities, we are sure that this transformation that has begun and is well on its path to enormous growth will continue for years to come. The retailers who are slow to jump on this bandwagon might miss a major chunk of quality market share.

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