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Big retail eyes small markets

Organised modern retail is targeting smaller towns, beyond the big cities where saturation and high costs have become issues, reports Radhika Pancholi.

business Updated: Mar 10, 2008 09:36 IST
Radhika Pancholi

This revolution in the retail sector is picking up momentum. Organised retailing in India is reaching out to encompass smaller towns. Whether it is multi-brand stores, hypermarkets, food chains or fashion stores, retailers are moving fast towards these markets to tap the burgeoning middle class consumer who’s more than willing to spend, given the chance and choice.

"Tier II and III cities in India provide a big potential for retailers. In fact, from now on, 50 per cent of our revenue would be generated from these cities," says The Loot's managing director, Jay Gupta, who plans to open the multi-brand discount stores in towns such as Nashik, Raipur, Jabalpur and Surat.

Mumbai-based hypermarket chain, Hypercity, recently launched its smaller version, Expresscity, in Jaipur. Competitor Big Bazaar has gone all out to woo customers in towns such as Sangli and Alwar. "The biggest challenge for us has been to attract people to the mall culture. We came up with marketing strategies that aimed at making the Big Bazaar store a community hub for people where they could meet, shop and also celebrate local festivals," a Future Group spokesperson says.

Fashion retail brand Globus plans to open its outlets in cities such as Jamshedpur, Ludhiana, Nashik, Ahmedabad and Rajkot. Globus' CEO, Vinay Nadkarni, says, "Metro markets are getting saturated and small cities are where the young people are, making them ideal for selling aspirational items such as fashion apparel."

Kanpur, Ahmedabad, Agra, Baroda, Indore, Bhopal, Surat, Ludhiana, Lucknow , Dehradun, Nasik,, Vijayawada, Coimbatore, Sangli, Ambala, Raipur, Alwar, Jalandhar, Panipat, Meerut, Jamshedpur, Durgapur… the list is endless. First the single-brand stores dotted these small towns’ markets. Now the big retailers are following.

The reasons are clear: a non-metro middle class that wants more; a fast saturating metro market place where modern retail clutter is beginning to put a strain on footfalls and sales, and even retail rentals; the high real-estate costs putting a strain on overheads; and, good news, the kind of growth retail in tier II and III towns are delivering! Published reports indicate that while organised retailing in small-town India is growing at 50-60 per cent, it is growing at 35-40 per cent in the large cities. Of the approximately 700 malls coming up across India, 40 per cent are expected to be in small towns.

Naimish Dave, director OC&C Consultants, says of the big cities: "There's a huge escalation in real estate costs. If you do a quick comparison, the real estate costs in metros like Mumbai are almost comparable to the US and Europe. However, while rentals form about 5-10 per cent of the total real estate in Europe, the percentage is as high as 20 per cent in India."

Reliance Retail (Mukesh Ambani’s) is taking big strides in small towns. Of the 200-plus Reliance Fresh outlets in 11 states, 20 outlets are in small towns. Unperturbed by local protests in some markets, Reliance Fresh is set to expand to 1,200 outlets soon. Reliance also plans to open a large number of Reliance Town Centres in smaller towns.

AT Kearney's Global Retail Development Index for 2007 indicates that overall, India’s retail sector is expected to grow from $350 billion to $427 billion by 2010 and $635 billion by 2015. Modern retail, at two-three per cent of the market, is expected to grow at a compound annual growth rate (CAGR) of 40 per cent from $8 billion to $22 billion by 2010. The report acknowledges modern retail’s movement into smaller towns over the last three years.

Both retailers and research analysts agree that the categories modern retail will thrive on in the near future—even as modern retail penetrates big and small cities and towns very rapidly— will include food, grocery and FMCGs; apparel and accessories; consumer durables; restaurant chains and food services; and home-based products.