SMALL CITIES, BIG OPPORTUNITIES

Modern retail chains are increasingly eyeing mini metros and fast growing smaller towns, and the reasons are not that difficult to fathom. Operating costs in these smaller cities, especially store rentals are substantially lower vis-a-vis high streets and malls in Mumbai and New Delhi, coupled with rising consumerism, have made brands like from Puma and Videocon, along with retailers like Promart to chart an aggressive growth strategy in the hinterland.

It’s no surprise that organised retail is expected to grow 50 - 60 per cent on a compounded basis over the next few years in Tier-II and III cities, substantially higher than metros, as per various industry estimates.

Striking a similar note, Rajiv Mehta, MD, Puma, South Asia, said, “Consumers in smaller towns are not very different from metros. The only difference is that accessibility to products is often an issue in the interiors of the country.”

Reaching new markets

It’s not that brands and retailers have ignored consumers in smaller towns, but the growing affluence of these consumers, along with greater exposure to fashion and other luxury   products via the TV and Internet, have led to a consumer boom in Tier-II and smaller towns, that no marketing manager can ignore.

To leverage these opportunities, Shoppers Stop is investing heavily on the feasibility of setting up stores in smaller cities. Govind Shrikhande, MD, Shoppers Stop, said, “Consumers in Tier-II and smaller towns do not want to be viewed as second-class citizens and are demanding more premium brands. We just need to get the business model right and reach them.”

Similarly, Promart, has decided to focus on smaller cities and avoids metro cities.  Ashish Garg, MD, Promart, said, “Modern retailers are just focussing on key cities, and ignoring the opportunities elsewhere.”

However, analysts highlight that demand patterns in smaller towns can often differ from larger cities. For instance, while corporate and formal wear are a key foci in metros, but in Lucknow, consumers are keen to purchase premium watches and accessories, while high-end ethnic wear is popular in Agra.

Nevertheless, with break-even faster in smaller towns, as well as a more loyal customer base, retailers and consumer-based brands do highlight the advantages of investing in smaller cities. Mehta of Puma, added, “If you are able to service these consumers with the right product, you get their long-term loyalty.”

Roadblocks in strategy

Senior marketing professionals highlight that merely setting up an outlet in smaller towns does not ensure success, and the challenges here, too, requires attention of top managers at retailers and brands.

The key challenges highlighted by retailers in smaller towns include poor infrastructure, and accompanying logistical bottlenecks, along with an untrained labour force. And, each organisation would need to forge partnerships with local; community and authorities, to optimise their supply chain costs, as well as get appropriately trained staff.

“Relocating staff from metros and training local employees are the ideal long-term solution for retailers in tier-II and allied towns,” said Priyank Singhania, Director, Avinash Group.

Apart from that, senior industry officials highlight that consumers in smaller towns are constantly searching for value for money offers and retailers need to respond appropriately. In addition, these consumers may require greater product-related assistance from store staff, and the franchise-based model for store expansion could be considered. Other viable store formats include small and medium sized outlets.

This ‘personal’ contact between a store and consumers would also facilitate below the line promotional activities, which are often viewed as more viable.

Striking a similar note, Anirudh Dhoot, Director, Videocon Industries, said, “In non-metros, small and medium sized stores are appropriate, along with a value for money product range.”

Similarly, Mehta, said, “Focus on your product range and ensure that they are relevant for consumers in these towns.”

For the Long Haul          

Retailers are increasing focus on the emerging consumer boom in
the interiors of the country and are in the midst of setting up modern malls.

Prodipta Sen, Executive Director, Alpha G:Corp, said, “The remarkable growth in metros and Tier-I cities have instilled confidence in developers to explore new markets, like smaller cities. Consumers in these towns
are also not thinking twice before spending.” 

However, the returns from such investment are often realised only in the long-term. Summing up, Pankaj Renjhen, Managing Director - Retail Services, Jones Lang LaSalle India, said, “Retailers who wait too long to expand into new territories, or are content to stay where they are, may miss the growth wave and eventually lose their relevance.”