Tier II, III cities key contributors in Indian retail: Anarock Retail

While e-commerce and brick-and-mortar stores continue to co-exist in India, however, e-commerce has a definite edge over physical retail in India’s tier II and tier III cities, said a recent report by Anarock Retail.

These cities are the major contributors to the country's retail growth, with the organised retail market growing at CAGR of 20-25 per cent, added the report.

Tier-II cities alone received investments of more than $6 billion between 2006-17 and tier-III cities received around $500 million. Tier-I cities collectively saw $1.3 billion investments in the same period, said the report titled 'Rebirth of Retail Malls: New, Improved and Revitalised'.

"Nearly 100 million people out of India’s 300-400 million-strong middle class currently live in tier-II and tier-III cities," said Anuj Kejriwal, MD & CEO, Anarock Retail.

"This indicates that a significant portion of Indian retailers’ target clientele lives in the non-metro cities. In cities such as Jaipur and Surat, household incomes are expected to cross Rs 800 billion and 26 other cities will cross Rs 400 billion by 2020. Considering the rising purchasing power and the consumption pattern in these cities, the slow deployment of physical organised retail there is worrisome."

The report highlighted that the lack of physical outlets is allowing e-commerce to flourish in these towns and cities. This main competitor to physical retail is growing rapidly and is expected to cross $100 billion of value by 2020.

The major share of online shoppers in India includes millennials (Gen Y) aged 18-35 who currently account for 34 per cent of the population. The high purchasing power of this online shopping population is insufficiently tapped in these cities due to the lack of good quality physical retail spaces.

While retail sales density in smaller cities will be lower than in metros, adoption of innovative models and diverse product mixes assures retailers not only of survival in tier-II and tier-III cities but also of steady growth, according to the report.

"Investors and mall developers are beginning to realise the massive potential of these 'smaller' markets and trying to make their presence felt. However, the speed of quality retail deployment must pick up a considerably faster pace to leverage the huge opportunities India’s tier-II and tier-III cities offer," added Kejriwal.

The report also examined the syndrome of failed and struggling malls, and envisaged re-inventing strategies for retail malls to strengthen their positioning in the evolving digital era. It made a strong argument for the technology imperative as physical retail's only viable means to counter e-commerce competition.