Tier 2 and 3 cities to drive next wave of retail growth
Between 2006 and 2017, smaller cities received 5x more investments than tier 1 cities, as per Kearney estimates
Tier 2 and 3 cities, such as Jaipur, Chandigarh, Kanpur, Vijayawada, Kozhikode and Nasik, will drive the next phase of growth for India’s retail sector, considering that the share of organized retail beyond the top 20 metros remains low, consumer and retail consultancy Kearney said in a report on Thursday.
The shift in consumption pattern in smaller towns over the past decade has resulted in higher purchasing power on discretionary items in these markets, it added.
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The report, titled Kearney India Retail Index, said tier 2 and 3 cities have grown at a brisk pace on the back of an increase in disposable income, and deeper penetration of mobile internet. “This is especially evident from the share of luxury retail spending, which grew from around 9% in 2013 to 55-60% in 2018 in non-metro cities, especially Jaipur, Udaipur, and Chandigarh."
The renewed interest from retailers to expand to smaller cities such as Vijayawada, Faridabad, Kanpur, Madurai, Rajkot, Kozhikode and Nasik, stems from the fact that these markets reported fewer covid cases and led the growth during the pandemic, it added.
Kearney said retailers are looking beyond the top 100 cities to fuel expansion as consumers’ appetite for branded goods, access to quality retail infrastructure, and improvement in back-end processes have expedited growth in these emerging markets.
Between 2006 and 2017, these cities received five times more investments for retail infrastructure than tier 1 and metro cities, according to estimates by Kearney. “This influx of investments has put these cities on a fast track to reaching the retail potential of tier 1 cities." it added.
It ranked over 800 Indian cities on their retail market potential. Delhi, Bengaluru, Mumbai, Chennai and Kolkata continue to be the most sought after retail destinations, especially for e-commerce adoption and presence of power brands, apart from penetration and per-capita expenditure across key product categories such as apparel, footwear, accessories, jewellery, personal electronics and food and grocery.
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Interestingly,Bengaluru bagged the second spot on the index on the back of strong adoption of e-commerce and brand penetration. Kearney said the contribution of metros and tier 1 cities to India’s retail sector growth has been shrinking steadily.
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