With the increasing affluence of wider strata in Indian society, retailers are channeling significant investments into tier-2 cities. This is driven by the rapid growth of infrastructure and an expanding working population, resulting in the emergence of new consumption hubs.
According to a study by CBRE, renowned global brands like Zara, H&M, Adidas, Nike, Starbucks, Uniqlo, and Marks & Spencer, alongside local brands, are seizing opportunities in cities such as Jaipur, Chandigarh, Patna, Lucknow, Kochi, Goa, and Coimbatore. As of September 2023, Jaipur, Lucknow, and Chandigarh each boasted retail stock ranging between 3-7 million square feet.
This trend reflects the shift towards untapped markets and recognizes the rising economic significance of tier-2 cities.
“Most of these non-metros are established trade and business hubs, and are also witnessing a healthy traction in commercial office space take-up… retail supply has matured, moving away from vanilla stores on high streets to the entry of investment-grade developers who are setting up quality retail spaces, which serve as both entertainment and shopping destinations,” analysts at CBRE said.
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CaratLane, a Tata Group-owned company, is placing significant emphasis on tier-2 markets. Over the past year, it has doubled its store presence in locations like Lucknow and Indore.
“To give a sense, CaratLane started FY23 with 22 stores in tier-2 cities and now has 39 stores in these cities. There are a host of other smaller towns like Kochi, Guwahati, Ludhiana, and Mysore where we have seen strong demand and have increased our store footprint in the last one year,” chief operating officer Atul Sinha said.
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The rise and growing acceptance of e-commerce have impacted the retail scenario in smaller cities. The increased use of digital platforms in these areas during the Covid-19 pandemic has empowered consumers to explore and try out new brands. Retailers are keen on leveraging opportunities arising from these developments. About 50 percent of online shoppers in urban India originated from tier-2 and 3 cities, a figure projected to climb to 60 percent by 2030.
“These e-commerce dynamics point towards the presence of a high aspiration consumer base, thereby propelling the influx of quality retail supply,” analysts at CBRE added.
Manyavar has recently opened a 17,000-square-foot store in Ranchi and is set to launch another 20,000-square-foot store in Gorakhpur. This highlights the growing attraction of retailers towards smaller cities.
“Tier-2 and -3 markets are becoming what we call mini metros. As more and more small medium businesses grow in these markets, that gives a lot of opportunities for people to grow in the corporate ladder, giving them higher levels of income, and leading to higher discretionary spending,” said chief revenue officer Vedant Modi, Manyavar.
Modi mentioned that approximately 40-50 percent of the company’s current business originates from tier-2 and 3 cities.