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We have all got used to seeing the glitzy stores of leading brands like Zara, H&M, M&S and Vero Moda in malls across metros. These brands came into India eyeing the vast USD 50 billion market opportunity in apparel, growing at 12-13% per annum. Almost 65% of this opportunity is contributed by the unbranded/unorganised sector. But today, the branded market opportunity is growing at a faster clip of 20%+ CAGR compared to the 8-10% growth in unbranded apparel. These international brands have had reasonable success in the metros, with sales being driven by the large spending power, high population density and availability of quality retail space. In our estimate, the top 10 cities account for almost 70% of the sales of branded apparel. This is manifest in the fact that these cities have close to 265 operational malls, nearly half of the total malls in the country.
However, increasingly these brands are eyeing the tier 2/3 cities to provide impetus to their growth. Brands are opening stores in cities like Patna, Nagpur, Vadodra, Faridabad, Meerut, Imphal, Bhubaneshwar, Jamshedpur, Jamnagar, Surat, Coimbatore, Warangal, Moradabad etc. A leading indicator of this change is large format stores: Lifestyle has opened stores in cities such as Dehradun, Jalandhar, Nashik, Surat; Shoppers stop is spread across 38 cities, Reliance Trends across 160 cities and so on.
Growth in these cities is being driven by a multitude of factors – latent consumer aspirations, increased brand and fashion consciousness (partly driven by the influence of social media and increasing media exposure), easier access (percolation of malls in these towns increasing) and a higher level of discretionary spending power.
Most large global brands have recognised this opportunity and after stabilising operations in the metros are focusing on these cities to provide them with the next wave of growth. Large format brands are leveraging their learnings (including details like identifying fast moving SKUs, nuances about product sizings, trade schemes etc) in metros to tap the consumer demand in these cities. While good quality retail space is rare, lower rentals in these cities are an attractive incentive to set up shop. Also, given the relatively smaller size of the stores, upfront investments tend to be lower. However, there are concomitant challenges. The ability to recruit and train local talent to global standards is foremost. While this may be time consuming in the short run, attrition levels in these cities are likely to be much lower thereby justifying the training investments. In addition, demand drivers are likely to be very different within the tier 2/3 towns. Fashion styles acceptable in a small town in South India may not work in a tier 2/3 city up north. Getting the merchandising right will be a key driver for success.
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