Warc Blog

Indian retailers move to small cities

26 March 2014
NEW DELHI: One-third of retailers at major shopping malls in large Indian cities are moving to tier-II and tier-III cities to lower their operational costs and tap into changing consumer patterns in the smaller cities, a new report has found.

Between 300 and 350 shopping malls came up in India over the past two years, but the Associated Chambers of Commerce and Industry of India (Assocham) found up to 80% of them lie vacant while as many as 95 malls have been forced to close.

Struggling with high rentals and low footfall in the large metropolitan cities, retail tenants are now concentrating on smaller cities – such as Nagpur, Jaipur, Pune, Indore, Lucknow, Ludhiana and Chandigarh.

These and other cities offer them the opportunity of cheaper rents, the report said, as well as comparatively less competition and a local population that still regards mall-shopping as novel.

"High cost of operation, economic slowdown and wearing down of the novelty values have all combined to reduce the number of footfalls in the malls in big cities," said Rana Kapoor, president of Assocham.

"One of the main reasons for the high rentals in the big city malls is the exorbitant land prices and high development costs […] thus, in the foreseeable future, making such malls profitable ventures will remain a challenge," he explained.

Another advantage offered by tier-II and tier-III cities is the availability of larger plots of cheaper land, Kapoor added.

Also, as city residents and people living in the neighbouring rural areas become more accustomed to shopping options beyond the traditional, trader-run, standalone store, Assocham expected this trend, coupled with increasing prosperity, to boost retail growth.

It forecast tier-II and tier-III cities to register retail growth of about 15% per year through to 2015.

Data sourced from Assocham; additional content by Warc staff

 
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