A combination of high rents and excess inventory as they downsize stores in India’s metros is leading major retailers to take a renewed interest in the nation’s lower tier cities where consumers are becoming increasingly brand aware.

A new report from commercial real estate business JLL, Urbanisation.Aspiration.Innovation: The new paradigm of India Retail, also highlights how both mall owners and retailers are having to re-evaluate their approach as online shopping and multiple consumer touchpoints render traditional metrics obsolete.

“Most retailers haven’t yet figured out how to grow and maintain brick and mortar profitability while trying to keep up with the likes of Amazon and Walmart-owned Flipkart,” the report notes.

There’s a clear need to develop a true omnichannel strategy, it adds, by making e-commerce “accretive” to the business with “modest” investments and “not the one that cannibalizes” sales at its physical stores.

And as retailers have cut costs by opting for smaller stores, they are having to rethink what they do with excess stock.

Once they would have shifted this via secondary channels such as discounters, but with suppliers reluctant to see the perception of their brands eroded in this way many retailers are instead looking to open in Tier II and III markets, where the brand presence is currently minimal and where real estate costs are up to 40% less than in Metros/Tier I cities.

The report notes that the fashion retail industry in these areas is expected to increase business by three times by 2025.

“Trends indicate that national and international brands are venturing into newer destinations in search of organised mall space leading to the development of large scale high-end malls, such as Lulu Mall in Kochi,” it said.

Consumers may initially welcome the new arrivals, but retailers will have to carefully assess what they offer and the price they charge.

As a partner at EY India notes, “High-end fashion available in cities may not appeal to customers residing in smaller towns.

“Prices also might be high for small towns, which will make it difficult for retailers to survive in these markets. While real estate costs are low, product prices and merchandise will play a large role for success in these locations.”

Sourced from JLL