A large group of smaller cities, including Surat, Jabalpur, Raipur, Mangalore and Faridabad have emerged as the growth centers with their own consumer preferences.
“Over the years, most of the organized retailers have established strong presence in metros and tier 1 cities. The next wave of growth in retail will be led by emerging cities beyond tier 1 and emerging hotspots within metros and tier 1,” said Siddharth Jain, partner at Kearney, which released the report.
This is especially evident in the share of luxury retail spending, which grew from around 9% in 2013 to 55 to 60% in 2018 in non-metro cities, especially Jaipur, Udaipur, and Chandigarh.
Leading e-commerce players, too, have already realized the potential of expanding beyond metros and tier 1 cities. Around 65% of the leading apparel e-commerce platforms’ revenue, for instance, currently comes from tier 2 and smaller cities.
“Our index uncovered a number of “hidden gems”, with significantly high retail potential and brand demand but limited presence of organized brands to address the demand. One such example is Surat which is ranked in top 10, ahead of cities like Gurugram, Kochi, Lucknow, Nagpur,” said Manoj Muthu Kumar, principal at Kearney.
Several tier 2 and tier 3 cities boast favorable conditions such as unaddressed demand for organized brands, lower rentals and manpower (30 to 40% lower than top cities), increasingly dense populations and growing disposable incomes.
To put things into perspective, Kearney compared two cities, Ghaziabad and Faridabad in the NCR region that are typically thought of as fairly similar. In 2019, Faridabad’s per-capita consumption of footwear, clothing, and other goods was about 1.5 times higher than Ghaziabad but across the top 50 brands, Ghaziabad boasts 170 retail stores while Faridabad only has around 50.
Between 2006 and 2017, tier 2 and smaller cities received five times more investments, too, in retail infrastructure than tier 1 and metro cities, the report said.