Small Towns, Big Trade

Ex­plain­ing why the fu­ture of brick-and­mor­tar stores lies in tier 2 and tier 3 towns of In­dia

Apparel - - Contents -

The past two years have fun­da­men­tally al­tered In­dia’s re­tail land­scape. Start­ing with the sin­gle most im­pact­ful event in the re­cent his­tory of In­dian con­sumers, and the na­tional eco­nomic pol­icy - de­mon­eti­sa­tion. The af­ter­math of this re­form dras­ti­cally shook up the con­sumers’ mind­set, con­sumers who were faced with the chal­lenge of sur­viv­ing a loss in cash liq­uid­ity un­like any­thing they had ever ex­pe­ri­enced be­fore. The ex­pected con­se­quences to con­sumer-spend­ing were ob­served well into the first quar­ter of 2017 as the USD 750 bil­lion mer­chan­dis­ing re­tail sec­tor be­gan to feel the pain, es­pe­cially so the sec­ond largest con­trib­u­tor to In­dian re­tail - ap­parel and fash­ion.

The sub­se­quent GST re­form pe­riod that fol­lowed, gave lit­tle con­fi­dence to con­sumers due to the early im­ple­men­ta­tion is­sues. But the sil­ver lin­ing was clear - dig­i­tal pay­ments, e-com­merce, and ef­fi­cient sys­tems were the fu­ture and the net ben­e­fits would more than make up for any short term in­con­ve­niences. How­ever, as is the case with most com­plex sys­tems, pre­dict­ing con­sumer pref­er­ences and be­hav­iour, is eas­ier said than done. The re­al­ity of the dig­i­tal In­dian con­sumer and In­dia’s e-re­tail­ing space is a promis­ing one, but it’s true growth in the brick-and-mor­tar seg­ment is far from com­plete, and even more so when it comes to some­thing as per­sonal as ap­parel and fash­ion sales.


The bulk of fash­ion and ap­parel e-com­merce in In­dia has been built by star­tups that have gone on to be­come ma­jor play­ers. Home grown brands such as Flip­kart have al­ready at­tracted the at­ten­tion of global giants (as the re­cent Wal­mart-Flip­kart deal has proven) for ac­qui­si­tion or col­lab­o­ra­tive part­ner­ships. There is lit­tle doubt that the fu­ture of In­dian re­tail is a lu­cra­tive op­por­tu­nity for play­ers, lo­cal and in­ter­na­tional. But in the con­text of dig­i­tal sales there have been new learn­ing by all stake­hold­ers that is demon­strat­ing that a pure dig­i­tal sales sys­tem isn’t sus­tain­able, es­pe­cially for a coun­try as di­verse as In­dia.

The num­ber of dig­i­tal shop­pers in In­dia is feared to have reached its sat­u­ra­tion point. Ac­cord­ing to com­ments from Darshan Me­hta, Re­liance Brand CEO, there are only 40 mil­lion In­di­ans who have made on­line pur­chases but more than 60 per cent have only done it once. This kind of stag­nated growth in con­sumer be­hav­iour trends is wor­ry­ing for many re­tail­ers as their in­vest­ment in the dig­i­tal is strug­gling to find re­turns at rates that they had ex­pected. And while In­dian con­sumers have leapfrogged tech­no­log­i­cal bar­ri­ers with the roll-out of af­ford­able In­ter­net con­nec­tiv­ity to be­come prime dig­i­tal cus­tomers, this isn’t true across all seg­ments.

In the fash­ion and ap­parel seg­ment, they still re­main true to the touch and ex­pe­ri­ence be­hav­iour model. In prac­tice, most In­dian con­sumers are dig­i­tally savvy while in­ves­ti­gat­ing and re­search­ing prod­ucts on­line but more of­ten than not, they end up buy­ing from stores. Ac­cord­ing to re­search re­ports from Ernst & Young, and Ace Tur­tle, In­ter­net-in­flu­enced prod­uct sales are around 34 per cent which is much higher than Europe with 10 per cent and the US with six per cent. This has not gone unnoticed by re­tail­ers who have em­ployed an omni-chan­nel shop­ping ex­pe­ri­ence that seeks to


ser­vice cus­tomers across the phys­i­cal and dig­i­tal chan­nels. This sim­ple and proac­tive step by re­tail­ers has shown great re­wards as cus­tomers who move be­yond just the phys­i­cal or dig­i­tal chan­nel tend to in­crease their shop­ping by a fac­tor of three to five times. They way for­ward is most as­suredly a hy­brid model of phys­i­cal and dig­i­tal - a sce­nario where the dis­tri­bu­tion of in­vest­ment be­tween the two can re­de­fine suc­cess and fail­ure for many brands in the com­ing years.


Ac­cord­ing to a 2017 re­port from Mor­gan Stan­ley, the In­dian on­line re­tail space is pro­jected to grow at the rate of 1200 per cent. This means that it will rise from USD 15 bil­lion in 2016 to USD 200

bil­lion by 2026. How­ever, this only in­cludes a rise from two per cent to 12 per cent when it comes to dig­i­tal re­tail sales. In con­trast, the brick-and­mor­tar phys­i­cal re­tail seg­ment is ex­pected to rise from USD 680 bil­lion to reach USD 1.1 tril­lion by 2020. It is also worth not­ing that ASSOCHAM es­ti­mates that the or­gan­ised re­tail seg­ment will grow at 20 per cent an­nu­ally dur­ing this same time. Given these trends, it is not sur­pris­ing that more and more fash­ion and ap­parel brands in In­dia are in­vest­ing in brick-and-mor­tar out­lets. But what is truly in­ter­est­ing is where these stores are lo­cated.

Tier II and tier III cities such as Bhubanesh­war, Chandigarh, In­dore, Jaipur, Kochi, Lucknow, Nag­pur, and Patna are now some of the big­gest re­tail store in­vest­ment des­ti­na­tions in the coun­try, ac­cord­ing to a JLL In­dia re­port. This is con­gru­ent with the in­vest­ment these cities have wit­nessed with re­gards to re­tail over the last ten plus years. Since 2006, the in­vest­ment in these cities has been over USD 6.1 bil­lion, while it has only been about USD 1.3 bil­lion for tier I cities. With in­creas­ing con­sumer spend­ing ris­ing in across na­tions, and the chang­ing de­mo­graphic trends, the fu­ture of fash­ion and ap­parel re­tail is clearly just blos­som­ing.

To ser­vice these grow­ing needs, some mar­ket lead­ers have al­ready be­gun in­vest­ing in this ris­ing con­sumer base to cap­ture a mar­ket share. Ma­jor In­dian brand Ray­monds, for ex­am­ple, has iden­ti­fied the gap in these mar­kets and is ac­tively work­ing at spread­ing its reach over the next year by 10 per cent. In fact, Ray­mond is set­ting up mini-shops in tier IV, V and VI towns as well to get ahead of the com­pet­i­tive curve. In just the first quar­ter of 2018, Ray­monds has set up over 40 such out­lets and has plans of 60 more by then end of the year. Sim­i­larly, dig­i­tal-only start-up com­pa­nies have re­alised the need to ex­pand their reach through non-dig­i­tal chan­nels and are tak­ing sim­i­lar steps. And given the high cost of es­tab­lish­ing a brick-and-mor­tar setup in met­ros, are spread­ing out their in­vest­ment in these ris­ing non-metro mar­kets.

Startup lin­gerie brand Pret­tySe­crets is one such com­pany which is start­ing to ex­pand be­yond its dig­i­tal ori­gins to es­tab­lish 60 ex­clu­sive stores and

con­nect with 600 re­tail coun­ters in 2018. Also, join­ing in this trend is Flip­kart owned fash­ion e-com­merce brand Myn­tra which is de­vel­op­ing 15 Esprit stores across the coun­try, while Zi­vame, the lin­gerie brand, is plan­ning on in­creas­ing its store count across cities from 26 to 100 by the end of the year. Among the big play­ers, in­ter­na­tional brands such as Zara is in­creas­ing its store dis­tri­bu­tion from its cur­rent 21, by up to eight more in the com­ing year. Sim­i­larly, H&M has al­ready es­tab­lished stores in cities like Raipur, Mohali, Hyderabad, and In­dore, and is now adding cities like Mysore and Ahmed­abad to its ever in­creas­ing chain of stores. This isn’t sur­pris­ing since H&M In­dia CEO Janne Ei­nola has stated that in the com­pany’s ex­pe­ri­ence the off­line chan­nel is still a ma­jor­ity sales driver.


It has be­come abun­dantly clear that dig­i­tal or phys­i­cal alone can’t win the mar­ket for fash­ion and ap­parel re­tail. How­ever, the strug­gle to ex­pand be­yond the metro mar­kets is no longer the big­gest chal­lenge that brands face. With the ad­vent of dig­i­tal­i­sa­tion and im­prove­ments in de­mo­graph­ics, there are more con­sumers than ever, out­side of met­ros. On­line re­tail­ing has shown that peo­ple out­side of met­ros are mak­ing the same pur­chas­ing de­ci­sions as those in the met­ros. From af­ford­able cloth­ing to lux­ury and sports brands, the in­crease in prod­uct dif­fer­en­ti­a­tion is al­low­ing peo­ple ev­ery­where to de­sire more. Ma­jor re­tail­ers are now strate­gi­cally look­ing at spend­ing pat­terns and con­sumer be­hav­iour to de­ter­mine where and how many stores will be the right move for them to en­sure their growth tra­jec­tory. In the end, we can rest as­sured that global brands will find their way into the most lo­cal parts of In­dia.



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