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MRICS: Transforming retail and driving demand in underserved retail market in Tier II and III cities

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The retail landscape in Tier II & III cities is undergoing a change with retailers waking up to the untapped potential in these underserved markets. Local developers, encouraged by the interest shown by more and more retailers, are planning and developing large mixed-use developments starting with upgrading the retail infrastructure in these areas. Cases in point include the DB Mall in Bhopal, which is running successfully, and the upcoming in Udaipur.

In an exclusive chat with Shopping Centre News, , , talks about his experience of planning and developing upcoming malls in state capitals like Bhopal and Dehradun and Tier II cities across Jallandhar, Udaipur, Kanpur.

From a mall developer perspective, how do you choose a location for expansion/ launch in Tier I, II & III cities?

The selection of the location is perhaps the most critical decision a developer takes in the entire lifecycle of the project. The location is chosen based on several parameters. A few key points must be kept in mind while selecting a location in Tier II & III cities:

– To select a location, it is important to understand the city’s real estate development historically and an in-depth understanding of the city’s future planned growth. The starting point to develop this understanding is a detailed analysis of the city’s master plan. The master plan helps to identify the city’s future growth corridor (the direction in which the city is likely to expand) and all planned residential and commercial destinations. The development of infrastructure to support the residential catchment and commercial districts is also detailed. In other words, it helps identify areas where you could potentially plan a shopping centre.

– Informal feedback from key retailers is very insightful. Retailers have an in-depth understanding of retail shopping centres, high street markets and retail destinations in the city. They can intuitively tell you if the location has the potential to be developed as a successful retail destination. Their feedback helps the developer plan a product mix, positioning and the size of the development at a proposed location.

– In addition to accessibility of the location by the existing catchment areas within the city, it is very important that the location be accessible to people from smaller neighbouring towns. This secondary catchment is essential to the success of shopping centres in Tier II & III cities since they constitute up to 30 percent of the total number of shoppers.

– Lastly the competitive landscape must be carefully mapped to understand the existing supply and competition from other shopping malls / centres accessible to the target area and catchment. The overall positioning, zoning and tenant mix is influenced by the competition to a very large extent.

What is the reason mall developers choose Tier II & III cities?

Retailers have been mostly focused on and very aggressive in large metropolitan cities like Delhi NCR, Mumbai, Pune, Bangalore, Hyderabad etc.

These are compact and densely populated markets that are easy to serve. It is only recently that they have started to expand their operations in underserved Tier II & III cities.

For example, the spending power and the aspirations of the people of Central India in larger cities like Bhopal, Indore, Udaipur etc. to name a few, is comparable and on par with other cities and state capitals in India. The retailers are now waking up to the market size and the consumption potential of these Tier II & III cities.

The retail infrastructure represented by high quality shopping centres, state of the art multiplexes, supply chains and warehousing facilities and quality manpower is currently underdeveloped in Tier II & III.

The high consumption potential combined with the lack of quality shopping centres and retail infrastructure the Tier II & III cities represent a huge untapped opportunity for retail and commercial real estate developers.

How different is the retail catchment in these cities in comparison to Tier I and Metro cities?

Metro and Tier I catchment in terms of adopting the latest fashion trends, brands etc. are far ahead of their small-town cousins in Tier II & III cities. The small-town shopper is a far more value conscious and cautious in terms of spending in comparison to his counterpart from a Tier I / Metro city. In smaller towns, people come in groups – families, friends, relatives –and then there are shoppers who come from adjoining cities where retail shopping experiences are limited. However, in the Metro and Tier I cities you will find a greater percentage of nuclear families, couples and individualsshopping.

In smaller towns, people tend to spend more time per outing to a shopping centre in comparison to their Metro cousins. This has design implications and common areas and hangout areas have to be designed and planned very carefully. The common areas become a very important source of entertainment. Areas need to be earmarked for selfies and features that attract and entertain children and parents alike like dancing fountains etc.

Are there separate marketing strategies for different cities?

Yes, we do. The location, the catchment, the size of the development, the demographic profile, lifestyle indicators, consumption patterns, supply of retail at competing locations and shopping habits definitely differ from city to city and infact even within the same city.
These factors impact the positioning of the mall and therefore the zoning and the tenancy mix to serve the identified catchment. Shopping centres can be positioned as ‘City Shopping Centre’, ‘Neighbourhood Mall’, ‘Highway Destination’, ‘Luxury Mall’ or an ‘All Under One Roof ’ integrated retail, entertainment and F&B destination to cater to the entire district. The marketing strategies differ based on the positioning and the target catchment.

What attracts crowds more in Tier II cities – shopping or Family Entertainment Centre (FEC) segments?

The FEC is a footfall multiplier and so is the ‘Multiplex and the Food Court’. The mall offering is incomplete without all components including Retail. Some people come to watch a movie, others are attracted to the food offering and sometimes catch a movie also. Some simply come for shopping and end up eating at the food court. The FEC, Food Court, Multiplex in the development all act as footfall multipliers and increase the footfall and the frequency of visits of the shopper to the mall.

Do you think international brands make for good business in smaller cities in comparison to national brands?

International brands are extremely sought after and considered very aspirational. Media including social media has made the shoppers very aware of all the latest trends in food, fashion and brands. Today people in smaller towns are far more experimental and willing to experiment with different types of cuisines and adopt the latest in fashion and brands.
The aspirational appeal of international brands is as strong in Tier II & III cities as it is in Tier I cities.