The southern part of India comprising of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana is the largely recognized as the birthplace of modern retail. While the boundaries of the region extend to Lakshadweep and Puducherry, retail lives mainly in the urban and rural cities of South India. Around 70 percent of India’s richest population lives in these states, leaving apart the super-rich category, the middle and high income classes also are a prominent contributor to retail industry.
While Bengaluru, Hyderabad and Chennai lead the charts in terms of growth, revenue and retail infrastructure, the cities of Coimbatore, Kochi, Vizag, Vijayawada, Trivandrum and Madurai contribute more than $7,000 million worth of retail activity to India. The region accounts for over 10 percent of the country’s Gross Domestic Product (GDP) and around 8 percent of the employment.
South India has played a very important part in helping the Indian retail industry reach its current position of being rated as one of the most dynamic and fast-paced industries in the world. The total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017.
Currently, India is the world’s fifth-largest global destination in the retail space, with immense contribution from the south. The strength of South India lies in its uniqueness, traditional approach and robustness. The potential of the market here is immense for regional, national and international players. In fact, the region is dotted with innumerable regional brands, a large chunk of whom are extremely successful.
What Research Says
The year 2015 onwards has been a big turning point in as far as the Indian retail industry is concerned. The period saw new foreign investments entering the Indian market. Several global brands are choosing India as their next step for expansion and every month a new brand opens its store here. Investments in the segment by PE firms/ wealth funds started crossing the $200 million mark. Additionally, several retail developments were completed across select cities resulting in approximately 1.5 million sq.ft. of fresh supply entering the market. Demand for quality retail space remained robust with a majority of this supply concentrated in Mumbai, Bengaluru and Delhi-NCR.
While the gateway cities continue to witness interest from global retailers,several southern cities gained prominence for domestic and international retailers looking to establish or expand their footprint in the country. Bengaluru, Chennai, Hyderabad, Kochi witnessed vigorous leasing activity from the brands perspective both in shopping malls and the high streets. These cities saw various international brands opening their EBOs as expansion plans in southern part of India. Even Tier II cities and towns also saw a huge rise the in the store opening of national and international brands.
As per a CBRE report, Chennai and Hyderabad were among the top seven cities in India which witnessed an addition of about 1.9 million sq. ft. of fresh supply of international brands, launch of retail developments and sustained demand for space in 2018. While several international retailers chose these markets to expand their footprint in the country, domestic brands too expanded their presence here. Domestic retailers too were not far behind with several brands across segments expanding their operations in each of the cities. This included hypermarkets, F&B brands, electronics brands and evenentertainment chains.
ANAROCK, a leading real estate service company reports
– As many as 98 new malls (sprawling over 48 million sq. ft. area) are to enter Indian cities and towns by 2022-end
– Interestingly, out of this total supply, south Indian cities will host at least 34 new malls spread over more than 16 million sq. ft. area
– South Indian cities’ new mall supply is close behind the supply in their western counterparts, where at least 37 new malls covering 17 million sq. ft. area are slated to come up during the same period
– The southern region is far ahead of North India, where 21 new malls spread over approx. 11 million sq. ft. area is slated to come up by 2022-end.
Among the south Indian cities where this new mall supply will enter, Hyderabad tops the list. At least 12 new malls spread over 4 million sq. ft. area are set to enter the ‘City of Nawabs’ by 2022-end. Bengaluru and Chennai will see 9 malls each spread over more than 10 million sq. ft. area in the same period. Other prominent southern cities such as Kochi, Thrissur, Trivandrumand Wayanad will add one mall each.
What Makes the South Special?
South India is a true case study of how regional brands can indeed make and shape up an organised market of the international level, which is indeed attracting global retailers and investment today. Local players not only dominate the region but also lift up the status of small scale industries by taking it to the level of being more organised and convenient.Retail in South India is purely dominated by local players. No matter how the region has evolved by adapting to the global retail trends, yet, a homely retail experience, comfort of the native language along with familiarity with local culture and purchase preferences have been the driving forces for the growth of these retailers.
The neighbourhood regional shops or regional players tend to sell more than national and international retailers inmost of the areas. They tend to get most of the catchment due to quality to their product and the local understanding. These outlets, though they are established in small and unorganised space gets more consumers due to their consistency in product and price. They don’t even have to off er heavy discounts and offers to attract consumers.
However, the regional retailers who are into large format business have to improvise to match the big players in terms of services, discounts and other consumer engagements. The competition is tight and intense here. Most of the brands in South India have started their journey from scratch and lived up the decades to reach to the level of becoming a retail giant. There are several players from the apparel industry, who started from weaving silk by themselves and currently have stores and franchise globally. Most of top management of these retail chains has grown from the salesmen level, which entertain around 50,000 to 75,000 customers a day.
Rental is another aspect which has been favorable to the regional retailers in creating an identity of their own. Regional brands / chain stores spend less on rentals. The local markets are managed by the local authorities and decisions and other issues are taken care of quite easily. These markets are next in line of becoming an organised structure and it will open more opportunities for the retail industry in the region. These businesses need to incorporate a structured approach to expansion which allows them to leverage the phenomenal brand salience they hold. Some regional brands like Nalli, Pothys, Kalyan Silk, Saravana Stores, Naidu Hall, SM Silks, Bomanna Brothers, Chandana Brothers, CMR, RMKV, Emmanuval Silks etc. rake in an annual turnover of Rs 100 crore on a regular basis.
The South Leads the Way
There are various key elements that differentiate South India from the rest of the country and present retailers with unique challenges and opportunities. Higher literacy rates, lower population growth rates, and higher levels of urbanisation offer tremendous, untapped potential for retailers in South India. The diversity in language and ethnic and cultural practices, as well as higher price and brand sensitivity of customers, induce retailers to adopt distinctive retail strategies for different parts of the South.
Another element is customer engagement. It is said that customer focus is the key to retail success and he beauty of South Indian retail is in their method of customer engagement and level of interaction. Advanced backend information management and technology also plays an important role in the growth of the retail segment in this region.
Opportunities & Challenges
South India, due to its demography has enormous opportunity to grow and develop. Amidst opportunities, there are certain roadblocks and challenges which need to be addressed. Some of the challenges mentioned by the experts are: “Bringing traditional retailers into malls or on an organised platform is the one of the biggest challenges in South India. Everyone – be it fashion, food, entertainment or gaming brands – are in malls. Even online first brands, which have ventured into the physical space, prefer malls, but not traditional retailers. We need to give traditional retailers special treatment to make them believe that this evolved market is indeed going to help them. And bringing one brand in the mall is not the solution. We need to bring in a cluster of regional brands, say 10-12 in one place. A proper strategy in terms of positioning, frontage, visibility and space would certainly help in luring them to malls,” says Ali.
“While, the pure potential to tap is the one big opportunity, there are some challenges which we need to overcome including the availability of right retail properties in smaller markets, understanding of the franchise model etc. We at Easybuy are strategically following the steps to crack the code of tapping the untapped potential in these markets,” adds Aiyer.
“In this age of information and technology the entry barrier is lower for start-up brands, but competition is high. Differentiated offerings with higher value propositions will be able to make an entry and register their presence if there is consistency in both products and services. Additionally, people, material and regulatory costs are going upwards whereas the market is not prepared to spend more. So, start-ups must operate in a lean and frugal manner to begin with and add resources as they scale up,” states Agarwal.
Dominance of Local Chains
Family run regional chains are the other reason that traditional, regional retailers have made a great contribution to the changing face of south India retail. Using the franchise model, many of these retail chains have started entering new markets in the East including in the states of West Bengal, Odisha, Bihar and Jharkhand.
Retail chains such as MK Retail in Bengaluru, Ratnadeep in Hyderabad and Sri Murugan in Chennai are in the process of mulling expansion. Hypermarkets like Spar and Easybuy are setting up a low cost models of neighbourhood stores selling fruit, vegetables and bakery products along with fashion and apparels products. Coimbatore-based Shri Kannan Departmental Stores – which has outlets across cities such as Erode, Madurai, Salem, Pollachi and Tirupur – is also an established brand, a household name today. Chennai-based Sri Murugan Department Store and Kerala’s Varkeys Retail, the first mover in organised food and grocery retail in the southern state, is also extremely popular.