Since re-opening post lockdown, over the last four months, the retail industry has been witnessing a series of new trends. Apart from the essentials, there were certain categories which picked up sales as soon markets re-opened, but a major chunk took time to pick up pace. This sudden change in consumer behavior also opened new roads of opportunity to new markets apart from those in Tier I cities.
Mall developers and experts agree that smaller shopping centres in Tier II and beyond have better recovery rates in comparison to those in urban areas. In an attempt to understand and dissect these opportunities, PRC hosted a session called ‘Emerging Opportunities in Emerging Markets’ to know what’s working in Tier II and beyond, making these markets the next big thing. The key points of the discussion included:
- Emerging Opportunities in non- metro, Tier II & III and rural cities
- Digital impact in these areas
- Transformation driven by shopping malls
- Change in the organisational structure
The session was moderated by Shrirang Sarda, CEO & Managing Partner, Sarda Group. The panel included experts from both retail and shopping mall industry. The other members included:
- Darpan Kapoor, Chairman, Kapsons
- JP Shukla, Co-Founder & CEO, 1-India Family Mart
- Kirit Maganlal, Founder & CEO, Magsons Group, Goa
- Gopalakrishna Machani, Jt. MD, MG Brothers (Felicity Mall), Nellore
- Uddhav Poddar, MD & Group CEO, Urban Square
- Umang Mittal, Executive Director, PRM Real Estate Private Limited
The Emergence of New Markets
Talking about how mall developers see these emerging markets as new opportunities, Kirit Maganlal, Founder & CEO, Magsons Group, Goa said, “The thing which we look for in these markets is how different they are from the Tier I markets. The ground dynamics in both these places are extremely different. Tier I is a far more organised retail format which is an accepted norm, whereas Tier III cities – due to aggressive competition from local kiranas and mom-and-pop stores – involves a tectonic shift in mind. Of course the world is changing, aspirations are driving the growth trends, emerging markets will by larger shifts ensuring pendulum towards the organised retail. There are so many factors that drives regional retail in tier III markets, and that is the factor of mobility. People travel and see different things out of their markets and therefore they aspire for it in their own markets. Our markets are not driven by the copycat culture not as yet.”
Umang Mittal, Executive Director, PRM Real Estate Private Limited agreed saying, “The difference between the emerging market and the metros is the aspiration value that the people of smaller towns hold and the willingness to spend along with the ease of going out which in turns helps many brands gain traction in emerging markets. Aside from this, people in smaller towns use cash more than digital forms of payment – the ratio is 70:30 in favour of cash in small towns, and it’s reverse when you come to metros. Combining all these factors, one can safely say that emerging markets look attractive for retailers and developers.”
According to JP Shukla, Co-Founder & CEO, 1-India Family Mart talked about his company saying that they typically compete with the local sellers. “Initially we were present in Tier II & III markets only and recently have also moved to Tier IV. 1-India – being into the value segment, the ASP (Average Selling Price) of the garment is 270-300 only. Our distinction is that we make the class that we cater to, proud of the fact that they are shopping in a store, in a great environment provided by us. All our façades are red in colour and we go by the affectionate nickname Laal Mall (Red Mall) in small towns.”
Shukla said that the main challenge they face is to provide fashion at a price and ticket size that can be easily met by consumers in the areas they are present in, all the while ensuring that the need and desire of customers in these areas is well met.
“It is as difficult to meet the aspirations of those class of shoppers and their pocket size as it is to cater to Tier I cities.”
Uddhav Poddar, MD & Group CEO, Urban Square, Bhumika Group which is coming up with shopping malls in the Tier II state of Rajasthan and is further expanding in more Tier II & III markets expressed similar thoughts.
“We operate mostly in smaller towns of Rajasthan and what we have realized aspiration level in these towns is almost to the equal level in larger towns. The credit for this development goes to the Internet. The one difference in Tier II towns is the lack of basic infrastructure, and therefore for developers like us there is a huge opportunity. With the penetration of e-commerce into these regions, there is a strong demand from customers for big brands. But while brands want to come in these towns and expand, they don’t know where to set up shop. This is where malls come in. We provide brands with the perfect location and catchment areas to set up shop in. In larger towns, it’s about differentiation as there is so much retail already. In these cities, there is no differentiation. It is more about presence vs differentiation,” Poddar explained.
Gopalakrishna Machani, Jt. MD, MG Brothers (Felicity Mall), Nellore brought in another viewpoint from the mall developers perspective. “There are two aspects of this situation. First is the market difference and second one is the difference in the approach of the consumer. When we talk about rural, we see 70-75 percent of the Indian population in the rural location. More population means more potential. If we see to the GDP contribution from the rural regions, it is very low which is around 30-35 percent only. This rate however, opens the door to huge opportunity for us. The ORP (Organised Retail Penetration) is only 4 percent in the rural India and most of the market is driven by the mom and pop stores.”
- Market Difference: The definition of catchment area in the urban area is between 6-10 miles maximum, but in rural areas, a mall is usually located in the district headquarters and the catchment area can extend up to 70 kms/miles. Mall developers should include all these points, when they are in process to construct a mall in these regions. One cannot undervalue the potential of any region.
- Customer Difference: Even with lot of technology / online review platforms, the word of mouth is the strongest reference in the rural markets, in comparison to the urban buyer. The buying style of the rural customer is more value driven.
According to Darpan Kapoor, Chairman, Kapsons, “Despite having a catchment area of 35-50kms, rural market has limited population and it lacks floating population. If there is one big player in the region, there is no further room for anyone. There is no new customer base altogether. Also, the chances of full price ticket of the product/ garment in these places is very less and the season period is also very short. Getting experienced staffs, managing the infrastructure, roads, lights, parking all these things are difficult to maintain. Cost to make a good store in these markets is very high.”
Shrirang Sarda, CEO & Managing Partner, Sarda Group suggested that some tweaking needs to be done in the emerging markets as spending is not a big issue here. “Penetration more than differentiation is the other important point that needs to be focused on. To provide basis availability in these markets is the first priority.”
Opportunities & Challenges
On the opportunities and challenges which the shopping centre and retail fraternities have had to face in Tier II, III, IV regions, Kapoor said, “The opportunities are immense, but the only challenge is that the population is limited. The growth here will be gradual and we need to look into the consumer base, the type of market, lifestyle, type of community. One needs to research and only then enter the market.”
As per Machani, if someone from a smaller town wants to buy a premium product, it usually means a trip to a market in an urban area. “If we as mall developers create good retail stores and production in the catchment area for the regional buyer, then consumption will happen in small towns only. There is spending power in the rural areas, but it lacks consumption power. Creating the right size and right tenant mix is very important.”
Poddar highlighted the opportunity available in smaller towns where malls can be a good venue to socialize and hang out. “Building the infrastructure is the biggest opportunity for us. The other thing which I have realized is that each market is different in this region. For example, Alwar is purely value driven, but in comparison, in Udaipur we have seen expensive brands are doing much better than value driven brands. We are changing the brand mix in our malls according to the local market. In smaller towns, malls are the only destination for people to hang out. It creates good opportunity for all.”
Shukla meanwhile, emphasized on the importance of emerging markets being technologically equipped as there is a huge demand and consumption rate. “This is the time that brands in these markets should think of going Omnichannel, build an Omnipresence. This is the time to ensure this and start connecting with customers on the digital platform and give the services at their doorsteps and gives them experience of online also.”
Mittal highlighted certain set of challenges which need to be taken care of in these markets. “There is a convergence of opportunities in the emerging market for both developers and retailers. From the developers’ perspective, there is very limited organised retail space. There are places without sanctions, there are buildings without fire NOC, developers over there are not aware of the norms. With all brands wanting to go to Tier II and beyond, we developers help provide good infrastructure and the chance of success if retailers come to us is higher. As far as the retailers are concerned, for them the rent to revenue ratio is much better in the smaller towns.”
Both Shukla and Kapoor highlighted the rent to revenue ratio from the retailer’s perspective. Shukla said, “Rent to ratio will always differ on the kind of per sq ft sales by the brand which in turn widely varies from category to category. For example, a fashion retailer on an average does Rs 800-1000 per sq ft. Our sales to rent ratio should be around 5-6 percent bracket. This entirely depends on the area, city and province locations,” says Shukla.
“If the ticket value is less, footfalls are lower, operation expenses are high, then rent to revenue ratio sometimes may not be justified completely. Sometimes it totally depends on location to location,” stated Kapoor.
Innovations in COVID Times
COVID, the lockdown and the unlocking phase with so many restrictions from the Government amidst the pandemic allowed many retailers and mall developers’ time to re-strategize and focus on new innovations.
“COVID has helped us in leading to the changes that we wanted to do in the retail industry. We have started offering our consumers an option to send them the bills in form of a SMS link. Earlier 60 percent of our transaction were in the digital mode, and we are trying to make this to 80 percent by the end of this financial year. These are the things which we are continuously pushing for. We are doing lots of home deliveries and have converted them to e-bikes. We are no longer doing manual promotion and it is done via e-bills. Promoting mobile apps and e-commerce platform were some of the plus points for us, which we did in this period,” explained Maganlal.
“We have been working on innovations before COVID struck, for almost three years now. We came up with a model PRM Market City (60,000-1,00,000 sq.ft), it has hypermarket, food restaurants, cinema everything but it is low maintenance model. It is functional shopping and experiential dinning with a cinema, we have lower floors fully functional and higher floors are experiential in nature. This model worked a lot for us as we chose right locations to create the model,” said Mittal.
Shukla said that his brand really wants to take the Omnichannel experience door-to-door. “We also wanted to reach the consumer in remote areas and for this we hired transport loaded with low value merchandise – largely on hosiery fronts. We took these trucks to smaller towns and made people there aware that they could buy from here. Aside from this, we also started a mechanism to list things which the customer wants us to bring in these trucks on our next visit. We also worked on a video calling concept to understand what were consumers’ needs and demand,” he added.
“We have created a separate zone for the local retailers and created 100-200 small shops /kiosks with low cost maintenance inside the mall. The idea is to provide everything under one roof. Same we have done for food as well and have followed this concept in the next mall as well,” stated Poddar.
“After the first year of operations, we realised that customer loyalty to the brand is very unique and they are loyal to the mall as well. It is not about the discounts, but the emotional loyalty factor which connects a consumer to a mall. If a renowned brand leaves a mall, we don’t see the footfall going down beyond a point. We did an experiment by cutting the marketing budgets to zero and invested the amount in mall activities and décor,” stated Machani.
The Road Ahead for Emerging Markets
Going by the current scenario, the prospect of the emerging market is quite fruitful.
“If we talk about the north Bengal region, most of the areas here have not been affected as badly as most COVID cases are in metros. If we see the recovery also and going by the data provided by the brand, in the smaller towns, they are now touching 40-45 percent of pre-COVID business levels. Business has been going up since the month of September. The recovery rate has been faster for these markets,” clarified Mittal.
“We can look at the current scenario on few parameters. Option one is to consider this year as the gap year, and make the best of what you had. Option two is to look at the better alternative of it as we grow forward. In Goa, there is a world of opportunity to up the ante and build a robust infrastructure in the state on both retailers and mall developers perspective,” added Maganlal.
“Engaging as an industry is very important through SCAI. We know we have to be as a community together, today it really enforces the importance being an industry together, working with the government. Lots of malls need support who have debts to pay, but there are certain limitations which have been imposed on us. Creating a psychological environment will be the key. Smaller towns are not dependent on mass transit and that is a game changer from the retail prospective. Workforce population ratio will shoot up in the smaller cities,” Machani further said.
“We are an upcoming mall developer and both of our malls will be launched in 2021. What we have seen is that brands are still signing with us. We have not seen any re-negotiation of any rentals, so the future is definitely bright for emerging markets,” concluded Poddar.