Cheaper real estate, steady demand and better revenues are some of the reasons that are attracting fashion and beauty brands to set up shop beyond metros
New Delhi: Lee opened a store in Indore recently, Avantra by Trends launched its first store in Lucknow, Reebok, Hidesign and Beverly Hills Polo Club all opened stores in Dehradun. Many more fashion and beauty brands are looking at tier 2 and 3 cities to accelerate their expansion.
Tier 2 and 3 cities have been an important part of the expansion plans retail brands in the past couple of years. However, the trend has significantly accelerated in past few months, with fashion, beauty and lifestyle brands leading the charge. The markets beyond metros hold great potential and are expected to claim the largest share of retail’s contribution to the country’s GDP by 2030. As per a World Bank Report, retail in India is expected to contribute 8% to the GDP and 10% to employment by 2030 with maximum contribution from the tier 2 and tier 3 cities.
What’s attractingbrands to Bharat
The most obvious reason is that it makes sound business sense. The tier 2, 3 cities and 4 cities offer an untapped market that has a lot of potential.Consumers residing in small towns desire a good offline shopping experience, which was missing there until a few years ago. So when brands set up shop in such town, the sales exceed expectations.
A study of the top 10 emerging business destinations in India, conducted by Cushman & Wakefield, a global real estate solution provider, mentions the growth in tier 2 and 3 cities is aided by the increasing disposable income of the people that has created immense opportunities for companies looking out for new markets to grow.
Some of the key reasons that are inspiring brands to expand in these cities are:
“Online shopping has certainly given customers in tier 2 and tier 3 cities considerable exposure to branded clothing and accessories. Consumers have now aspirations for branded yet trendy clothing, which has opened the doors to untapped markets,” Deepak Bansal, director, Cantabil Retail India Ltd. that recently opened five new stores said. The new stores are located at Srinagar, Pune, Amritsar, Faridkot and Balia. Read more about them here. Cantabil, ventured into tier 2 and 3 cities back in 2016. “Since 2018, this expansion has accelerated significantly. Around 70% of our stores are in tier 2 and tier 3 towns,” said Bansal.
There is a growing demand of fashion, beauty and lifestyle products from non-metros driven by changing aspirations. It is being fuelled by the increased exposure, thanks to easier access to the internet. According to a report, in 2019, rural India had 10% more internet users than urban India.
“Tier 2 and 3 cities have untapped aspirational clientele with the high purchasing power to splurge on fashion trends, but they have a dearth of available brands as compared to metro cities. Due to this factor, the brands who enter the market at the right point in these cities as well as offer a premium product are more likely to generate higher revenue,” said Rahul Bhalla, co-founder and chief executive officer, Latin Quartersthat entered tier 2 and 3 markets in 2012 and since then has opened more than 170 exclusive brand outlets (EBO) and multi-brand outlets (MBO) in these cities.
Low cost of operations
Smaller markets offer a financial beneficial for brands due to the low cost of real estate. The real estate in such cities is cheaper as compared to metro cities, resulting in a high rent and revenue ratio.
In addition, there is also the availability of a talent pool at a lower cost further reducing cost of operations.
Most brands that have set up shop in tier 2 and 3 markets, have reported getting an overwhelming response from the consumers. And this has had a good impact on their balance sheets.
Swiss Beauty that is present across 500 cities in India said that it has managed to hold up 60% growth in terms of business in these cities.
“We are currently growing at 30% month-on-month and our aim is to reach the 100% mark by the end of this year. We garner 50% of sales via retail and we plan to maximize it this year,” says Saahil Nayar, chief operating officer, Swiss Beauty.
Sharing the experience of his brand in small cities, Bhalla from Latin Quarters said, “The absolute footfall will be lower as compared to a metro city, but the conversions are higher in the case of tier 2 and 3.”
“Tier2 and tier3 currently account for 65% of overall revenue,” shared Bansal from Cantabil.
Both brandshave been experiencing growth from small cities with tier 2 market being the most profitable.Encouraged by the outcomes, brands are looking to further penetrate unexplored markets of Bharat including tier 3 and 4.
Several brands from different categories including Cantabil, Swiss Beauty, Latin Quarters, The Ayurveda Co., Madame, The Body Shop are planning further expansion beyond metros.
Swiss Beauty that is currently present in over 9,300 doors looking at tier 2 and 3 markets to help reach the 10000 mark soon.
Cantabil aims to invest around Rs 25 crores to open 85 outlets in 2023, mainly in Tier 2, 3 & 4 towns, taking the total store count to around 540.
New brands like The Ayurveda Co. (T.A.C) also understand the importance of being present in these cities. Shreedha Singh, co-founder, T.A.C said that presence in tier 2 and 3 cities has been part of the launch plan and with plans to further explore the markets. With a presence of 140 counters in these areas, the brand has experienced better footfalls than expected.
The towns that are attracting maximum attention and investment are: These include:Dehradun, Bareilly, Allahabad, Jodhpur, Hisar and Ranchi among others.
Metro cities will always remain the holy grail but these cities will also be added to the focus points with major investment going to expansion in these cities.