Shopping malls are surging in metros but e-commerce threat looms over Tier-II, Tier-III cities: Report

One of the key reasons for the growth of e-commerce in non-metro cities is the lack of physical outlets, says report.

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Shopping Malls are surging in big metros but e-commerce threat looms over Tier-II, Tier-III cities, says a newly released . According to a from real estate consulting firm , while e-commerce and brick-and-mortar stores continue to co-exist, e-commerce currently has an edge over physical retail in tier II and tier III cities.

The report – ‘Rebirth of Retail Malls: New, Improved and Revitalized’ – which was released at the India Retail Forum (IRF) on Wednesday, says that India’s tier-II and tier-III cities will also be key contributors to the country’s retail growth going forward. The organized retail market is growing at CAGR of 20-25%.

“Nearly 100 million people out of India’s 300-400 million-strong middle class currently live in tier-II and tier-III cities. This indicates that a significant portion of Indian retailers’ target clientele lives in the non-metro cities. In cities such as Jaipur and Surat, household incomes are expected to cross Rs. 800 billion and 26 other cities will cross Rs. 400 billion by 2020,” said ” said Anuj Kejriwal, MD & CEO – ANAROCK Retail.

Kejriwal added that considering the rising purchasing power and the consumption pattern in these cities, the slow deployment of physical organized retail was worrisome.

Tier-II cities alone received investments of more than $6,000 million between 2006-17 and tier-III cities received around $500 million. Tier-I cities collectively saw $1,300 million investments in the same period. The numbers speak for themselves, said the report.

“Investors and mall developers are beginning to realize the massive potential of these ‘smaller’ markets and trying to make their presence felt,” says Kejriwal. “However, the speed of quality retail deployment must pick up a considerably faster pace to leverage the huge opportunities India’s tier-II and tier-III cities offer,” he added.

One of the key reason for the growth of e-commerce in non-metro cities is the lack of physical outlets which is allowing e-commerce to flourish in these towns and cities, said the report. “This main competitor to physical retail is growing rapidly and is expected to cross $100 billion of value by 2020. The major share of online shoppers in India includes millennials (Gen-Y) aged 18-35 who currently account for 34% of the population. The high purchasing power of this online shopping population is insufficiently tapped in these cities due to the lack of good quality physical retail spaces,” said ANAROCK.

The report accepts that while retail sales density in smaller cities will be lower than in metros, adoption of innovative models and diverse product mixes assures retailers not only of survival in tier-II and tier-III cities but also of steady growth.

On a larger scale, the report confirms that the Great Indian Mall Story is alive and growing rapidly. As much as 91% of retail sales in the country are driven by brick-and-mortar stores in India.

With respect to the quality of the operational mall stock, around 40-45% meet ‘good quality’ requirements, 30-35% of them are in the mediocre range, while the remaining in the weak category. In the next 5 years, good quality stock will increase by 10-15% while the mediocre and weak stock may decline by 5-10%, respectively, said the report.

The report also examines the syndrome of failed and struggling malls and envisages re-inventing strategies for retail malls to strengthen their positioning in the evolving digital era. It makes a strong argument for the technology imperative as physical retail’s only viable means to counter e-commerce competition.

The report asserted that in a country like India that boasts of a population of 1.35 billion and the rapid adoption of the tech-savvy culture, modernization and innovation are critical for the survival of brick-and-mortar stores.

“The advantage that physical retail has over e-commerce is essentially the ‘experience’ factor. By uniting conventional methods with key success elements of digital experience, brick-and-mortar retailers can offer consumers an experience surpassing that of online shopping,” said the report.

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