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WEALTH CREATION IS NO MORE RESTRICTED TO METROS. LEADING FASHION BRANDS HAVE DEVELOPED A LIKING FOR TIER II AND III CITIES OF INDIA. BUT WHAT IS IT THAT HAS CAUGHT THE FANCY OF RETAILERS, WHO, TILL NOW, HAD RESTRICTED THEMSELVES TO METROS?
GONE are the days when you had to travel all the way to big cities like Delhi, Mumbai or Bengaluru to buy an international product. No longer any new trend takes ages to trickle down to the smaller towns. With new-age technology and globalisation, small towns are high on the priority list of fashion franchisors.
Mohan Murjani, Chairman, Murjani Group, says, “Consumers in tier II and III towns are as aspirational as those in tier I. The awareness, exposure, aspirations and disposable incomes are all rapidly increasing. This offers the fashion brands a perfect mix to bring their brands closer to new consumers. The success of such forays has only strengthened and hastened this process.”
Motive behind the move
High disposable income, young entrepreneurs, saturation in metros, rising realty rates and reserve capital are the key reasons for the brands to intrude into tier II and III towns. The high-end fashion brands now want to move out of the confines of the metros to satiate the hunger of small town population.
What's driving brands to tier II, III cities? Let's look at the pull factors.
Realty vs fashion: The malls and multi-storeyed buildings gleaming in sunlight have been raised in a few days' time, say a few potential investors from small cities. The movers and shakers (real estate developers) of the small cities have a big hand in making them big. The real estate prices in big cities are directly proportional to the number of fashion brands present in the respective towns. As per Venkatachalapathy, COO, Arvind Brands, “BPO and IT industries are moving to tier II cities to reduce their operating costs to remain competitive compared to countries like Philippines and Vietnam, where the cost of labour is cheaper.”
With more and more malls coming up in the smaller towns, most of the fashion brands are simultaneously seeking partners in these towns. Gitanjali Gems' premium diamond jewellery brand, Gili, plans to expand its retail network in smaller towns even as it eyes a 50 per cent top-line growth this fiscal. The brand's focus will be on tier II and III cities, as it believes that the growth is coming in from there.
High disposable income and hungry set of entrepreneurs: Higher disposable income and easy access to internet and media have made smaller cities and rural areas the prospective hotbeds of growth for fashion brands. And the franchisors do not want to miss out on this big, untapped lucrative opportunity. Venkatachalapathy says, “For the first time in the country, the growth has been more inclusive. Since the base is small, the growth percentage in such towns are much bigger than cities.”
Mehul Choksi, Chairman and Managing Director, Gitanjali Group, says, “Tier II and III cities hold a lot of potential. They are well connected and are aware of the latest trends, thanks to the media. The talent pool available is in abundance and we see a lot of emerging entrepreneurs in these small towns.”
Saturation in metros: Finding space in metros at affordable prices is a herculean task. The recent consensus of fashion brands show that majority of them are making swift moves towards tier II and III cities due to lack of apt space available in the metros whether at malls or at high streets.
Reserve capital in small cities: With changing lifestyles and increasing awareness, the risk appetite of people from small towns has increased. Instead of investing in traditional assets like property and gold, they prefer taking franchise of a brand. Moreover, consumers in small towns are outgrowing the traditional mindset of saving. They have become more brand-conscious and are ready to experiment and indulge themselves. Also, potential investors prefer to take up franchise, as they do not mind in investing in a business, which is already established.
Caution is must
In the process of making the shift from metros, fashion brands do not want the franchisees to suffer. So, they plan a step ahead after proper research.
Murjani says, “We look at entering the best retail destination but with smaller store sizes and carefully thought-out product mix. It's important that the franchisee profitability is not compromised and the new consumers get the right exposure to the brand. In the absence of any good retail locations, we prefer to enter as a shop-in-shop (SIS) in a known department store (like Shoppers' Stop).”
Arvind brand's Venkatachalapathy says, “When we open stores in these cities, we ensure that we are in the main market and high streets, as it is difficult to get required walk-ins to the stores if it is away from these locations. Therefore, you may not get an ideal size and dimension of stores in such locations, as they are already overcrowded by small shops with narrow frontages.”
Roadblocks in expanding
Despite offering a vibrant opportunity, there are some roadblocks that prevent franchisors and retailers from entering these small towns. Primarily, infrastructure is a big block in the way of retailers, which is gradually improving but still has a long way to go. According to Venkatachalapathy, “Absence of trained manpower, reduced control on the operations of such stores when run by company, slower replenishment of stocks and lack of technology are some of the challenges faced in stores in tier II and III cities.”
Murjani avers, “Right location, right franchisee and right manpower availability are the big challenges, as we do not compromise our standards in smaller towns.” For Chowksi, “The major challenges faced are in terms of logistics, marketing issues and right location.”
A word of caution for franchisors who are in the dilemma of expanding in these cities, ignore them at your peril.