These value fashion retailer, however, must tackle pricing as well as infrastructure hurdles
Having established a strong foothold in the tier II and III markets — which contribute over 75% to their revenues — value retailers such as V-Mart, V-Bazaar, 1-India Family Mart and Citykart are testing the waters in tier IV markets. According to industry experts, the value retail market in India is estimated to be worth Rs 400 crore, with organised players commanding merely 12.5% share. However, these players have seen robust growth in recent years on the back of their rapid expansion. V-Mart, for instance, grew its store presence from 108 in FY15 to 214 in FY19.
Value retail chains target customers at the bottom of the pyramid — typically those with monthly incomes in the Rs 10,000-25,000 range. The average bill size recorded by these players is Rs 750, while that of players such as Pantaloons and FBB is around Rs 1,800.
Tier IV towns are defined as towns with a population of 10,000-19,999. V-Mart has 40 stores in tier IV markets, 1-India Family Mart has 23, while V-Bazaar has eight stores. These players have set aside 20-25% of their new store budgets for tier IV towns for the next financial year. But these new markets have proven to be tough to crack so far.
Tailored for the market
To establish a presence in these newer markets, value retail chains have been altering their strategies. Citykart, for example, has cut down the size of its stores here. “Although the footfall is not low in these towns, the average bill size is lesser. Therefore, we opt for smaller-size stores and keep 20-25% lesser inventory here, compared to the tier II and III stores,” says Sudhanshu Agarwal, director, Citykart.
Meanwhile, 1-India Family Mart and V-Mart are customising their inventories for smaller towns to make products of lower ticket size, which see more traction, available. “We usually sell t-shirts priced at Rs 99-599, with 10 options in each category. In a smaller town, however, t-shirts costing Rs 599 don’t sell as much, so we keep limited options in that price range and offer more in the Rs 299 range,” says JP Shukla, CEO and co-founder, 1-India Family Mart.
V-Mart also plans its inventory for these towns keeping in mind the local festivals. The company keeps more ethnic wear products in these towns, compared to the larger markets, shares Lalit Agarwal, CMD, V-Mart Retail.
Since the reach of print media is limited in these towns, value retail chains usually engage in BTL activities. “We organise store-level activities like drawing, singing, dancing and fashion shows to develop direct contact with the customers,” says Hemant Agarwal, CMD, V-Bazaar Retail.
Some like 1-India Family Mart make use of small commercial vehicles, like Tata Ace, to organise fashion shows and dance performances, or to make announcements. “We also display our brand on e-rickshaws and tie up with small shop owners for co-branding, as these towns don’t have proper hoardings,” Shukla adds.
Pricing is not the only challenge for these players in tier IV towns, experts say. According to Devangshu Dutta, chief executive officer, Third Eyesight, concentration of demand could remain a problem for retailers in these towns, since the population and their disposable incomes are lower.
“Managing these stores which are located deeper in the country is also a challenge. Keeping management and operations costs lean is fundamental to their success. The more they spread across smaller towns, the more difficult it becomes to keep it lean and efficient,” Dutta adds.
He suggests that following a cluster-based approach for expansion could help retailers target a similar set of consumers and keep costs low.
The lack of suitable real estate could throw a spanner in the works, cautions Rajat Wahi, partner at Deloitte India, as these players try to expand their presence here. “There are no malls or high streets in these towns; the companies have trouble finding good space and have to negotiate separate deals with property owners, set up parking spaces, etc. Therefore, cost could shoot up,” he adds.
Besides, experts say, the proliferation of e-commerce in this part of the country could be a real threat for these players in future.