With standard business coming in from metros, high-street fashion brands are looking for greener pastures in non-metros. So far, the move seems to be paying off, but there is still a long road ahead
It is a great time to be a consumer given that every time you access the internet, there is some sale to be excited about, some discount that makes the product seem worth it or some brand you wish opened up a store near where you are — something you probably only might have online access to at the moment.
When earlier, consumers were fit into a passive role for the longest time wishing they had easier access to a brand, thanks to digital and social media, they now are able to provide feedback and suggest areas/cities where they would like brands to have a presence. And brands are listening. Not to discount the fact that brands still would have done it keeping their expansion plans in mind, but it helps if the demand is in place too. Remember the frenzied crowd pumped about store openings of, say, Zara or H&M in India? Fashion (apparel and footwear) is projected to grow at a CAGR of 13% from 2015 till 2020 as per EY’s India’s Growth Paradigm report. IBEF’s Retail Industry in India informs that the country’s retail market is expected to grow at a CAGR of 10% to touch $1.6 trillion by 2026. For brands, this means tapping not only metros, but also the large population of aspirational consumers in smaller towns and cities.
Small town story
H&M currently operates 29 stores across 12 cities in India — New Delhi, Mumbai, Bengaluru, Hyderabad, Pune, Kolkata, Amritsar, Indore, Coimbatore, Chennai, Raipur and Mohali. To boost its Raipur store opening, the brand ran an inaugural offer encouraging consumers to make purchases worth Rs 3,500 and get Rs 500 back in the form of a gift card. A similar strategy was adopted for the Ghaziabad store launch. According to company officials, the Q3 results for H&M India were to the tune of Rs 700 crore. It now plans to start selling online in 2018. Also, consider Marks & Spencer which has 61 stores across 27 cities in India; this is counting the edit stores (focussing on menswear, lingerie and beauty), which have a smaller footprint. Marks & Spencer Reliance India currently has 19 stores in tier II cities. These markets are estimated to ring in a fifth of total sales for the brand in 2017-18. The brand also has a big play through online marketplaces like Amazon, Ajio and Myntra, with them contributing 44% to online sales. To reach its customers in tier II cities, the brand uses print and outdoor advertising, in addition to conducting activations in stores in the key footfall areas or inside a mall.
Mohit Bhayana, head of retail for the brand shares, “We find that each market operates very differently, so we are required to ensure that we adapt our offer to reflect each market. For example, M&S Kochi offers 15% more menswear lines to reflect 42% menswear sales. We also ensure that we have linen on offer all year-round given the climatic conditions.” Forever 21 (under Aditya Birla Fashion and Retail) has 20 stores across tier I and tier II cities and has recently opened its 21st store in Indore. The brand counts 18-24 year-olds as its core consumer segment, with 25-34 years forming the secondary target group. The brand recently conducted a six-city tour as a promotional activation, which allowed consumers to interact with YouTube celebrity Vidya Vox. Each city concert was preceded by a fashion show by Forever 21 showcasing its latest collection, in stores.
Rahul Jhamb, brand head, Forever 21, shares that with the economical surge in tier II cities, the focus is on emerging fashion markets. “As far as non-metros are concerned, we are evaluating the key markets of India carefully in terms of their fashion readiness for the fast fashion western wear segment and then making strategic decisions to open stores,” he adds. The enthusiasm for non-metros is not without reason.
According to Kotak Wealth Management’s The Indian Ultra HNI: Optimism Uninterrupted, smaller cities are playing a considerable role in the growth of the number of ultra HNIs. This is good news for luxury retail brands, among others, looking at non-metros for expansion. EY’s report also finds a new class of cities defined by their rising cumulative household income. As per the report, the top 10 untapped markets are cities like Jaipur, Jamshedpur, Kota, Mysore, Nagpur, Raipur, Trivandrum, Vadodara, Vijayawada and Vizag.
Facing the roadblocks
While in apparel, the skew in terms of growth is in favour of men, consumption by women is fast catching up. Avendus Capital’s Women’s Apparel: Landscape in India finds the market share of the top 10 cities is set to decline from 45% to 30% in the next seven years to a decade, as compared to the other tier I and II cities. As the top cities move towards saturation levels, tier II cities provide brands with consumers that have a high discretionary spending capability and an increasing consciousness towards fashion.
Currently, as per estimates, the top 10 cities account for almost 70% of the branded apparel sales. This enthusiasm for expansion is also due to certain constraints that exist in tier I cities, among which feature the lack of available space in malls, increasing rental and land prices being contributing factors. Alagu Balaraman, partner and MD, CGN & Associates, notes that urban migration is not restricted to the first seven metros anymore, and that tier II and tier III cities are clocking a GDP growth exceeding the national average and higher than metros. He adds, “E-commerce may be small in total volume compared to all retail, but these cities already account for around 50% of sales. Most new customers are from smaller cities and rural areas.” The challenge here is to get a strong understanding of consumer preferences in terms of style and design, in addition to getting the pricing right.
Amit Gugnani, SVP fashion — textiles and apparel, and engineering, Technopak, further elaborates that it isn’t merely about setting up shop in a tier II city and expecting revenues. “Development in tier II and III cities is challenging as the target audience is in the process of changing their buying and consumption patterns,” he says. “They have a strong value-for- money orientation and a more conservative financial outlook as there is a fine line between what they aspire for and the price they are willing to pay for their aspirations.”