by Mr. Shubhranshu Pani, JLL India
Currently, tier 2 & 3 cities account for a smaller
proportion of operational shopping malls in India. However, with rising
consumer aspirations and demand, the potential of these cities in terms of
retail real estate is increasing.
Both national & international retailers are
expanding businesses in these cities, and this is fuelling demand for organized
shopping spaces. While the major metro cities are continuing to launch bigger,
international-standard malls, tier 2 and 3 cities are currently graduating to
next level by initiation of shopping mall developments. There are notable
exceptions to this - Lulu Mall in Kochi is, in fact, the largest mall in India
as of today.
The more interesting part of this story is that because
the organized retail potential metros is rapidly reaching saturation point, the
next phase of retail real estate growth will happen in these smaller cities of
India. In particular, growth in tier 3 cities will be driven by cost advantages
in terms of lower land prices and therefore rentals.
Added to this the benefit of ecommerce where the smaller
towns are exposed to latest fashion will translate to better acceptability of
the newer shopping center brands / fashion brands.
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| Shubhranshu Pani, JLL India |
Both developers and retailers are targeting the untapped
tier 2 and 3 cities markets to gain first-mover advantage. Retail activity also
is widening in these tertiary cities due to increase in consumer purchasing
power, and there is tremendous growth potential for shopping malls.
Some the notable quality mall developments that have
come up in tier 2 and 3 cities over the last couple of years include Trillium
in Amritsar, North Country Mall in Mohali, Elante in Chandigarh and MBD
Neopolis Mall in Ludhiana.
These cities offer favourable opportunities to both mall
developers and retailers - not only in terms of lower land cost and rentals,
but also the rising consumerism, brand awareness and aspiration. However, it is
still early days for the organized retail developments in these cities. It will
take a few years more for penetration to increase and retail real estate to
mature, as these tertiary regions still lag behind in many ways and are not
free of challenges. Perhaps the most serious hurdles from a viability point of
view are the inherent political and social risks in many of these cities, but
it does not end there.
·Operational & Logistical Challenges..!
Physical infrastructure like roads and concomitant
facilities like power and electricity supply are among the major challenges in
Tier 2 and 3 cities. Mall developers have to keep their operating cost low in
order to attract retailers in these cities, but at the same time must provide
mall management and facilities which are on par with the metros.
There is also lack of quality support services in tier 2
and tier 3 cities, and these are essential for developing malls as well as
running them optimally.
·Infrastructure.!
Many of these
cities lack good infrastructure in terms of roads, power, water supply, etc.
This lack is, of course, a stumbling block for any kind of real estate
development potential - but we have seen that while Indians may put up with bad
roads and shortage in utilities back home, they expect malls to provide them
with all the facilities
·Tenant Mix..!
Mall developers need to get the tenant mix right in any
case, but all the more so in tier 2 and 3 cities. The trade and tenant mix
should be formulated keeping in mind catchments, local culture and shopping
inclinations of the consumers. Local flavour and brands need to be introduced along
with national and international brands.
Mall developers must especially ensure that
non-performing categories are not introduced in these cities. They must achieve
and constantly maintain a balance of attractive retail categories and high rent
paying categories. The number of brands willing to go to tier 2 and tier 3 will
be far lesser and hence the malls will be constrained by limited choice of
brands
· Providing An Experience..!
Even with e-commerce reaching practically each and every
nook and corner of India, the role of brick-and-mortar stores and shopping
malls remains significant. Physical retail formats provide consumers with a
'real' shopping experience and also entertainment and leisure activities.
Especially in tier 2 and 3 cities, shopping malls must
be positioned as experiential shopping destinations. Many mall developers in
smaller cities fail to achieve this vital positioning.
While launching a mall in a tier 2 or tier 3 city, it is
essential for the developer to have a well-planned concept and positioning of
the mall. Before entering the market, he must ensure that there is no
oversupply in the market. The quality of the mall needs to be in sync with the
consumer requirements and demands.
Once the mall is ready, it is essential to engage a mall
management agency to ensure smooth functioning. The developer also needs to
involve local media and marketing agencies with a well-targeted marketing and
publicity plan.
Mall developers please note , that India is many
geographies and culture- each city is a different culture and a different
consumption pattern. Please ensure the brands have fashion acceptable to the
local culture.
Guidelines For Retailers..!
While entering any market, it is essential for retailers
to understand and study local consumers' shopping habits. Local culture must be
integrated with global appeal - standardised formats will not necessarily work
in these cities. Retailer must recognise that there may be limits to the
purchasing power of the consumers in smaller cities, which makes capturing a
large consumer base by offering the right mix of product and price all the more
important. Consumption in tier 2 and tier 3 is significantly lower than the
tier 1 and that has to be factored in.
The markets are new , and the customer will take time to
experiment and explore with fashion there could be a waiting time in some of
the markets. Brands need to be patient. The acceptability of high fashion and
provocative fashion will be moderate.
About the author..
Mr. Shubhranshu
Pani, Regional Director - Retail Services, JLL India
For Media Contact
Arun Chitnis
Head – Corporate
Communications & Media Relations
JLL India,
Pune 411 001. Tel: (020) 30930441
Fax: (020) 40196101
Mob: +91 9657129999
Website: www.joneslanglasalle.co.in
Twitter:
JLLIndia_Realty
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