91% Indian retail sales driven by brick-and-mortar stores, but smaller cities remain underserved
Good quality mall stock to increase by 10-15%; mediocre-to-weak stock to decline by 5-10%
While brick-and-mortar and e-commerce stores will continue to co-exist in India, e-commerce today, it has a definite edge over physical retail in tier II and tier III cities of India, warns ANAROCK Retail’s report ‘Rebirth of Retail Malls: New, Improved and Revitalized’. The report, mentions that India’s tier-II and tier-III cities will be key contributors to the retail growth in the future of country. The organized retail market is growing at CAGR of 20-25%. Around hundred million people out of India’s 300-400 million-strong middle class family are living in tier-II and tier-III cities. Thus, significant portion of Indian retailers’ target clientele lives in the non-metro cities. Cities of India 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. Considering the rising purchasing power and the consumption pattern in these cities, the slow deployment of physical organized retail there is worrisome.
Tier-II cities alone received investments of more than USD 6,000 million between 2006-17 and tier-III cities received around USD 500 million. Tier-I cities collectively saw USD 1,300 million investments in the same period. The numbers speak for themselves.
Investors and mall developers are beginning to realize the massive potential of these ‘smaller’ markets and trying to make their presence felt. 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.
According to the reports, lack of physical outlets is allowing e-commerce to flourish in these towns and cities. It is growing rapidly and is expected to cross USD 100 billion of value by 2020. The major share of online shoppers in India includes millennial (Gen Y) aged 18-35 who currently account for 34% of the population. The high purchasing power of online shopping population is insufficiently tapped in these cities due to the lack of good quality physical retail spaces.
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.
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.
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.
In the final analysis, 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.
About the Author
Anuj Kejriwal is MD & CEO at Anarock Retail. He is CEO & Managing Director for ANAROCK Retail, the retail division of ANAROCK Property Consultants headed by real estate industry stalwart Anuj Puri. ANAROCK Retail is the result of a strategic partnership between ANAROCK and Faithlane Property Advisors, which was launched in 2017.
Overall, he has 13 years of hands-on experience in advising domestic and multinational retail property owners, occupiers and investors. At ANAROCK Retail, he aligns the retail business to ANAROCK’s first-in-industry business models to dovetail with the overall operations and consequently deliver a unique bouquet of services to its retail clients.