Rising affluence and lower rents in small-town India will fuel the next retail boom

India’s small cities are on the cusp of a retail boom.
India’s small cities are on the cusp of a retail boom.
Image: Reuters/Danish Siddiqui
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India’s retail revolution is gaining momentum in the country’s smaller cities.

After years of opening stores in large cities and paying hefty rents, brands and mall developers are increasingly investing more in smaller cities, as lower rentals, experiments with new leasing formats, and aspirational shoppers drive growth in these markets, according to a report (pdf) by real-estate consultancy JLL India.

JLL listed 13 cities based on their population, per capita purchasing power, smart-city recognition, airport connectivity, and availability of real-estate to assess their retail sector potential.

Most of India’s retail brands are largely concentrated in the top seven metros of Delhi-NCR, Mumbai, Bengaluru, Pune, Chennai, Hyderabad, and Kolkata because of the presence of more affluent shoppers there. However, these cities have hit saturation as limited mall supply and a high concentration of existing retailers are prompting brands to look at newer markets, JLL’s report said.

To be sure, domestic brands already have a presence in smaller markets. Yet, the lure of newly-developed malls and the presence of successful high-streets is making brands, as well as investors, shore up their presence in these 13 cities. Among them, Jaipur and Lucknow have a healthy supply of retail spaces, while Chandigarh has the highest per capita purchasing power and Ahmedabad has the highest population. And it isn’t just malls that are getting the attention. Retailers such as Westside, Pantaloons, and Lifestyle have all stepped up efforts in the high streets of smaller cities.

As a result, between 2006 and 2017, retail projects in the country’s tier 2 and 3 cities saw investments of $6,192 million—more than four times the $1,295 million in metro cities—JLL estimates.

This includes investments by private equity fund Blackstone, which invested in Ahmedabad’s One mall, Elante mall in Chandigarh, and Treasure Island Mall in Indore through its Indian subsidiary Nexus Malls. Earlier this year, Virtuous Retail, which already has malls in Bengaluru and Surat, acquired another one in the northern Indian city of Mohali.

The country’s top retailers such as Kishore Biyani-backed Future Group and Tata’s Trent, which already have a presence in these newer markets, are also launching specific formats focused on value-conscious shoppers in these cities. More recently, Swedish fast-fashion brand H&M launched in Indore, Madhya Pradesh, validating the need for retailers that offer value and style to grow beyond the metros.