Small towns and cities are expected to drive the next wave of retail growth and have received five time more investments in retail infrastructure compared with metros and tier-1 cities in the last decade.

According to a report by consulting firm Kearney, tier-2 and -3 cities are hotbeds for growth, opening up opportunities for retailers to expand. These markets have witnessed faster evolution in growth in disposable income, mobile internet, and support infrastructure. In addition, the impact of Covid-19 on retail activity has been less severe in small towns and cities

Retail surge

The Kearney India Retail Index ranked more than 800 cities on their retail market potential. While the large metros including Delhi, Bengaluru, Mumbai, Chennai and Kolkata held the top five spots in the rankings in the index, cities ranked beyond 20 such as Kanpur, Ludhiana, Bhopal, Thiruvanthpuram, Ghaziabad, Kozhikode, Vijayawada and Bhubaneswar will drive India’ next wave of retail growth.

The report also pointed out that the contribution of metros and tier-1 cities toward the growth of India’s retail industry has been shrinking. “This is especially evident in the share of luxury retail spending, which grew from around 9 per cent in 2013 to 55 to 60 per cent in 2018 in non-metro cities, especially Jaipur, Udaipur, and Chandigarh,” the report stated.

“Over the years, most of the organised retailers have established strong presence in metros and tier-1 cities. The next wave of growth in retail will be led by emerging cities beyond tier 1 and emerging hotspots within metros and tier 1. It is imperative for organised retailers, across different product categories, to evaluate the optimal level of penetration across these markets”, said Siddharth Jain, Partner, Kearney.

‘Hidden gems’

The report lists agglomerates and cities like Faridabad, Kanpur, Vijayawada, Rajkot, Madurai, Kozhikode, and Nasik as hidden gems that are ranked significantly better than comparable cities with similar population and consumption patterns.

“Our index uncovered a number of “hidden gems”, with significantly high retail potential and brand demand but limited presence of organized brands to address the demand. One such example is Surat which is ranked in top 10, ahead of cities like Gurugram, Kochi, Lucknow, Nagpur. These hidden gems are a lucrative opportunity for retailers to unlock quick growth”, added Manoj Muthu Kumar, Principal, Kearney.