Cities that saw maximum growth in 2018 included MMR, NCR, Bengaluru and Kolkata. A look by Anuj Kejriwal
Besides commercial office spaces, retail emerged as one of the most vibrant and fast-paced sectors in the country in 2018.
Among the major policy overhauls, the government further liberalised FDI early in the year. These interventions repositioned the Indian retail sector on the global map of investments, attracting a large number of top playersand further fuelling growth of organised retail.
The government’s decision to allow 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route was a definite crowd-pleaser that attracted giants like Walmart to make forays into the country.
The government is now thinking of further tweaking norms for retail trade – similar to SEZs – and enacting a 365-days working policy to help India climb higher on the Ease of Doing Business index among 190 countries.
Besides government policies, rapid urbanisation and digitisation, rising disposable incomes and lifestyle changes – particularly of the middle-class – also contributed to the growth of the Indian retail sector in 2018.
Thesector is now projected to grow from $672 billion in 2017 to $1.3 trillion in 2020. This is definitely an attainable figure if we consider one of the clearest measures of growth – namely the increasing focus on the retail sector by private equity (PE) players who invested close to $300 million in Indian retail in the first half of 2018.
The total PE investment inflow in the segment grew 54% in H1 2018 as compared to H1 2017, while the y-o-y share also grew to 9% (H1 2018) from 2% (H1 2017).
Online sales boomed in 2018
Meanwhile, online retail also witnessed exponential growth in 2018. As per estimates, e-commerce is expected to go on par with physical retail over the next 5 years, considering that e-commerce grew by as much as 23% to reach $17.8 billion in 2017. India is poised to become the world’s fastest-growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users in the country.
As did Tier-2 & Tier-3 cities
Another interesting trend witnessed in 2018 was that besides the top metros, tier-2 & -3 cities also caught a significant part of the entire retail growth momentum. They included Ahmedabad, Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Lucknow, Kochi, Nagpur, Thiruvananthapuram and Vadodara.
Realising the potential of these largely untapped markets, both domestic and international brands have started penetrating them via rapid online presence, followed by a gradual offline presence. The fact that 35% of luxury shopping sales come from tier-2 and tier-3 cities is urging the top brands to explore these markets.
Also, the lack of sufficient physical retail infrastructure in these cities is giving the e-tailing business an advantage – nearly 50-60% sales of e-commerce companies are generated from Indian tier-2 and tier-3 cities alone.
Out of the total new supply becoming operational in 2019, nearly 3 million sq. ft. area will be coming up in tier-2 &-3 cities. The cities that will see new malls opening in 2019 include Chandigarh, Dehradun, Lucknow, Ranchi, Rourkela, Solapur, Udaipur and Vizag.
Several factors are working in favour of tier-2 & -3 cities. While the metros face mounting challenges in the form of overall saturation due to lack of space, increasing rental values and escalating infrastructure woes, the smaller cities have been witnessing multiple infrastructure upgrades even as technological enhancements help create more awareness about brands, products and markets there.
In fact, the contemporary Indian shopper in tier-2 and tier-3 cities is more demanding and aware and has higher disposable income than ever before.
A large segment of customers are globe-trotters and this has necessitated a revolutionary change in the way the retail sector must adapt to tap into their demand.
One of the radical shifts in the consumption pattern of new-age consumers in smaller towns is that these shoppers are moving beyond the basics and seek to buy products available in the larger urban areas.
Therein lies a massive opportunity for retailers. Nearly 100 million people out of the 300-400 million-strong Indian middle-class currently resides in smaller towns and cities.
As per ANAROCK data, the cities that contributed most generously to the Indian retail growth story in 2018 included MMR, NCR, Bengaluru and Kolkata.
Besides the top metros, tier-2 & -3 cities including Bhubaneshwar, Vizag, Lucknow and Gorakhpur were other contributors.
Each of these cities was expected to have one major mall of area ranging from 60,000 to 3.50,000 sq. ft. operational by end of 2018.
Going by the current trends and predictions, the major metros that will outshine the rest in 2019 will be NCR, MMR, Bengaluru, Kolkata, Ahmedabad and Lucknow as far as brand expansion and new mall supply is concerned.
Following the underlying demand for both national and international brands in most of these cities, retail activity is likely to see a major increase.
In order to stay relevant, brands will take both the online and offline route to reach out to larger audiences given the fact that total consumption expenditure in India is projected to rise to $3,600 billion by 2020.
The author is MD & CEO, ANAROCK Retail
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