City Classification for Retailers

Sep 16, 2007

I have found very good classification about the cities in India for retailers. This report will help you know about the people discretionary income and disposable income in Indian cities in classified ways.
Cities where BPO and ITES spread more will normally have more discretionary income. Fifty cities are taken into consideration as these cities have more than 1 million populations. Fifty cities with more than one million people are classified into these five categories: maturing cities, transitional cities, highgrowth cities, emerging cities, and nascent cities.

Here is a look at what these classifications connote for buyers, retailers, and mall developers.

Maturing cities

The two members in this category include, the national capital region of Delhi and Mumbai. Together, these two markets account for 50% of India's organised retailing. By 2008, they are expected to still account for 40% of organised retailing.

According to the JLLM report, growing supply could result in saturation in some pockets of these two markets. Nonetheless, they still offer opportunities to mall developers. One, there is opportunity to develop large one-stop malls that combine retail, entertainment, eating and hotels or service apartments. Two, there are opportunities for developing malls that house only luxury brands.

Most luxury brands today operate out of five-star hotels and are on the lookout for space in malls that offer them the appropriate ambience. Three, there is opportunity for developing malls that house hypermarkets. Four, there are opportunities for developing neighbourhood malls. At present, most of the malls are situated in very distant localities and are not accessible to a lot of people. And finally, there will be opportunities for developing malls in the suburbs, where income levels have gone up because many IT/ITES companies have set up base there.

Transitional cities
These include Bangalore, Kolkata, Hyderabad, Pune, Chennai and Ahmedabad. While the organised retail segment is much smaller in these cities compared to Delhi and Mumbai, they are firmly on the radar screens of retailers and developers because of their large and growing middle class. By 2008, the six markets are expected to account for one-third of India's organised retailing.

Retailers are attracted to them because of their vibrant corporate sectors, high economic growth rate, and large middle-class population. Moreover, land and construction costs are much lower here than in Delhi and Mumbai.

As with the maturing cities here too the opportunity lies in developing large one-stop malls, speciality malls, neighbourhood malls and hypermarkets.

High-growth cities
This category includes Chandigarh, Jaipur, Ludhiana, Lucknow, Kochi, Surat, and Vadodara. Retailers perceive these cities as the next retail destinations. High income levels and a high level of brand awareness are factors that attract retailers to these destinations.

In this category, Ludhiana in Punjab has emerged as the favourite of both retailers and mall developers. Income in these cities are well above the national average and awareness of international brands is high because of the presence of a sizable NRI population.

Most high-growth cities are located in North India, with the exception of Kochi, which has in recent times emerged as the favored destination of the IT-ITES sector.

Emerging cities
This group consists of 16 cities that are likely to emerge as the growth markets over the next three years. These cities include Amritsar, Indore, Jalandhar, Mangalore , Nasik, Bhubaneshwar, Agra, Vizag, Coimbatore, Nagpur, Kanpur, Goa, Allahabad, Mysore, Jamshedpur, and Thiruvananthapuram.

Rising incomes and hence aspiration levels, scarcity of branded stores and growing corporate activity are some of the factors driving the demand for organised retailing in these cities. In many of these cities, ITITES companies are expanding their workforce and this in turn is providing an incentive to organized retailing.

These cities provide property developers with the most interesting opportunities as demand exceeds supply. Some of the cities in this category such as, Amritsar , Agra and Goa are important tourist destinations.

Another significant characteristic of these smaller cities is that their economic growth rate (on a smaller base) is much higher than that of the bigger cities. On account of low property costs, lower salary levels and high brand acceptance, retailers are able to achieve much better margins in these cities. At present, retail formats in these cities are smaller - ranging from one lakh to 1.5 lakh sq ft, compared to five lakh sq ft in the major metros.

Nascent cities
There are 19 cities in this category: Patna, Bhopal, Meerut, Asanol, Varanasi, Kolhapur, Sonepat, Madurai, Rajkot, Jabalpur, Dhanbad, Vijaywada, Srinagar, Panipat , Aurangabad, Solapur, Ranchi, Jodhpur, and Guwhati. At present, income level as well as corporate activity is low in these cities, as is the level of organised retailing.

Nonetheless, pioneering retailers and mall developers, who want to profit from the first-mover advantage, have put these cities on their watch list. Already, Pantaloon's Big Bazaar store is present in many of these cities, while developers like Prozone have already forayed into cities like Aurangabad and Rajkot.

It is apparent that organized retailing has a long way to go and opportunities are available to mall developers across the country.

Source: Retail boom entering smaller cities

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