Small town mentality

Tier II cities make way for start-up retail ventures as metros get too crowded.

There's a new mall opening in town and a Bollywood actress will inaugurate it. To Mumbaikars and Delhiites, that's not news: it's a daily occurrence. But Ramesh Jain lives in Rajkot and both the opening of a mall and the appearance of a film star are big deals.

His excitement is marked by Prozone Enterprises, a subsidiary of apparel company Provogue India. Last month, Provogue announced the launch of its first Prozone mall in Rajkot and Jain's favourite actress Amrita Arora was present for the launch.

And it's not the same mall you would find in big cities. Small town India is now playing host to several new brands and businesses that are still to make their entry into the metros.

Like Prozone, Raymond Apparel, too, introduced its first children's apparel store, Zapp, in a non-metro: Ahmedabad. Mobile Magic, a chain of standalone stores that deal with everything related to cellular phones, also started out in Nagpur and is only now moving to Mumbai. What prompts these retailers to look beyond the Mumbai-Shanghai dreams or the NCR (national capital region) belt?

New landmarks

According to a recent Ernst & Young report, non-metros (Ahmedabad, Kochi, Rajkot, Indore and so on) will play host to more than 80 new malls by 2007.

The report adds that the increasing awareness levels in tier II cities are eroding the urban aspirations lead of the metros and major brands are looking at these cities to increase their market penetration.

For instance, after Rajkot, Provogue plans to launch Prozone malls in other small cities like Mysore, Indore and Surat with a plan to develop 600,000 to 700,000 sq ft by 2008.

"Setting up malls in the non-metros is a profitable option, as India's consumption outside the six metros account for nearly 85 per cent," says Nikhil Chaturvedi, managing director, Provogue.

This consumption, retailers point out, is not restricted to a particular town. For instance, places like Guwahati, Siliguri and Sangli a are considered trading hubs for a cluster of nearby smaller towns. Retail opportunities include all other smaller towns and villages in that catchment area.

"Smaller towns have fewer choices compared to metros. But even though the percentage of the aspiration class is lower, non-metros have enough population to sustain organised retail development," says Bappaditya Basu, head, retail agency (West India), Chesterton Meghraj, a realty consultancy.

The possibility of increased footfalls apart, smaller towns also mean lower real estate costs. The final cost of retail space in tier II towns (including land cost, construction, legal costs and so on) works out to about Rs 15,000 a sq ft, compared to Rs 8,000-9,000 in tier III towns (Indore and so on).

Metros like Delhi and Mumbai, in contrast, would add up to nearly Rs 38,000-39,000 per square foot (source: OC&C Strategy Consultants). Raymond's initial investment was about Rs 40-45 lakh for the 2,000 sq ft Zapp store in Ahmedabad.

"For retailers looking at starting out in smaller towns this kind of investment and the significant size of the target audience is enough to provide business for initial players," says Naimish Dave, director, OC&C Strategy Consultants.

The first move

Heading for the hinterland has two pluses "" the first-mover advantage and a chance to build a strong loyalty base. Both Raymond and Prozone are determined to gain this first-mover advantage.

The Zapp store, for instance, has consciously maintained a western look and feel "" characters called Zion, Ashley, Posh and Pixel have been created to appeal to the different age profiles, likes and dislikes of the target audience.

"The Western look creates an aspirational level, while most children relate to the foreign names due to their exposure to international cartoon programmes," explains Raymond Apparel President Shreyas Joshi.

Zapp has initiated loyalty programmes for its customers, helping the brand "bridge the gap between need, accessibility and the desire to spend for non-metro customers, who usually shop on their out-of-town trips."

Of course, success will depend on the ability to attract and convert footfalls to sales. Prozone mall, which includes retail formats from a hypermarket to a fashion station, ensures that 85 per cent of its merchandise mix is developed to suit the needs of the local consumers.

It has also developed the interiors and parking area to suit the convenience of local consumers, so that they do not find the size of the malls too alien.

For instance, there are several traditional saree shops within the mall, with gaddas laid out on the floor. Says Provogue's Chaturvedi, "Those retailers who can catch on the local flavour will be in a better position to create brand loyalists."

On trial basis

The buzz and first-mover advantage around the brand also helps retailers understand if the product is being appreciated by consumers. "Smaller towns can also provide the grounds to test formats and processes, given the limited size, investment opportunity and less competition," says Dave. Raymond has certainly adopted that strategy.

"Before going national with Zapp, we wanted to test the product, and understand consumer preferences from emerging markets like Ahmedabad, where the consumer has the ability to spend and experiment with a new brand," says Joshi.

At present, the company is working on improving the product in terms of colours, sizes, styles and so on, based on consumer feedback. These changes will be incorporated before Zapp moves to 10 new towns like Pune, Mumbai and so on.

The pre-national launch tweaking isn't restricted to the merchandise. Store designs and business processes can also be changed based on the small-town experiences.

Mobile Magic, for instance, ensures local customers are comfortable in the one-stop mobile phone shops "" product features and prices are prominently displayed in the regional language.

"This helps our customers feel that the shops are created to suit their needs and they do not feel intimidated by the look and feel of the modern-format interiors," says Vijay Singh, CEO, Mobile Magic.