Tier-II and III cities take center stage in retail's next growth chapter: Industry Experts, ET Retail

Time of India

08-05-2025

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New Delhi: India's smaller cities are no longer playing second fiddle to metros in the retail growth story. As new malls open and digital adoption deepens, retailers are chasing rising aspirations and demand in Tier-II and Tier-III cities, seeing them as critical growth frontiers.Speaking at The Economic Times Great India Retail Summit 2025 happened in Mumbai, in a panel discussion titled 'Emergence of Non-Metros: Exploring Unexplored Frontiers of Retail', top industry leaders shared how they're tailoring strategies to unlock value from these evolving consumption hubs.Rajesh Jain, MD & CEO of Lacoste India, pointed out that premium brands can't take a one-size-fits-all approach in smaller markets. 'We operate only company-owned stores, not franchises, so when we go into a Tier-II city like Dehradun, Bhatinda, or Kapurthala, we assess whether the right target group (TG) exists and whether other premium brands are present,' he said.Citing a recent example, Jain explained how the physical location of a mall within a city matters significantly. 'I visited one city where a new mall was opening, but I rejected it because the catchment wasn't right, and the brand adjacencies weren't premium. Instead, I evaluated another mall on the other side of town,' he said, emphasizing the importance of choosing spaces that can offer a complete customer experience.Data also plays a role. 'Thanks to e-commerce and our own website, we can analyze pin code-level data to identify which cities are already showing traction for our brand. That helps us target our expansion precisely,' Jain added.He cautioned against oversimplifying the lower rental narrative in smaller cities. 'People often think Tier-II cities mean cheaper rents and higher profitability. That's a myth. The cost of goods, personnel, and store interiors remain the same as metros. Even rentals, when looked at as a rent-to-revenue ratio, may not be that favorable due to lower sales volumes,' he said.Rahul Shanker, Group CEO of Quest Retail, said the core of successful expansion lies in relevance. 'It's not just about which town or tier you're targeting. It's also about choosing the right portfolio for the right channel. For instance, in quick commerce, if you push your full portfolio, you'll fail. At The Body Shop, we launched a focused gifting segment in Q-commerce—and it's going through the roof,' he revealed.Even within metros, micro-markets differ. 'Our store in Mumbai's Palladium has design motifs that reflect that specific locality. The Viviana Mall store, just a few kilometers away, has a different cultural reference—but the brand tonality remains consistent. That's how you stay relevant while keeping the brand ethos intact,' he added.Karan Mehta, CEO of Easybuy, shared that understanding the regional context while offering fashionable yet affordable apparel is key. 'Consumers in smaller cities want trend-led products. They are aspirational, but price-conscious. The challenge is to balance design, pricing, and supply chain efficiency,' he noted.Kamal Khushlani, MD of Mufti Jeans, said they are actively tailoring collections for younger consumers in non-metros. 'Fashion is no longer restricted to metros. The youth in smaller cities are confident, bold, and fashion-forward,' he said.Talking about the importance of regionally customized inventory, Sameer Manglani, Partner at Meena Bazaar, said, 'Bhopal and Bhubaneswar might both be Tier-II, but their cultural preferences are different. You can't copy-paste your Delhi strategy and expect success.'Echoing this, Amitabh Suri, CEO of USPA Brands, pointed out the significance of team quality and store experience. 'You can't cut corners on staff training or interiors just because you're in a smaller city. The experience has to be uniform and high-quality to build trust,' he added.Sharing her thoughts, Gargi Singh, Head of Seller Business at Pincode, spoke on how hyperlocal commerce is enabling scale. 'With digital infrastructure improving and platforms enabling same-day delivery, brands are discovering they can build demand in Tier-II towns without massive physical retail investments,' she said.Anand Aiyer, CEO of Arrow, reinforced the importance of a true omnichannel approach. 'In these markets, your brand needs to speak across WhatsApp, regional influencers, marketplaces, and local activations. Store presence is just one touchpoint,' he noted.The panel concluded that India's non-metros are far from homogenous, and retailers must build city-specific strategies. The days of assuming smaller cities are merely 'metros-in-waiting' are over.'There are all town classes—Tier I to Tier III—within even a 5 km radius in a large city. Retailers need to rethink segmentation and relevance in a more nuanced way,' Shanker said.As India's consumption map shifts, retailers who combine data, local insight, premium experience, and digital innovation will emerge as the real winners.