India -- Most of the sectors are complaining of reaching saturation levels in tier-I cities, which also includes even the fastest growing sector; telecom. This situation is making most of the companies; turn their eye towards the tier II and III cities, which have witnessed a growth in disposable incomes in the last few years.
Though sales may be high in tier-I cities, the profits delivered by outlets in tier II and III cities are higher due to their comparative lower costs of rentals and operating expenses. Tier I cities sales account for around 40-45 percent of a typical retailer, which means the remaining cake is shared amongst the tier II and III, towns and cities.
But at the same time urban cities continue to be the focus of attention of all retailers, irrespective of their product offerings, due to the fact that a smaller proportion of population with high disposable incomes is responsible for the 40 percent of all sales delivered by an retail outlets situated, for e.g., in any of the eight metro cities.
The growth rates delivered by stores in tier II and III cities are growing with each passing year as rural incomes have increased to a large extent, fuelled by high agriculture yields and galloping farm output prices. The consumers in tier II and III towns are also able to fulfill aspirations which also help fuel the boom in the retail sector.
The main point that retailers need to take care of, is that the consumer in towns and small cities are value conscious customers and expect the money they spend to last them a long way. So retailers will have to be extra careful while pricing their products, for e.g. lower priced shirts would move faster off the shelves than the high priced ones.
In the current circumstances, where consumer confidence is at its lowest and recession is taking a toll on sales of retail outlets in big cities, also add the saturation point that has been reached, the potential inherent in the tier II and III towns and cities, could prove lucrative in enlarging volumes in this period of crisis. |
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