Retailers eye tier-II cities to spread wing

With most global cities saturation point, retailers are now spreading their wings through second- and third-tier cities where consumers are ready to embrace Western-style retail concepts and products thanks to the influence of television, movies and the Internet.

And this is not true in India, but in China and Russia too.

According to a study conducted by management consulting firm A T Kearney, India and Russia continue to occupy the top two spots of the Global Retail Development Index in 2007.

The top 5 countries in the GRDI list

China vaulted past Vietnam and Ukraine to capture the third spot in this year's index, largely on the strength of continued growth in consumer spending and retailers moving into smaller markets.  Modern retail formats grew between 25 and 30 per cent in India and 13 per cent in both China and Russia last year. 

Interestingly, until recently, such rapid growth was confined to the largest cities in each country.  However, increased competition in those cities is quickly forcing domestic and global retailers to expand into smaller second- and third-tier cities to drive growth.

In India, shopping center developer Prozone is focusing development on smaller cities in anticipation of growing demand for modern retailers.

In China, foreign retailers such as Wal-Mart and Tesco, and Hong Kong-based retailers are branching into smaller mainland cities, such as Yuxi, Weifan, Nanchang and Wuhu.

And, in Russia, Carrefour recently announced it is entering the country via tier-two cities.

"India being at the top of the GRDI validates the level of activity and enthusiasm we have seen in the marketplace. We anticipate seeing another year of major investments and new retail concepts changing the rapidly evolving organised retail landscape in India, not just in the metros but also deeper penetration in the Tier 2 and 3 cities," said Hemant Kalbag, principal - consumer industries and retail practice with A T Kearney, India.