How E-Commerce Giants Like Amazon, Flipkart Help Expand Offline Stores' Business In New Towns

Increasing e-commerce penetration into India¡¯s semi-rural hinterland has spawned unique expansion opportunities for a completely different industry from an earlier generation ¨C brick-and mortar fashion stores.

Strategists at India¡¯s organized fashion chains are now combing the end-user address lists of Web commerce companies to analyze whether it might be worth their while to open large-format stores in, say, Siliguri, Amroha, Moga, or Gaya.

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¡°As a brand, we reached 22,000 PIN codes today, purely thanks to e-commerce and they have helped us reach our products to the oddest of places,¡± said Manish Mandhana from Mandhana Retail, which markets Salman Khan¡¯s Being Human label.

Mandhana says Being Human plans to open about 100 stores in the next two-three years and 60% of them will come in tier 2-3 cities. Similarly, US Polo plans to open 60 outlets this year and half of those would come up in smaller towns. Ethnic wear brand Biba has about 100 outlets in smaller cities and plans to add 40 more. Similar are the plans at Lifestyle, Puma, and Tommy Hilfiger.

Companies such as Arvind Lifestyle Brands have started to assess the sales of their brands on various e-commerce platforms besides looking at the usual parameters of demography and prosperity of a region before opening a store. Many e-commerce companies, including Amazon, Flipkart, or Myntra, say more than 50% of their sales are now generated in smaller towns.

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¡°We also crosscheck our sales from online partners such as Myntra for proposed locations,¡± said Alok Dubey, CEO Lifestyle Brands at Arvind Lifestyle Brands. Retailers say there is latent demand in smaller consumer centres due to the Internet penetration and increased awareness. Furthermore, the supply of better retailing infrastructure is now allowing brands to add outlets in smaller towns.

¡°People are coming up with malls in Patna, Siliguri, Guwahati, Jamshedpur, and Baroda. They are on an average 300,000-350,000 sq ft and all built by local entrepreneurs,¡± said Vivek Kaul, head of retail at consultancy firm CBRE. The rentals at malls in non-metro towns are available at reasonable rates and the economics work, Dubey added.

¡°There are 400+ small towns in India with immense potential. All these places have a certain section of people with aspirations to buy brands and they are in enough numbers for a brand to survive,¡± said Sanjay Vakharia, COO Spykar Lifestyle. The brand has presence in 110 cities, of which about 40 are in smaller towns such as Gaya in Bihar, Abohar and Moga in Punjab, Akola in Maharashtra, and Rewa and Katni in Madhya Pradesh.

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Mandhana of Being Human said tier 2-3 markets looked more lucrative in the last couple of years. ¡°That has been the strategy for the last two years, and we find the aspiration for our brand is way higher in tier 2-3 cities. These are the new spending cities in India if you ask me,¡± he said. ¡°We see business in those markets getting bigger. The consumer in the 50th or 51st city wants the same offerings as she gets to see in Delhi, Mumbai or overseas,¡± said a top executive of a premium foreign brand. ¡°An affluent consumer in Mysore, say, must get quality service. Else, she would shop abroad.¡±

Mandhana of Being Human said global brands such as Zara, H&M, and Forever 21 have made it very competitive for various brands. ¡°Zara and H&M are metro-centric. Hence, they give the opportunity to Indian brands to penetrate into the hinterland,¡± he said.

Originally published in The Economic Times