NEW DELHI – Outlining major opportunities, a new report by Knight Frank India and the Retailers Association of India describes Mumbai as having the highest potential for modern retail, at 1.5 trillion rupees, or $15.41 billion, followed by the New Delhi area at 779 billion rupees, or $11.43 billion.
The highest retail expenditure in 2015 was in the Mumbai Metropolitan Region at 1.21 trillion rupees, or $17.79 billion, followed by the National Capital Region at 1.05 trillion rupees, or $15.34 billion, and Bengaluru at 640 billion rupees, or $9.38 billion.
The report also said apparel was the product category with the highest penetration in modern retail in these three markets.
The NCR includes New Delhi and the surrounding areas of Gurgaon and Noida; the MMR includes Mumbai and the surrounding areas of Thane and Navi Mumbai.
“Such a high retail expenditure is a big opportunity for retailers, and is one of the reasons why many international brands prefer to open their stores in Mumbai,” the report stated.
Mumbai contributes nearly 29 percent of the total retail expenditure in the top seven urban centers of the country.
“The numbers are astounding,” said Kumar Rajagopalan, chief executive officer of the Retailers Association of India. “No retail brand can afford to ignore the market potential.”
This is the second year that the “Think India, Think Retail” report has been published and the current report examined the potential of the retail market and product categories that could grow. Apparel is one of the biggest, with significant potential in traditional retail, which consists of smaller mom-and-pop stores, and modern retail – including malls and larger, branded high-street shops. These have been transforming the market in India over the last two years. The transformation has also happened due to greater consumer spending, the availability of more global brands, the growth of mall spaces and e-commerce.
“Modern retail is really about the opportunity,” said Dr. Samantak Das, chief economist and director of research at Knight Frank in India, explaining that even in the top seven cities, modern retail still represents only about 19 percent of the market. “We believe that Bengaluru will touch the 50 percent mark for modern retail by 2026, the NCR region by 2028 and the Mumbai Metropolitan Region by 2036.”
The NCR region is considered the mall capital of India, with 69 operating malls and a total retail area of 31.1 million square feet. It also has the largest customer base across all seven urban centers, making it an ideal cachement area.
“Of these, 10 to 12 malls are doing well, while others are not performing, are in the process of closing down or restructuring,” Das observed.
The report emphasized the opportunity in making these less-than-ideal mall spaces more viable.
“The revival of nonperforming shopping centers across the country and evolution of traditional shopping streets to a modern retail format is very important to make the overall retail business conducive to cater to the potential demands of the retail sector,” said Aditya Sachdeva, director of retail at Knight Frank.
Mumbai and its surrounding areas have less than half the number of malls as in the New Delhi area, with 33 operational malls, and 7.40 million square feet of retail space. Bengaluru has 26 operational malls with 9.3 million square feet — the dominant area is east Bengaluru, which has 2.9 million square feet of retail space.
“International brands are gaining importance as their average trading densities are also higher. The size of the anchor store has now been reduced to 20,000 to 25,000 square feet from an average size of 60,000 to 70,000 square feet,” said Das, highlighting some of the major changes in modern retail over the last two years.
In apparel, the annual potential in modern retail in Mumbai is estimated to be 97.6 billion rupees, or $1.43 billion, with the Island city zone having the highest. This area has a strong customer but lacks modern retail supply, with high real estate costs one reason for the lack of development.
The Andheri-Borivali zone is next, with an annual potential of 21.2 billion rupees, or $310 million. The apparel market in Bengaluru is estimated to have been worth 28.8 billion rupees, or $422 million, in 2015, of which 5.5 billion rupees, or $80.62 million, was in modern retail. But the annual potential for apparel in Bengaluru is 46.2 billion rupees, or $677 million, the report said.
“Bengaluru has emerged as a sought-after retail market with several foreign and national brands setting up their stores in the city. The city houses large-format retail malls targeting both the luxury segment and value shoppers while providing for modern retail space in shopping streets as well,” the report noted, adding that Bengaluru has a strong apparel market dominated largely by traditional shopping streets, particularly in South and West Bengaluru.
The city, which is often referred to as India’s Silicon Valley, also has the highest per capita annual modern retail expenditure, at 16,191 rupees, or $237.65.
The annual modern retail potential in apparel in the NCR area is estimated at 19 billion rupees, or $278.9 million. The recent opening of the first H&M store in India, the high sales of Zara and other brands have been indicative of the potential of this market. Fashion and apparel makes up 47 percent of the retail space at the Select Citywalk mall in the region, one of the most successful in the country with a footfall of 1.7 million people on the weekends.
According to the report, 48 percent of the population in the NCR region is comprised of households earning more than 300,000 rupees, or $4,397, a year. In Bengaluru, 54 percent of the population comprises households earning more than that, which equates to 5.2 million people who will play a major role in the region’s retail growth story.
Das said the NCR, Bengaluru and Mumbai regions “are the three major spenders,” citing the four product categories that represent a huge opportunity for retailers, including apparel, food and beverage, entertainment and daily needs, as in hypermarkets and supermarkets.