Covid impact: Retail brands eye high streets for expansion, also target tier 2, 3 cities

In a calibrated move towards a post pandemic market, leading retail brands across categories are zeroing in on high-street markets in metro cities and tier II and III towns to expand across India. Between April 2020 and May 2021, some of these brands closed over 120 lease deals at prominent high street markets across Indian cities and towns.

The deal sizes ranged for areas as low as 400 sq ft to 35,000 sq ft, data from Anarock Research showed.

Some Quick Service Restaurants (QSRs) within the food & beverages (F&B) category—including Starbucks, Pizza Hut, KFC — apparel brands and even large format stores like Pantaloons, Westside, Zudio Reliance Trends and Max, which are usually anchor tenants in malls, are now getting serious about their high-street presence.

“High street markets have been doing very well in these post-pandemic times and we are seeing many retail brands eye these locations as part of their expansion strategy. Well-capitalised retailers with established business models are using their competitive advantage to negotiate good deals to expand their footprint and gain a larger market share,” said Pankaj Renjhen, COO & Joint MD, Anarock Retail.

According to him, high streets offer a good opportunity with attractively low start-up time, lower cost of operations and less dependency on immediate adjacencies. High streets already have a considerable base of footfall traffic.

Of the categories which closed high street leases, apparel had the largest share of deals with an over 23% share, followed by F&B with a 15% share, and jewellery with 12%.

Hypermarkets and supermarkets mostly leased large high street spaces in smaller towns and cities.

“We prefer high-streets primarily because the delivery is faster, there are no common area charges (CAM) involved and we are looking at these locations for our further expansion in big cities and tier II and III towns. The pandemic has shown us that our strategy was in the right direction. There are certain cities like Mumbai and Delhi, where one has to be present in malls,” said Tirthankar Banerjee, head - business development, MORE.

The top cities where leading brands expanded in this period include Bengaluru, Pune, Hyderabad, Delhi, Chennai, Mumbai and Gurgaon.

The prominent tier II and III cities include Lucknow, Ahmedabad, Chandigarh, Patiala, and smaller towns in Uttar Pradesh and Madhya Pradesh like Indore, Bhopal and Gwalior.

In metro cities, some retailers are also willing to take well-located, road-facing spaces within good catchments rather than sign up at expensive high streets.

In another major post-pandemic trend, prominent hypermarket and supermarket brands are penetrating deeper into tier II, III and IV cities that offer high revenue-growth potential for these brands. Previously, smaller towns and cities depended on mom-and-pop stores for their daily grocery needs.

During the period, brands such as MORE Retail mostly leased large areas in smaller cities like Agra, Faizabad, Muzaffarnagar and Sitapur in Uttar Pradesh, and Bhubaneswar in Orissa – spaces ranging between 14,000 sq. ft. to 30,000 sq. ft. in area.

“Going forward, with limited quality retail stock coming up and in smaller cities' convenience as a key parameter, high streets are a viable solution for retailers to bridge the gap,” said Renjhen. “Except in a few large cities, large-sized retail centres will be difficult to sustain as the pandemic has shrunk the retailer category - both in terms of the number of players and store sizes.”

The aggressive demand from retailers, particularly large corporate retail chains, is backed by the increasing resilience of non-metro customers. With lack of quality retail centres in most of these cities, demand has focused on high streets.

Additionally, the cost of operations in tier II and III city high streets is more competitive for retailers, while for consumers, the familiarity and location convenience of high street retail adds up well.