MUMBAI (Reuters) - Apparel retailers are poised to chase consumers in small towns, besides lower operating expenses, while aiming for a balanced presence across markets in a challenging economy.

Photo: REUTERS/Vijay Mathur/Files

Exploring the relatively unexplored markets are appNationwide, Arvind Ltd, Alok Industries and Welspun India's Welspun Retail.

As the economic slowdown hurts retailers in large cities, smaller towns are less impacted due to their dependence on agricultural income and independent enterprises.

"The rationale is in fact the tier 2, 3 and 4 cities, the amount of money that is available there and the amount of consumer growth happening there, there is a big shift happening for the consumer, especially in garments," Nitin Kasliwal, managing director of S Kumars, said.

S Kumars, known for premium brands such as Reid & Taylor and Belmonte, is launching a 'mass brand' for the tier 3 and tier 4 cities at "very reasonable rates," said Kasliwal.

Rival Arvind, which already has about 30 percent of its revenue coming from tier 2 and tier 3 cities, plans to locate a significant share of 30 outlets to be added this year in tier 3 cities, said J Suresh, chief executive, brand and retail.

The company plans to spend about 400 million rupees for expansion this year, he said.

Branded apparels and home furnishing maker Alok, owner of the H&A brand, is planning to triple its store count by next March, with a strong focus on the tier 2 and tier 3 cities.

"Once we reach the 300 target, then my share coming from tier 2 and tier 3 cities will be about 75 percent," said Umang Garg, vice president, domestic business. It already has outlets in Moga and Firozpur in Punjab, and Latur in Maharashtra.

Welspun Retail, with 200 stores under its 'Welhome' brand that targets budget customers in home furnishing category, plans to add 70-80 stores in FY11, with 30 percent focused on villages.

BALANCING ACT

Besides the potential of the markets in the interior, it is also a balancing act for companies wanting to mark their presence in different markets to leave no consumer untapped.

"For long term perspective...it makes immense sense for us to be in all strata of the markets, of course with different brands," said Kasliwal.

As big brands target budget consumers with value-pricing range, firms believe brand awareness is growing in small towns.

"The market is evolving, today if I make inroads, that would pay dividends tomorrow," said Welspun Retail director Dipali Goenka.

"There are lots of towns and cities where companies don't have the distribution reach or retail presence. That is a new market for them," Devangshu Dutta, an analyst with Third Eyesight, told Reuters.

Skyrocketing rentals in big cities also makes moving to tier 2 and tier 3 cities attractive.

High rentals in big cities make even covering the cost of merchandise difficult, while small towns give 8-12 times of the rent in returns, said Alok's Garg.

"You can have a profitable business by opening more shops in smaller towns with lower rentals."

By Aniruddha Basu & Bijoy Koyitty