Smaller cities on spending spree too

It is not just the big cities that are shining for retailers and marketers.

Consumer spending metrics are increasingly pointing to the fact that smaller cities like Chandigarh, Pune, Ludhiana, Indore and Hyderabad offer retailing opportunities that are better, or equal to, the major metros.

This was the key finding of a recent ICICI Bank study. The bank has ranked these cities marginally ahead of Mumbai and well ahead of Mumbai in its index of retail attractiveness.

The study predicts that the share of smaller cities is likely to increase to 55 to 60 per cent of total retail consumer spending of Rs 210,00,00 crore (Rs 21,000 billion) by 2010.

The growing attractiveness of the smaller cities is a result of near-comparable salaries and lower costs of living. The study shows that in 2003, the average monthly salary in the big cities was Rs 13,500.

Employees in places that the study classifies as 'metro II' cities, however, earned an average monthly income of Rs 12,600.

This has already had an impact on bank lending. In the Rs 6,000-crore (Rs 60 billion) personal loan market, for instance, the smaller cities have registered a 12 per cent growth in loan size compared to the nearly 15 per cent increase in the big cities.

"In the tier II metros, consumers in the age group of 25 to 30 years are showing an increasing propensity to opt for home and personal loans," said V Vaidyanathan, senior general manager (retail banking) ICICI Bank.

"There is immense opportunity for retailers in the tier II metros and they have to wake up to it very fast," said Arvind Singhal chairman, KSA-Technopak.

Some of the country's biggest retailers like Pantaloon Retail and RPG Enterprises are already looking at expansions in those cities.

The Kishore Biyani-promoted Pantaloon, for instance, is targeting Hyderabad and Pune for its exclusive malls while RPG is scouting for locations in Jaipur for its giant hypermarket.

Of the 150 new malls that are slated be complete by 2005, nearly 70 of them are coming up in smaller cities.

Vaidyanathan, however, points out that the smaller cities account for just 25 per cent of the Rs12,000-crore (Rs 120 billion) credit card spending.

He suggests that the card companies should look towards improving operational efficiencies to cash in on this trend.