Retail's rightsized moment comes with outsized bets on new consumers

Tier-II & Tier-III consumers reshaping how brands think about space, expansion, store economics

Organised retail in India is rethinking its blueprint for physical stores as rentals continue to rise, alongside evolving consumer behaviour and rapid expansion into Tier-II and Tier-III cities, forcing brands to reconsider how much space they really need.

 

Across metros and smaller cities, retailers are increasingly shifting to “rightsized” formats. These layouts are smaller than the large flagship stores of the past but redesigned to deliver higher productivity, better product curation, and stronger customer engagement. While mall developers continue to build larger destination shopping centres, individual retail brands are becoming more selective about store footprint, balancing expansion with profitability.

 

According to real estate consultancy CBRE, brands are investing in “fewer, larger, and more immersive formats” inside premium malls while simultaneously adopting flexible formats in emerging markets.

 

Anshuman Magazine, chairman and chief executive officer (CEO), India, Southeast Asia, Middle East, and Africa, CBRE, said, “Over the next three years, over 50-55 per cent of the mall supply pipeline is likely to comprise destination assets exceeding 800,000 square feet, and that is a clear statement of intent from leading developers.”

 

Consultancy firm Anarock Group said retail stores in non-metro and Tier-I cities have historically been 20-30 per cent smaller than those in metros due to lower rentals and cautious expansion strategies. “Brands are rightsizing and moving away from expansive flagships to compact formats ranging between 800 and 2,500 square feet,” said Anuj Kejriwal, CEO — retail and CEO — Europe, Middle East, and Africa, pointing to smaller neighbourhood-store experiments by global furniture retailer Ikea.

 

The Retailers Association of India (RAI) also sees the move as a deliberate strategic shift rather than a slowdown in expansion. RAI observed that most retailers now operate with two or three standardised store-size models to maintain consistency across markets. “Most retailers today work with two or three store-size models. That’s a deliberate strategy. It lets them maintain consistency in merchandising and customer experience regardless of where they open,” said Kumar Rajagopalan, executive director and CEO, RAI.

 

Industry executives pointed out that India’s retail real estate market is in its strongest growth phase in years. CBRE said the sector clocked record leasing of around 8.9 million square feet (msf) in 2025, while Anarock estimated that over 16.6 msf of new Grade-A mall supply will be added across the top seven cities during 2025-26.

 

At the same time, CBRE said that high streets accounted for about 39-45 per cent of total leasing over the past two years, evolving from convenience-driven shopping zones into 24x7 brand billboards for domestic and international brands.

 

Anarock said that high streets accounted for 48 per cent of overall retail leasing activity in 2025, driven by strong demand and limited Grade-A mall supply in several emerging cities.

 

Cities such as Chandigarh, Kochi, Surat, and Visakhapatnam are seeing rentals nearing Tier-I levels due to high demand and constrained supply, while markets such as Mysuru, Vijayawada, Vadodara, and Thiruvananthapuram are operating at near-full occupancy levels.

 

Retailers are now tailoring store formats according to consumer needs and infrastructure readiness in these markets. Aditya Birla Fashion and Retail (ABFRL), which operates premium retail formats such as The Collective and houses international brands including Ralph Lauren and Michael Kors, said Tier-II and Tier-III cities are no longer peripheral to growth plans. “The direction is clear: towards rightsized, not necessarily smaller,” said Pranchal Srivastava, chief business officer and business head (The Collective and Mono Brands), ABFRL.

 

Srivastava said the company is designing stores based on consumer profiles rather than following a standard template. In metros, stores are being optimised for experience density, while in smaller cities, the company is curating formats suited to local demand.

 

The company continues to favour mall-based formats in emerging cities, as malls provide the aspirational environment, discovery ecosystem, and trust factor needed for premium and luxury retail. However, high streets are gaining traction in larger Tier-II cities such as Jaipur, Chandigarh, and Indore, where consumers are already familiar with premium brands.

 

Another retailer echoing a similar trend is Bata India. The footwear manufacturer said that the focus has shifted towards deeper penetration rather than aggressive standardised expansion into emerging cities through its franchise-led model.

 

Badri Beriwal, chief strategy and business development officer, Bata India, said the company’s average store size has remained broadly stable at around 1,500 to 1,800 square feet over the past 24 months.

 

Bata said revamped stores are already seeing improvements in engagement, conversion rates, and footfall compared to two years ago, reflecting the broader shift in consumer aspirations across emerging cities.

 

“In Tier-II and Tier-III cities, consumers and shopping behaviour are becoming far more aspirational. This does not necessarily mean stores are becoming smaller, but they are becoming more efficient in terms of assortment planning, space utilisation, and overall consumer experience,” Beriwal said.

 

The footwear major currently operates more than 2,000 stores across India and plans to add nearly 3,000 stores by 2030, with a strong focus on Tier-II cities and beyond.

 

Retailers are also benefiting from increasing flexibility among landlords in smaller cities. Revenue-sharing models, shorter lock-in periods, and fit-out support are becoming more common as developers compete to attract premium anchor brands.

 

CBRE said that private consumption expenditure touched 61.5 per cent of gross domestic product in 2025-26, while direct-to-consumer brands accounted for around 27 per cent of total retail leasing in 2025.