Why Tier II & III cities are the next growth engines for India’s apparel industry

Consumers increasingly merge modern fashion trends with traditional elements, reflecting personal style and heritage, says Ramesh Agarwal.

India’s fashion story is no longer confined to its glittering metros. The real action today is unfolding in tier-II and tier-III cities, where new malls, digital storefronts, and changing lifestyles are rewriting the rules of apparel consumption. Retail in India is set to nearly double to $1.93 trillion by 2030, growing at a 10 per cent CAGR, according to a Deloitte-FICCI report. A major share of this momentum is coming from tier-II and III cities, which now power over 60 per cent of e-commerce transactions.  On the offline front too, smaller Indian cities are forecast to see nearly 25 million square feet of new retail supply by 2029, as per JLL India. More than opening new stores, this reflects a deep shift in how consumers in emerging India engage with fashion, blending aspiration, access, and affordability.

For decades, metros dominated the apparel map, offering established infrastructure and high-spending consumers that brands could bank on. But today, rising costs, urban saturation, and a crowded retail scene are making growth harder to sustain in these cities. The opportunity now lies in the next wave of urban India with smaller towns possessing rising disposable incomes, aspirational shoppers, and plenty of room to expand. These cities are no longer just “catching up”; they are actively shaping the future of how India shops for fashion.

Consumer-led growth in emerging cities

Millions of young, aspirational consumers with rising disposable incomes and exposure to international fashion trends are leading the growth of India’s tier-II and tier-III cities. As more than half of India’s population is expected to be middle class by 2030, these consumers are not just seeking functionality in apparel; they are demanding style, comfort, and accessibility. Innerwear, knitwear, and lifestyle segments are witnessing particular traction as consumers in these cities increasingly grip onto organised retail formats, both online and offline. In fact, in many of these cities, innerwear often marks the entry point into branded apparel consumption, with consumers trading up from unbranded basics to trusted labels that offer quality, comfort, and durability.

At the same time, as global apparel markets plateau with projected CAGRs of under or around 5 per cent in Japan, Europe, the US, and China, India stands apart. The country’s apparel sector is forecast to grow at a rapid 10–12 per cent CAGR from 2024 to 2030, making it one of the fastest-growing large-scale markets in the world. This surge highlights India’s unique position as a growth engine in the global apparel scene.

A noteworthy trend is the growing fashion-consciousness among shoppers in smaller towns. Access to digital platforms, social media influence, and exposure to global lifestyle content have created a cohort of consumers who value aesthetics, fit, and fabric quality alongside affordability. This shift is redefining the apparel industry’s growth course, where lifestyle choices and brand experiences increasingly influence purchasing decisions in non-metro markets.

Retail infrastructure and channel expansion

Retail expansion in tier-II and III cities is no longer an afterthought. It is becoming a strategic priority for manufacturers, distributors, and retailers alike. The explosion of modern retail formats, including multi-brand outlets, high-street stores, and organised market hubs, is enabling brands to cater effectively to style-conscious consumers.

In fact, smaller cities such as Lucknow, Jaipur, Coimbatore, and Indore are emerging as top retail destinations, recording double-digit growth in new apparel store openings year-on-year. Tier-II cities are now expected to account for nearly 40% of new organised retail projects launched between 2024 and 2028. These cities are also contributing significantly to India’s online retail growth, with nearly three in five new e-commerce shoppers since 2020 coming from Tier-3 or smaller cities, and states with higher per capita GDP showing 1.2 times more e-retail penetration than others.

Simultaneously, digital adoption has been a game-changer. Smartphone penetration, UPI-enabled payments, and the growth of regional e-commerce platforms are democratising access to organised apparel retail. Non-metro cities now contribute a substantial portion of online apparel transactions, with lifestyle, fashion, and wellness categories witnessing strong year-on-year growth. Digital tools not only facilitate sales but also provide actionable insights for brands to localise offerings, manage inventory, and optimise marketing campaigns for regional preferences, while tapping into the 60 per cent of new sellers now coming from Tier-2 and smaller cities.

Operational and business advantages

Consumers in smaller towns tend to demonstrate higher loyalty to brands that understand and cater to their preferences

Tier-II and III cities offer significant operational advantages. Real estate costs, labour expenditure, and logistics overheads are markedly lower than in metros, enabling companies to achieve healthier margins while maintaining competitive pricing. Lower operating costs also allow manufacturers and retailers to invest in product quality, store experience, and customer engagement initiatives.

Consumers in smaller towns tend to demonstrate higher loyalty to brands that understand and cater to their preferences. According to recent data, 80 per cent of consumers are more likely to purchase from brands offering personalised experiences, while 75 per cent expect brands to contribute to their well-being and quality of life, and 69 per cent say excellent customer service drives loyalty. At the same time, 1 in 3 customers will abandon a brand after a single negative experience, emphasising the importance of engagement-driven strategies.

For apparel manufacturers, this translates into not just immediate sales but a long-term, stable market for organised apparel offerings, including innerwear, knitwear, and casual fashion. Companies that integrate AI, machine learning, and supply chain digitisation, as planned by 54–61 per cent of leading retailers and consumer product companies, can better predict demand, optimise inventory, and respond effectively to evolving consumer expectations in these high-growth cities.[1]

Digital and e-commerce catalysts

The impact of digital penetration cannot be overstated. Tier-II and III cities have shown remarkable responsiveness to e-commerce-led marketing campaigns, sales events, and omnichannel retail strategies. Large-scale sale events during summer and festive seasons have highlighted a shift in consumption behavior, where non-metro consumers now drive significant volumes in apparel and lifestyle categories.

For example, during the recent Flipkart’s Big Billion Days 2025 Early Access, Tier-II cities such as Jaipur, Patna, Kanpur, and Mysore recorded significant upticks, with order volumes in these locations rising up to four times compared to normal days.[1] Flexible payment options, personalised recommendations, and hyperlocal delivery networks have enabled first-time shoppers to engage confidently with online apparel platforms.

This confluence of affordability, convenience, and trust has transformed smaller cities from peripheral markets into mainstream growth engines. Apparel companies are increasingly using summer and pre-festive seasons to test regional demand, experiment with localised offerings, and refine category-specific strategies, signaling a deeper integration of tier-II and III cities into the industry’s growth roadmap.

Policy and government support

Government initiatives, including the Digital India program and state-level incentives for industrial and retail development, are further enhancing the attractiveness of smaller cities. These programs facilitate ease of doing business, improve digital literacy, and provide infrastructure support, all of which enable apparel manufacturers and retailers to scale efficiently.

Additionally, the Production Linked Incentive (PLI) scheme for textiles, launched in 2021 with an outlay of Rs 106.83 billion, is expected to boost manufacturing capacities in emerging textile hubs, many of which are tier-II cities.[2]

Simultaneously, state policies promoting manufacturing hubs, industrial clusters, and skill development programs ensure the availability of talent and resources for the apparel industry. MSMEs in tier-II and III cities, which form the spine of India’s textile and garment ecosystem, are being empowered with technology adoption, financial support, and market access, creating a synergistic environment for apparel brands to thrive.

The evolving consumer experience

Emerging cities are not just witnessing growth in consumption; they are shaping the future of retail experiences. Brands are customising product portfolios, experimenting with new formats, and creating region-specific campaigns that resonate with local sensibilities. From immersive store designs to curated assortments and regional marketing collaborations, the focus is on providing meaningful and engaging experiences to consumers.

Moreover, many non-metro shoppers value localised assortments such as region-specific colours, fabrics, or styles over generic collections. This trend is pushing apparel players to design for micro-markets rather than one-size-fits-all national strategies.

Also, wellness, lifestyle, and comfort-driven categories such as innerwear and knitwear are witnessing higher engagement as consumers increasingly prioritise quality, hygiene, and performance alongside style. Innerwear and knitwear, once considered functional necessities, are now lifestyle-driven categories in tier-II and III markets where comfort, performance, and brand trust directly influence purchase decisions. This shift represents a long-term opportunity for the industry to build stronger, experience-driven brands that connect deeply with tier-II and III consumers.

A paradigm shift in apparel growth

India’s apparel market is witnessing a significant transformation, powered by vibrant growth, evolving consumer preferences, and the emergence of tier-II and III cities as key consumption hubs. Valued at $102.8 billion in 2022 and projected to reach $146.3 billion by 2032 at a CAGR of 4 per cent, the market is fuelled by a growing middle class, rising disposable incomes, and increasing aspiration for stylish and branded clothing. Tier-II and III cities, with their expanding consumer base, rising digital adoption, and growing retail infrastructure, are leading this evolution and redefining the country’s growth landscape.

These emerging cities offer operational advantages for apparel companies, including lower real estate and labour costs, while also providing fertile ground for long-term customer loyalty. Aspirational consumers here are embracing both organised retail and online platforms, creating a stable and lucrative demand ecosystem for categories such as innerwear, knitwear, and lifestyle apparel. Beyond immediate sales, these markets allow brands to experiment with novel retail models, refine localised offerings, and build lasting relationships with consumers, blending operational efficiency with strategic growth.

Beyond economics, apparel in India continues to shape cultural identity and social expression. Consumers increasingly merge modern fashion trends with traditional elements, reflecting personal style and heritage. The next decade of apparel growth will be written in the heartland of India, where innerwear and lifestyle categories will lead the charge, reflecting the aspirations of millions of first-time branded apparel consumers.

About the author:

Ramesh Agarwal is a Whole Time Director at Rupa & Co Ltd. A second-generation entrepreneur, Agarwal has more than 30 years of experience in the textile industry and plays a key role in leading Rupa. His initiatives and leadership skills have been widely acknowledged along with his successful track record in building immensely popular brands that resonate with the consumers and are recognisable names in every household. Agarwal also leads Company’s financial portfolio to achieve better operational efficiency by leveraging his exceptional relations with banks and financial institutions.