In­dia’s Tryst with Malls

Dheeraj Do­gra, re­alty & re­tail An­a­lyst ex­plains the rea­sons for fail­ure and so­lu­tions for suc­cess of shop­ping malls in In­dia.

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The suc­cess of any shop­ping mall is di­rectly pro­por­tion­ate to the suc­cess of re­tail­ers within that mall who in turn are de­pen­dent on the con­sumer. Un­for­tu­nately in In­dia, the re­tailer, de­vel­oper and the man­age­ment seem mostly in­ter­ested in cut­ting costs and would rarely talk about ex­cel­lence. Sur­pris­ingly, the so called un­or­ga­nized re­tail­ers fared much bet­ter in my in­ter­ac­tions with them when it came to cus­tomer sat­is­fac­tion.

In In­dia, an over­whelm­ing ma­jor­ity of malls are be­ing run on a strata sell­ing model which leads to los­ing con­trol over the mall as an en­tity. Strata sell­ing are driven by the fact that it is the eas­i­est way to raise cap­i­tal for the de­vel­op­ers. How­ever, a few brave de­vel­op­ers have ven­tured into 100 per­cent lease mod­els which is why they are rel­a­tively more suc­cess­ful.

the FLOOD OR famine

A city like Gur­gaon with a pop­u­la­tion of about two mil­lion can sup­port around four half a mil­lion sq. ft. malls. In a clas­sic case of flood­ing, Gur­gaon has over 40 malls and more in the of­fer­ing. The fa­mous mall mile on MG road alone has over ten malls with ma­jor­ity of them strug­gling. Now let’s look at the famine part. Tirupur a border town be­tween Tamil Nadu and Ker­ala is fa­mous for be­ing the hosiery cap­i­tal of In­dia with ex­port turnover of more than $ 3.54 Bil­lion ap­prox­i­mately to world’s largest re­tail­ers like Polo Ralph Lau­ren, Diesel, Tommy Hil­figer, H &M, Nike, Adi­das and Marks & Spencer. The city of about a mil­lion peo­ple has only one mall.

Pe funds en­try

Pri­vate eq­uity firms are in­creas­ingly ex­plor­ing op­por­tu­ni­ties to in­vest in In­dia’s shop­ping malls as such re­tail as­sets can be listed un­der Real Es­tate In­vest­ment Trust (REIT) port­fo­lios. How­ever, or­ga­nized re­tail in In­dia lacks the depth due to paucity of re­tail­ers as well as paucity of SKU’S in any prod­uct cat­e­gory. The base of any REIT is the rental in­comes it can gen­er­ate. There have been sev­eral in­stances of a re­tailer rene­go­ti­at­ing a valid con­tract and in some in­stances sim­ply walk­ing away mid­way thru the con­tract in case the sales are not hap­pen­ing as ex­pected. En­force­ment of con­tracts us­ing le­gal means in the In­dian ju­di­cial sys­tem can take for­ever.


• Trained Man­power: In ab­sence of trained man­power, the man­age­ment takes the next best op­tion of hir­ing pro­fes­sion­als from the ser­vice in­dus­try like hos­pi­tal­ity who have to go thru their own learn­ing curve of learn­ing the nu­ances of shop­ping cen­ter and re­tail trade. We never had trained shop­ping cen­ter pro­fes­sion­als or schools or col­leges which spe­cial­ized in the genre. • Mar­ket Re­search: Sel­dom mar­ket re­search stud­ies are done to get a feel of the tar­get au­di­ence, their pref­er­ences and other data per­tain­ing to de­mo­graph­ics. Most re­search stud­ies are by mar­ket re­search com­pa­nies which at the most are used to gen­er­ate funds from the lend­ing in­sti­tu­tions. The re­search com­pa­nies have their own set for­mats of re­ports which they get from there prin­ci­pals in the west with slight tweak­ing to align with In­dian con­di­tions. • Terms of Agree­ment: The cur­rent prac­tice is for the re­tail­ers to go with rev­enue shar­ing agree­ments with or with­out min­i­mum guar­an­tees. But, to de­cide what would be the right rev­enue shar­ing per­cent­age the de­vel­op­ers need to un­der­stand the mar­gins on what a re­tailer works to cre­ate a win-win for­both the stake­hold­ers. Sim­i­larly, the de­velop-

er may in­sist on stan­dard long term leas­ing agree­ments to safe­guard their fu­ture in­come with­out un­der­stand­ing the dy­nam­ics of the re­tail trade.

On­line On­slaught

While the In­dian shop­ping mall in­dus­try still in its in­fancy was strug­gling to find a foothold, the on­line shop­ping started mak­ing in­roads in the In­dian re­tail sce­nario. With lack of qual­ity re­tail space and sky high rentals sev­eral newer brands are find­ing refuge in ecom­merce web­sites. Then there are oth­ers who are be­ing ex­tremely cau­tious in their ap­proach with open­ings re­stricted to grade A mall in tier one cities. For the cash and carry fra­ter­nity, the likes of Wal­mart and Metro, things can also change for them now that Ama­zon is slowly get­ting into the whole­sale busi­ness. They too are ex­pand­ing their pres­ence in the e-com­merce world.

Malls in the ama­zon era

On­line shop­ping pro­vides con­sumers with ul­ti­mate lev­els of con­ve­nience. Malls will never be able to com­pete with the end­less prod­uct se­lec­tion, price com­par­isons and al­ways-on na­ture of on­line. Nor should they try. In­no­va­tive for­mats like mixed used de­vel­op­ments of­fer con­sumers an at­trac­tive, in­te­grated com­mu­nity in which to live, work and shop. They also serve to gen­er­ate ad­di­tional traf­fic for the malls while max­i­miz­ing re­turns on in­vested cap­i­tal. • Value propo­si­tion: Malls need to move away from com­modi­tized shop­ping ex­pe­ri­ences to­ward a broad­ened value propo­si­tion for con­sumers such as con­certs, arts cen­ters, spas, fit­ness clubs, and farmer’s mar­kets.these ser­vices pro­vide a level of leisure and en­ter­tain­ment that can never be sat­is­fied on­line. Change the mix of ten­ant/pub­lic space from the cur­rent 70/30 to 60/40 or even 50/50. • Cus­tomer Touch points: mall play­ers must first iso­late and quan­tify the con­sumer touch points that are most re­spon­si­ble for driv­ing sat­is­fac­tion. Use these touch points to pri­or­i­tize ar­eas of in­vest­ment and to de­sign a co­he­sive cus­tomer ex­pe­ri­ence pro­gram that will yield higher visit and/or spend rates, and ul­ti­mately greater con­sumer loy­alty. • Dig­i­tal Trans­for­ma­tion: This is about en­gag­ing cus­tomers through com­pelling con­tent and cre­at­ing deeper bonds with them through so­cial me­dia and pro­pri­etary sites and apps, as well as loy­alty pro­grams. Sim­i­larly, tech­nol­ogy can used to de­crease cus­tomer pain points, while si­mul­ta­ne­ously cre­at­ing en­tirely new de­light points. E.g. sen­sors to de­tect va­cant spots in park­ing lots giv­ing vis­ual in­di­ca­tors to driv­ers

the only thing sep­a­rat­ing a mall owner / from ecom­merce re­tailer is the hu­man in­ter­face. De­spite of all the tech­no­log­i­cal ad­vances hu­man con­nec­tion would al­ways stay supreme.

dheeraj do­gra

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