The physicaldigital divide in Indian retail
GROWTH Organised retail is gaining ground and this can continue if malls and ecommerce learn to coexist
The Indian retail sector is on a faster roll thaneverbefore. Rapid urbanization and digitization, rising disposable incomes and lifestyle changes - particularly of the middle-class - are acting as booster rockets for the Indian retail sector, which is projected to grow from US$ 672 billion in 2017 to US$ 1.3 trillion in 2020.
Over the last two decades, the Indian retail market has witnessed phenomenal changes, evolving rapidly fromtraditional shops to large multi- format stores in malls offering a global experience, and on to the highly tech-driven e-commerce model.
These changes have resulted in unprecedented growth in overall consumption with numbers suggesting that consumer expenditure in India will rise to US$ 3,600 billion by2020fromUS$ 1,824 billion in 2017.
Another highlight of this growth story is that organized retail is gaining ground. Growing significantly at aCAGRof20-25% annually, organised retail penetration is expected to be over 10% of the total Indian retail market by 2020 as against just 7% currently. Theorganised retail market is estimated to increase to 19% across the top 7 cities during the sameperiodfromthecurrent 9%
igh demand for a superior customer ‘experience,’ penetration of big brands into smaller townsandcities, enhancementin business strategies and operations, along with the movement from unorganized to organized business have been key factors driving this growth.
Liberalization in FDI policies by the central governmenthasrepositioned the Indian retail sector on the global map, attracting a large number of global retailers into the Indian diaspora and further fuelling the growth of organized retail in the country. The government’s decision to allow 51% FDIinmulti-brandretail and 100% FDI in single-brand retail under the automatic route is the icing on the cake which has attracted giants like Walmart to make a foray into India. By easing the FDI norms in the retail sector overthepastfewyears, the government has hit the bull’s eye.
The introduction of the Goods andService Tax(GST) as asingle unified tax system in July 2017 was another major policy overhaul that is attracting foreign players. Thegovernment’smove to provide a single-policy frameworkforretail, FMCGande-commerce in order to offer a level playing field to stakeholders is another step in the right direction.
All in all, these policies have opened a plethora of opportunities for the Indian retail sector. Growingtransparency, accountability andeaseofdoingbusiness across sectors in India has given a major fillip to its potential to attract capital. In fact, it hasbeen a major pull factor for Private Equity funding in the retail sector over the last three years.
As per data, India’s retail sector attracted US$ 147.40 million investments in FY18, growing at a rate of 35 per cent year-on-year from US$ 104.34 million in FY17.
Considering the future trends of Indian retail real estate, investors are showing confidence by beginning to make high-value long-termcommitmentstowards the sector. This steady rise in interest from private equity investment companieshasinevitably propelled mall developers to re-vamp and re-evaluate their portfolio byincludingfactors like product-mix, catchmentandcustomerexperience at the centre of their business strategies for malls.
Thefact that organised Indian retail is still at a very nascent stage in comparisontoUS(where it is 85% of their overall retail market), India thus presents a huge opportunity. Sensing immenseopportunities andeasy penetration into the Indian retail diaspora, overseas retailers are nowexpandingnotjustinmetros but even tier 2 and 3 cities like Ahmedabad, Chandigarh, Lucknow and Jaipur, to name a few.
CAN BRICK-AND-MORTAR CO-EXIST WITH E-COMMERCE?
From general trade to modern trade and to now going virtual, the Indian retail sector has metamorphosedsignificantly overthe last decade. However, it is important to note that in such a large and diverse marketplace, the emergenceofoneformatdoesnot hamper the existence of the other.
In fact, the unorganized market (personified by the ubiquitous ‘kirana’ shops) is gradually reinventing itself to catch up to the hype around modern trade. Meanwhile, large multi-format stores offering global experiences to local consumers have firmly entrenched themselves in India.
Whiletier 1 cities werethefirst to benefit from the boom of organized retail, the trend has gradually permeated into smaller towns and cities due to a rapidlyevolving consumer base and its expectations. Additional factors contributing to growth here include the expansion plans of foreign brands and increasing interest of leading builders.
Thegradualshift in consumer shopping behaviour led to the evolution of multi-channel retail in the country. The new-age retail experience hasblurred the lines between brick-and-mortar stores, social selling and online retail to some extent.
Rapid digitization, the smartphone revolution and e-commerce in India have together changed the face of retail. The result is the growing popularity of multi-channel and omnichannel strategies that are redefining the retail experience.
Overandabove,‘experiential’ retailing hastakenprecedencein the brick-and-mortar format. Besides infrastructure, amenities, catchment area and varied tenant mix, the key factor determiningthesuccessofmallsinthe future is its ability to offer shoppers’ an ‘experience’ which will ultimately bring them back.
More so, the demand for highquality shopping experiences is spreading its wings to tier 2 and 3 cities with the mushrooming of malls there. The market is now shifting to offer retail real estate that meets global standards and conform to the needs of global brands and investors. n
THE MALL STORY: A LOOK BACK
The mall culture dates back to the early 2000s when there were just three malls in existence in the entire length and breadth of the country. Therest washistory as the shoppers gradually developed a penchant for shopping malls over the usual ‘kirana’ shops. Despite many hiccups including the recession of 20072008 and the onslaught of the e-commerce businesses, malls have become serious business and are definitely here to stay.
To put it in numbers, by 2017end there were reportedly more than600operational mallsacross the country including nearly 250 malls across the tier I cities. Interestingly, more than 30 new shopping malls, covering nearly 14 million sq. ft. area, are expected to come up across top eight cities by 2020.
SO, WHAT KEEPS THE MALL CULTURE TICKING?
Considering that the fundamental growth drivers of the retail sector remain intact, global investors and mall developers are very bullish onIndia. In addition to rising disposable income and purchasing power, rapid urbanisation, and other related factors, the other notable indicators of a bright future for Indian shopping malls include: • Favourable policies
• Increase in globetrotting Indi
• A growing trend of holistic
shopping experiences • Limited organised retail pres
• Increasing penetration of foreign brands such as H&M, Zara, Burger King, Apple, KFC, Dior, Michael Kors, IKEA, to name a few.
EXPERIENTIAL SHOPPING: THE KEY TO SUCCESS
Variousfactors like design, product, diverse tenant mix, catchment area, amenities etc. play a significant role in determining the success of malls - but the most influencing factor today is the mall’s ability to provide an impactful ‘experience’ to the discerning buyers. This is also the factor single-largest factor that separates mall shopping from e-commerce.
Over the past years, several developers ventured into retail space and built malls without a detailed understanding of the dynamics related to the sector. As a result, these malls failed.
Today, only experienced players arecontinuingtoventureinto this segment by incorporating new-agetechnologies bothinand outside. This is leading to the development of high-quality malls that are gradually edging out those of lower quality.
Moreover, the customer is a more powerful king than ever before. Indian shoppers today are more tech-savvy, aspirational and upwardly mobile, thereby prompting retailers to adopt technology in order to engage shoppers. Besides an enduring in-store experience, faster check-out, better displays anddigital trial rooms, malloperators are providing experiential retail within the mall premise.
Fine dining restaurants, cafes, theme-based entertainment centres, QSRs, etc. haveincreasingly become popular in leading malls overthelast fewyears. This invariably brings backcustomersand increases ‘mall loyalty’.
Also, malls are nolonger mere shopping destinations. Today’s top-performing malls are mixeduse businesses that incorporate social entertainment options, provide a unique appeal along with a certain depth in the shopping experience, and lie in prime destinations that are easily accessible bybothpublicandprivate transport.
Additionally, the ability to anticipate the changing consumer needs and adapt accordingly makes malls successful today. Some of the most innovative existing mall developments world-wide offer over-the-top features such as indoor ski-hills, water parks, theme parks, science centres, zoos, and shooting ranges among others.
PROMINENT MALLS IN INDIA
More than anything else, malls today have become brands - and to stay relevant, they have adoptednew-agetechnologies for construction as well as to increase footfalls. Some of the leading malls in NCR that offer a uniqueexperience to consumers are in Noida and Greater Noida. DLF’s Mall of India, for instance, has an indoor ski-range - Ski India.
The Great India Place, popularly known as GIP, has a water parkandoneofthebestkidsplay zoneinNoida– WorldsofWonder and Kidzania. The Grand Venice Mall in Greater Noidais atourist destination with a Venetian concept and offers gondola rides, rendering a distinctly European feel.
Other prominent malls include DLF Promenade, Select City, DLFCyberhubinGurgaon, andAmbienceMallandDLFCity Centre, Chandigarh which are doing exceptionally well. The second-largest mall in the country in terms of area, WorldTrade Park in Jaipur has a unique display feature wherein 24 projectors create a single image on its ceiling.
If we move down south of the country, LuluInternational Mall in Kochi, touted to be the largest mall in the country, is using technology to offer a differentiating experience. It is using new-age technologies like geo-fencing, beacon technology and AutomaticNumberPlateRecognition (ANPR) to interact with its customersandkeepthemabreaston the latest activities within the mall.
Another case in point is PhoenixMarketCityinBangaloreand Chennai, a marquee development in retail real estate space that has established itself as a lifestyle andentertainmentdestination. The mall offers a holistic and premium experience for retail, entertainment and movies, and F&B.
Buoyed by the phenomenal success of malls across the metros, tier 2 cities like Trivandrum and Mangalore have also welcomed the mall culture in their city with the former seeing the launch of Mall of Travancore early this year.
The western region of the country too has seen significant success in their mall story. MMR is hometosomeofthemosticonic shopping centres including High Street Phoenix, Infinity mall, among others.
E-COMMERCE: IT’S ‘ALL’ RETAIL
India is today one of the fastest growing e-commerce markets worldwide, with millions of new internet users taking advantage of cheap smartphones and highspeed data. According to recent market research, mobile-phone internet user penetration in India is projected to reach 37.36% of the total population by 2021.
This represents a huge potential in terms of digital andmobile buyer audience. Additionally, overall internet audiences in India areestimatedtosurpass635 million online users by 2021, thus, paving wayforincreases in online shopping.
As per estimates, online retail is projected to grow to US$ 73 billion by 2022, growing at a CAGR of 29.2% to the backdrop of a shift from traditional retail to online channels by millennials. In fact, e-commerce in India is growing faster thaninothercountrieslike Australia, Japan, China and South Korea.
Besides increasing internet penetration, other factors contributing to the rise of online retail include ayoungpopulation aided by easier access to credit andpaymentoptions, high-speed internet, 24-hour accessibility and convenient and secured transactions, among others.
Realising the potential of online retail, retailers are also luring customers by offering products at discounted prices especially in the consumerdurables sector. Options like cash-ondelivery and manufacturers’ warranty have added fuel to the fire. Cash- on- delivery has become the most preferred payment option with over 30% of buyers opting for it in India.
The government’s plan to allow 100% FDI in e-commerce, under the criterion that all products sold must be manufactured in India, aims to gain from this liberalised regime.
Thus, the online retail business is a New-Gen format which has high potential for growth in thenearfuture. Afterconquering physical stores, retailers are now foraying into e-retailing in a big way. Besides having physical stores, they are also shifting focus on online formats so as to lure buyers.
E-COMMERCE VS MALLS: CO-EXISTENCE IS POSSIBLE
Withtheadventofe-commercein India, shopping converged into mobile devices in the form of websites and/or apps. At the click of a button, one could buy just anything from groceries to apparel to electronics andalmost anything else. For a while, it appeared that ‘couch potato shopping’ was gaining prominence and that e-commerce will eventually disrupt the entire brick-and-mortar business.
However, this is not entirely true. While it did cause some disruption, it was not enough to have a significant and lasting impactontheconventionalretail formats. Initially, the heavy discounts offered by e-commerce sites lured buyers and impacted malls that registered a slight dip in the overall footfalls and sales.
Consumers came back to malls as they missed the holistic retail experience. Moreover, they sawthatmalls are nolonger just shopping destinations but places where they can unwind andgetentertained. Withthediscount seasons becoming a vogue even across malls, shoppers are all geared up to feel the experience whether in malls or in the virtual world, as per their convenience.
How things will unfold for malls in the times to come remainstobeseen. Thechanging business environment, favourable policy shifts and the entry of numerous global players indicate that a resurgence of shopping malls in India is definite. Theneedofthehouristodevelop good quality malls that can attract occupiers for the longterm so that the entire value chain of the retail sector benefits.
A clear measure of increasing focus on the retail sector is that private equity (PE) players and wealth funds invested over US $800 million in Indian retail mar- ket in 2017. As it was, quite a few badly-conceived and executed malls did fail. That said, one lesson learnt is that there is a distinct need for developing multichannel retailing rather than just relying on the traditional methods.
Meanwhile, the fact that online biggies like Amazon and Alibaba are investing in offline stores indicates that brick-andmortarbusiness is not going anywhere in spite of the ‘ online assault’. When customers want an experience, they come to stores. Thus, online and offline retail have started working together in one ecosystem.
OMNICHANNEL RETAILING: THE FUTURE OF RETAIL?
To define it, omnichannel retailing is afully-integrated approach that provides shoppers with a unified experience across both online and offline channels. It extends from brick-and-mortar locations to mobile-browsing, e- commerce marketplaces, onsite stores, social media, and everything in between. Most omnichannel retailers have a physical as well as digital presence and provide seamless, effortless and high-quality experiences to consumers.
The answer may not be a simple one. However, if we consider the consumer trends, it does seem so. Several retailers today are using various channels to convert their leads into loyal customers. Infact, theyseektoestablish a conversion point at every step of the customer’s journey.. This could be on handheldHdevices in the form of an app, online, in kiosks, or in a brick-and-mortar store. Thus, to be successful, a business needs to utilize every available channel and provide a seamless and consistent user experience.
There are multiple reasons whyomnichannelretailingcould be the future of e-commerce. Retailers are betting big on factors like customer personalization, better data on customer behaviour and maintaining a consistent brand image. Besides enabling customers to access brands from anywhere they are, omnichannelretailingvaluesthe consumer experience above all else whilebeingabletotrackdata and provide even more tailored solutions moving forward.
Over and above, for omnichannel to be successful, most brandsaremakingthingssimple and more accessible to customers, without any confusion. This is paving the way for omnichannel retail to carve a niche for itself in India - and the world over.
INDIA IS TODAY ONE OF THE FASTEST GROWING ECOMMERCE MARKETS WORLDWIDE, WITH MILLIONS OF NEW INTERNET USERS TAKING ADVANTAGE OF CHEAP SMARTPHONES AND HIGHSPEED DATA
Retailing todayis definitely more thanjustmerebrick-and-mortar, and retailers who are agile enough to adapt and revolutionize their way through changes will continue to grow and thrive in the future. Besides technological advancement and digitization, the future of retail will see diverse business ecosystems blend together not just to deliver the best to their consumers, but to gain a competitive edge over the others as well.
As a result, retailers will expandtheir horizon, seize more opportunities and create their own unique ecosystem that will eventually provide a more thriving shopping experience for discerning customers.
More than anything else, malls today have become brands and to stay relevant, they have adopted newage technologies to increase footfalls