Maximising Footfalls

A host of mall management companies are eyeing a Rs 24,000-crore market

When Noaman and Irfan Razack began developing commercial properties in the early 1980s in Bangalore, they realised that most land owners did not have the skills to run the malls once they were built. Often, a developer only knew the basics — collecting common area maintenance charges and administering the security — without paying any attention to consumer and tenant-retention skills. “We decided to build this skill into our business. Now, every large developer offers this service,” says Noaman Razack, director of the Rs 1,000-crore Prestige Group in Bangalore. Four malls and a decade later, mall management is becoming a profit centre for the real estate company.

Large malls such as Mumbai’s Phoenix Mills and Inorbit and Bangalore’s Mantri Square (500,000-1.5 million sq. ft in size and with average annual revenue of Rs 1,000 crore) are creating the blue print for mall operations in India. The Mantri Group, for example, has set up a subsidiary, PropCare, for precisely this purpose.

In 2011, when the Royal Meenakshi Mall was built in Bangalore, PropCare took over as its sole manager. “The mall was built by someone else, but we won the mandate to run it for the developer,” says Jonathan Yach, CEO of PropCare and Mantri Square. This new business has branched off into branding the mall and building customer relationships, too. Mall managers not only undertake maintenance and security, but also run promotions within the mall to drive traffic into the stores — a boon for retailers.

Though only a few companies see mall management as a separate entity at present, it is only a matter of time before the business booms. The total number of malls across India has gone up to 240 in 2010 from just 20 in 2003, translating into 120 million sq. ft of retail space. Though only 30 of these malls are run by mall management companies, the number is expected to shoot up as organised retail matures.

According to real estate consultancy Jones Lang LaSalle (JLL), it is a Rs 24,000-crore business opportunity, which will double in the next 10 years. Small wonder then that JLL along with other consultant companies such as Knight Frank and CB Richard Ellis are pitching for this business.

Among the bigger players to have recognised the opportunity are Prestige Group, PropCare, Phoenix and Central (see ‘Sharp Aim’). In fact, Future Group’s Central was among the first to explore the concept of keeping the owner of the property and the developer in the background and letting the retailers run the mall. “Our business model works as a shop-in-shop for brands. Central is a seamless retail space,” says Sandeep Mukim, the chief of operations at Central and Brand Factory. Central, which currently manages 16 malls, monitors the operations and tracks conversions for its tenants; security and maintenance are outsourced. “Central as a brand is all about property management,” says Mukim. The Future Group plans to open 24 Central malls in the next two years.

“The scope of mall management services has now been elevated to shopping centre management. But very few companies have upgraded their capabilities,” says Ashutosh Beri, managing director of property and asset management at JLL. He says clients now expect complete shopping centre management — a drastic shift from the past. According to JLL, the Indian psyche is skewed towards self-sufficiency and most mall owners saw mall management as a simple function of managing facilities. But with increase in competition, more developers have started outsourcing the overall management of their malls to professional agencies. And this trend is likely to catch on as the battle for footfalls gets tougher.

An Evolving Field
The business model for a mall management company depends on which state the mall is in. “Scientific models are available by which common area maintenance (CAM) charges can be predicted with a fair degree of accuracy prior to the launch of a mall,” says Beri of JLL. CAM is dependent on energy costs (both state-supplied and captive energy sources) and also on minimum wages, which again vary from one state to the other. Another factor is the architecture of plants and equipment, which should be in consonance with the usage pattern of the mall.

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A mall management company makes money on the collections on behalf of the developer. So, say, the mall management company collects 98 per cent of the total cost (including water, electricity, rent and other CAM costs such as security and cleaning), it will be paid 3 per cent on the collections as fee. This may seem high but the job is tough. Mall managers not only spend a considerable amount of time chasing payments from retailers and choosing the right anchor tenants to increase footfalls in the mall, but they also have to spend a lot on promotions.

“Every property that you manage is different because of the catchment and the kind of promotions that you run with it,” says Rajendra Kalkar, the centre director for Phoenix Mills, which plans to open malls in four more cities by the end of the next financial year. A mall manager has to run the business based on what retailers and customers want. Take, for example, luxury malls. The challenge for a mall management company is to provide synergy to competing compatible brands targeting affluent buyers. It must provide a unique gateway to the luxury marketplace. “Achieving this is a fine art, combining the most evolved concepts of human psychology, aesthetics and marketing strategy,” says Shubhranshu Pani, managing director of retail services at JLL.

At present, however, most mall developers in India continue to run the mall themselves because they feel there aren’t sufficient mall management companies. “It is great for developers to hive off this business in the future. At present, there are not many skilled people who can brand and run malls at the same time,” says Kishore Bhatija, CEO of Inorbit Mall in Mumbai. He adds that since people no longer want to travel long distances to shop, for developers it is a business where one has to understand catchment marketing and then build the mall management business.

“In India, developers control the zoning, leasing, finance and marketing in the mall. In developed markets, even these functions are managed by specialist companies and not developers,” says Nirzar Jain, general manager of Oberoi Mall in Mumbai.

Where Is It Heading
With most mall developers spending approximately Rs 200 crore on 500,000 sq. ft of retail space, advice on running the mall successfully can make all the difference. Some Indian malls are turning to malls abroad and taking regular inputs from them. For example, the Mantri Mall in Bangalore works with a South African mall, Cresta Shopping Centre in Johannesburg, on operations and collections. “There is a need for mall management to pick up as developers will need advice on how organised retailing works,” says Pinakiranjan Mishra, national leader for consumer practice at Ernst & Young.

As part of their responsibilities, mall managers are required to determine the correct mix of entertainment, shopping and accommodation that will help diversify the tenant mix and de-risk the developer’s investment. It also allows the developers to better utilise the floor-space index and location.

“Service standards are judged the moment people enter a mall. It is more like hospitality business,” says Yach of PropCare. High service standards help in adding value to retailers and also allows people to shop better, he feels.

The ultimate aim of all such exercises is to generate income for the retailers as well as the developers. Many developers are now giving sharing revenue options to retailers. Several malls that became operational during the slowdown opted for a combination of minimum guarantee and revenue sharing, which ensured floor earnings for the developer. Mall management companies use such data to predict the success of the retailer and collect revenues. With better mall management practices being adopted, steps that will increase transparency in revenue recognition are expected to find more takers. Industry experts add that this will also give developers more confidence to introduce innovative rental sharing arrangements with retailers.“There are still relatively few developers who are comfortable with the idea of not just developing the building, but also operating and nurturing the mall as a retail environment,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy in Delhi. He adds that those developers who see this as a 25-30 year business income rather than a capital gains income opportunity will survive.

Developers view their role as limited to looking after things like maintenance, utilities, housekeeping and security, whereas successful shopping centre management companies take full charge of managing the tenant mix and the customer footfall. According to Third Eyesight, of the projects being discussed in early-2005, less than 10 per cent would truly succeed as malls — about a third would get converted into offices or alternative uses, and the balance would never take off.

The proof is in the pudding. Indian real estate developers who have built up retail experience will start pitching for malls that are built by developers who have no experience in retailing. The success of this business will entirely depend on whether the customer returns to a mall regularly, or not.

The truth vs hype of big retail

The kirana store rules India thanks to three major advantages it offers ?

• location
• time of delivery
• personalized credit

Foreign direct investment into the Indian retail sector is controversial, with political overtones. Few countries have witnessed such a ‘life and death’ debate. The protagonists exaggerate the benefits by a wide margin and the antagonists articulately verbalise imaginary ghosts.

I have a close association with the retail grocery trade in India, thanks to my long career in Unilever. During the post-war boom and later in the Asian Tiger period, several commentators predicted the imminence of the transformative and inevitable concentration of the grocery retail trade. Modern trade, also called organised retail, would be the next big business opportunity. India could experience a sharp shift from ‘brand power’ to ‘retailer buying power’. Marlboro Black Friday on 2 April 1993 and Naomi Klein’s No Logo published in 2000 heralded the end of branding.

I have long held a contrarian view. In 1999, I looked ahead in the Ayaz Peerbhoy Memorial Lecture at grocery retail after 15 years of liberalisation: “The consumer will, by and large, continue to shop in neighbourhood stores even in 2011 when it comes to daily consumption items.”

Today, in 2012, my intuition was right. India is experiencing dispersed retail trade as measured by the number of grocery retail outlets per thousand people. While organised retail exists, its development and spread have been neither exemplary nor impactful. According to Nielsen’s December 2011 Managing the Middle India Gold Rush, more than 250 retail stores were added per town in the last three years, in approximately 400 Indian towns with a population between 100,000 and 1 million people.

The period after World War 2 witnessed rapid reconstruction and economic growth — and decongestion of urban areas and a growing suburbia, the credit card economy and a middle class with spending power. Household grocers rapidly yielded to modern retail. In the United States and the United Kingdom the share of organised retail is now 85 per cent and 80 per cent respectively. The same phenomenon has occurred in the Asian tigers: 55 per cent in Malaysia and 40 per cent in Thailand.

Six factors were simultaneous triggers globally: Increased disposable income, as rapid growth of per capita income coupled with low interest rates, stoked consumption. Labour costs rose, as it became uneconomical to employ staff in mom-and-pop shops. The changing family structure with double-income families with fewer children meant less frequent grocery shopping with more purchases per visit.

The formal financial system allowed for the possession of bank accounts and inexpensive credit, which boosted consumer power. Changing real estate prices meant people moved to suburbia and stores with parking and food stalls could open in modestly priced, big spaces. Finally, with the development of infrastructure, new roads and better mobility made shopping easier.

In India, the development of these factors has been far from uniform or concurrent. Nonetheless, synchronicity is not required for organised retail to produce big opportunities. A uniquely Indian model could be developed through business model innovation. The penetration of organised retail (specifically supermarkets and chain stores) in India has been low. Organised retail accounts for only 7 per cent of India’s $435 billion grocery retailing business, much lower than some other countries, including India’s BRICS partners of Brazil, Russia and China.

To grow, organised retail must account for the characteristic features that drive Indian consumer choices. To start with, the penetration of financial services in India is low. Almost 40 per cent of the population is still unbanked. Credit penetration is as low as 2 per cent.

Indians’ low per-capita income means more frequent shopping with smaller outlays per store visit. A significant number of Indian consumers do not have enough money to stock up; so they buy goods as required. The local kirana store serves this need efficiently. With lower incomes, customers are extremely price sensitive and often need credit, usually provided by neighbourhood stores. Relationships and customer experience are especially influential in India where the local shopkeeper enjoys trust and familiarity.

The proportion of Indian women who work full time remains relatively low, so they have time to shop. Moreover, they perceive shopping at their neighbourhood store, accompanied by discussions with the shopkeeper, as a pleasurable pastime. This may be missing in a sanitised organised retail environment. Consumer demand has preceded infrastructure in India. Poor road networks, inadequate parking, expensive land and low car penetration impede a good shopping experience. A powerful alternative is the kirana shop’s free home delivery for even the smallest items.

Clearly, the organised retail game must be played differently in India. But international retailers players can innovate to suit the Indian situation. The experiences of some fast food chains provide valuable lessons. Within three years of its 1996 launch, Pizza Hut opened its first vegetarian restaurant in Gujarat. There are now three all-vegetarian Pizza Huts in India, the only ones in the world. Some learnt this lesson the hard way. Yum! closed its KFC restaurants in India and did not re-launch the brand until 2004, this time with a vegetarian meals, wraps and side dishes — most extensive meat-free menu in the chain’s worldwide operations.

Four ideas about business model innovation stand out: First, retail should provide an engaging consumer experience. It is not like the petrochemicals or telecommunications industry where the expertise and model can be transplanted across regions. Importing a successful retail model is hazardous without serious, adaptive innovation: customer needs vary from region to region. A strength of neighbourhood stores is the extension of credit to clients, a facet that could be accommodated in the business model innovation.

Second, the existing model or the market limitations must not dictate. Udupi restaurants serving the traditional idli or dosa have turned constraints into opportunities. In locations with a quick turnaround of customers, they offer stand-up meals with self-service. This increases the number of people who can be served, reduces staffing needs, ensures faster turnaround and uses minimal space.

Third, the model should be designed not as ‘either/or’ but as ‘this & that’. How can organised retail provide the kirana’s home delivery while continuing to focus on other benefits? Surely getting the right people for the job is the least that can be done.

Finally, a compelling consumer value proposition is required. Organised retail must differentiate itself from the kirana store. Can a broad range of merchandise be a sustainable differentiator, given that most kirana stores are too small to stock a wide assortment? Or can organised retail stores add value with postal, email or money-transfer services?

Indian media grandly announce the huge investments by big domestic and foreign players in organised retail. Most of these players have had frustrating, if not negative, experiences. Tata’s approach in retail has been to experiment, adapt and grow gradually, using the build-improve-expand model. Some find this model conservative and slow, but it has provided valuable insights and a strong foundation for profitable growth.

India offers an enormous opportunity for retail, but success requires an experimental, adaptive and innovative approach.

Soaring rents worry retail chains

Both Indian and international retailers find the challenge of locating suitable commercial space daunting. Now, such space is also one of the most expensive internationally. So much so retailers say the ‘shocking’ and ‘unbelievably high’ property prices savage their rent-to-revenue ratio, making their business unviable.

On an aggregated basis, Indian retail rentals are considered cheap as some pockets command prices comparable to cities in the US, to Tokyo in Japan and to London in the UK, says Nimisha Jain, principal at The Boston Consulting Group India.

Still, most international retailers are willing to stretch their budgets for a highly lucrative retail market as India. Retail analysts say rentals have climbed to 2007 levels again after dipping in between. Premium malls and high streets like Linking Road in Mumbai command significantly high rentals as every premium brand is practically fighting for the same limited space.

This also impacts their rate of expansion. But the retail industry, experts say, is a cash-guzzling business and takes years to break even. The wait for newer players to make a profitable business thus is usually longer. Brands like Miss Sixty are exiting non-viable properties and looking to shift to multi-brand formats rather than expanding under standalone stores. The brand is shutting down its store at the DLF Place Mall , Delhi, saying it is non-viable due to high rentals. The brand has also been scouting for properties on Mumbai’s high street Linking Road for sometime now.

Even as organised retail is in its infancy in the country, there are fewer options for brands that want to open their stores at proven locations, says Niladri Mazumdar, vice-president, sales and marketing, Seiko Watch India. “Currently, retail rentals are astronomical because there are so few options. It is a business reality, you have to hedge your bets and understand that on some places, you cannot invest and keep bleeding.” If rentals had worked out better, the watch company that plans to have ten exclusive boutiques in a couple of years, would have liked to open at least 20, Mazumdar adds.

Last week, French luxury women’s footwear brand Christian Louboutin opened its first store in India at Delhi’s DLF Emporio, followed by American home and lifestyle chain Steuben that recently started its India operations. In the second half of calendar year 2011, the mall had seen rentals appreciate by 10-11% while Delhi’s neighbour Gurgaon had seen rentals increase by 15%, according to a study by real estate services firm CB Richard Ellis. In the last few months, Gurgaon has also seen international brands like Bebe, Steve Madden and WH Smith open shops.

The study also suggests that key locations in Mumbai saw a 15-20% increase in rentals as retailers’ inquiries have increased significantly since the second half of 2011.

The high rentals are a result of real estate demand as well as the demand-supply mismatch of quality retail space. Since 2008, most retailers have initiated renegotiation of rentals while chalking out various models like revenue sharing with property developers. But revenue share where the retailer pays the property owner a percentage of his revenues or a minimum guarantee pre-decided rental (whichever is higher), has only been adopted by 20% of the market so far.

Gudjon Reynisson, chief executive officer of the world’s largest toy chain Hamleys, says that while its Indian partner Reliance Retail has been handling all rent negotiations and scouting for properties, rentals in cities like Mumbai and Delhi were indeed high — sometimes even higher than many international markets. “Rent is a very important part of the equation that all retailers have to look at and at times when they are high it becomes very challenging.

RIL gets fashion bouquet of 20 global brands via Iconix JV

Mukesh Ambani-owned Reliance Brands has struck an equal joint venture with Nasdaq-listed Iconix Brand Group acquiring the ownership and management rights of 20 international lifestyle brands for India. These brands-including names like Ed Hardy, Mossimo, London Fog, Ecko and Candie’s-operate mostly in fashion apparel, home decor and electronics with combined retail revenue of $12 billion globally. The deal provides Ambani significant heft in India’s expanding lifestyle retail industry, and this is possibly the biggest investment in fashion by a large Indian corporate after Aditya Birla’s acquisition of Madura Garments more than a decade ago.

Reliance Brands will buy 50% stake in Iconix India, a newly created subsidiary of the US parent founded by Neil Cole, a brother of the American designer Kenneth Cole. Ambani, the richest Indian with an estimated wealth of $27 billion, may use Iconix JV to acquire or invest behind Indian fashion brands. Similarly, Iconix will transfer the Indian ownership of all future global acquisitions to the new JV.

“The India ownership of the brands is vested with the joint venture company for perpetuity. We paid a fairly significant upfront amount to purchase the stake and the rights,” Darshan Mehta, CEO, Reliance Brands, told TOI. Some other prominent brands that are part of the JV include Mudd, Candie’s Rocawear, Rampage, Danskin, Charisma, Sharper Image. Iconix also has joint ownership of seven global brands, including Material Girl (with singer Madonna), which will become part of the JV in due course.

The deal-making with Reliance is part of Iconix Group’s aggressive push into growth markets like India and China, where they forged a JV with fashion tycoon and former owner of Tommy Hilfiger, Silas Chau. Iconix chairman Neil Cole, who built a fashion business through acquisitions, said he was open to brand buyouts in growth markets like India. “We are in talks to buy a brand in Brazil, and could look for similar opportunities in markets like India,” he said from New York over phone.

Iconix India will license the brands to local retailers in return for royalty payments. The JV will keep the brand management, marketing and business development duties for all the brands. “We plan to build exclusive long term licensing deals with local retailers for each of these brands. The retailer will manage the stores, inventory and the operations,” Mehta said.

Mohan Mahajan, partner at consulting firm Mahajan & Aibara, said acquiring rights of well-known global brands is one of the easier ways to build a retail business, as opposed to developing a local brand. Indian conglomerate Aditya Birla acquired Madura Garments, the branded apparel brands of Coats Plc, to enter the fashion business in 1999. More recently, RPG Enterprises bought the brand rights of Ceat from Italian tyre maker Pirelli.

French retailer Auchan eyes joint venture with Landmark group

French retail giant Auchan, touted as Wal-Mart’s most aggressive global rival, has held talks with Micky Jagtiani’s Landmark Group for a possible India entry.

The ongoing discussions centered around a potential joint venture but the final agreement will depend on whether India moves ahead with plans for foreign direct investment (FDI) in multi-brand retail, said at least two people familiar with the talks.

Auchan, the second largest French grocer after Carrefour, is fully owned by one of the wealthiest French families- the Mulliez- who also own sporting goods chain Decathlon. Auchan has been a fast mover in emerging markets like China and Russia, where it has performed better than global peers Wal-Mart, Tesco and Carrefour. The big-box retailer Auchan, with a special focus on developing hypermarkets, had last reported turnover of over $70 billion.

“The discussions with Auchan are in an advanced stage and a decision is likely to take place in a month’s time,” said a person in direct knowledge of the development. The stores which will come up in India, if the agreement is signed between the two groups, may operate with the Auchan brand name although, the finer details are still to be etched out.

India decided to suspend plans to allow 51% FDI in multi-brand retail in December following a lack of political consensus, but could revive it after the crucial elections to state assemblies next month.

Landmark may forge a franchise agreement with the French retailer till the FDI norms are relaxed in multi-brand retail, said one of the sources mentioned earlier. Landmark Group currently runs the Dutch retail chain Spar in India through a licencing agreement signed in 2007 which comes to an end in December this year.

The Spar MD Gordon Campbell who was in India last month had said they were open to engaging with other partners to expand more aggressively here. Spar has 10 stores in India currently.

Sources close to the development told that the Campbell’s statements to the media did not go down well with Max Hypermarkets, a part of the Dubai-based Landmark Group, and the partnership with Sparis virtually over.

A detailed email sent to Groupe Auchan remained unanswered while a company spokesperson for the Landmark Group was unavailable for comment.

The Croix, France based- Groupe Auchan SA, operates 581 hypermarkets and 2,384 supermarkets and minimarkets as per the company’s published2010 annual report. “We are clear-sighted- the outlook is more positive in emerging countries than in the euro zone where the crisis is not yet over and continues to strongly depress consumer spending.

2011, our 50th year, will see the number of hypermarkets worldwide break through the 600 mark. We also plan to continue developing franchise and partnership agreements,” said Vianney Mulliez, chairman of the board of directors, Groupe Auchan in the annual report.
In China, Sun Art Retail group, a joint venture between Groupe Auchan SA and Taiwan based-Ruentex Group, successfully raised $1 billion in a Hong Kong Initial Public Offering last year, the proceeds of which will go in its expansion.

Sun Art operates 197 hypermarkets across mainland China under two brand names, Auchan and RT-Mart. The other big market for Auchan is Russia where it has around 50 hypermarkets.

Auchan info:
The $70 billion Auchan talks to Landmark Group’s Max Hypermarket It would prefer JV if India allows multi-brand retail FDI Auchan is the second largest French grocer after Carrefour Privately owned by wealthiest French family Mulliez Auchan called the most aggressive rival to Wal-Mart globally Outperforms global peers like Tesco and Carrefour in emerging markets Auchan China JV raised $1B in Hong Kong IPO

India the next shopaholic nation

    

India is going on a shopping spree. Both the size and shape of the consumer market in India are fundamentally changing. While the dramatic growth of the market is known, it is not well understood.

The poorest nation in the big four emerging markets per capita will see consumer spending grow four fold over the next 8 years to $3.6 trillion.

In a report called “The Tiger Roars: Capturing India’s Explosive Growth in Consumer Spending”, The Boston Consulting Group said Thursday that by 2020, the number of affluent consumers in India will be larger than the entire population of Canada.

A caveat, affluence in India is about $18,500 a year.Average household income in India is forecast to triple between 2010 and 2020, but the base remains extremely low

Per capita income in India is under $2,000 a year.

The reason for the stellar growth? India’s baby boom generation coming of age and getting paid

The members of this generation are entering their prime spending years, and they will indelibly and dramatically reorient the market much in the way the U.S. baby boom did.

While inflation and higher interest rates may have momentarily caused consumers to hit the pause button, the long-term trends for consumer spending in India all point north

Such consumer spending has not only made India a shopaholic nation but buoyed it to become the most optimistic market in the world.

Why IKEA will opt for standalone suburban stores in India

Following the opening up of single-brand retail to 100% FDI, there’s a lot of  speculation about the Swedish furniture and accessories retailer IKEA entering India. With a global presence in as many as 41 countries, IKEA obviously cannot
ignore the `92,500 crore Indian furniture and furnishings market, less than 7% of which has been tapped by modern retail.

In fact, IKEA had set up an office in India back in 2007. In June 2009,however, IKEA announced it was abandoning efforts to invest up to €300 million (more than eight
times the cumulative FDI received by India in single-brand retail) for setting up stores, after failing to persuade the Indian government to ease FDI restrictions.
At that time, the Financial Times quoted IKEA’s retail head for Asia-Pacific, Ian Duffy, as saying the retailer thought it was on the verge of a breakthrough in 2008 itself,
but the required policy change did not take place and IKEA did not anticipate any rapid progress on opening up the retail sector, in spite of the re-election of Dr Manmohan Singh as prime minister.

So IKEA was not wrong about the speed of progress in India. It took the Indian government another 31 months to clear the path for IKEA to enter India. Meeting the 30% sourcing obligation, however,is still likely to be a challenge.The €26 billion IKEA is the largest single-brand retailer in the world.De constructed by cultural critics, featured in Hollywood films and superhit TV shows, and fetishised in song lyrics, IKEA is no ordinary retailer.

It is a global cultural force. More than 10% of European kids are conceived on an IKEA bed. Its turnover is more than 100 times larger than Godrej Interio (India’s largest furniture retailer) and more than 14 times larger than the whole of Future Group (India’s largest retail conglomerate). At an average of `6.1 billion per store, IKEA does more than 12 times business per store compared with Future Group’s retail format Home Town. For the scores of Indian mall developers dreaming of IKEA anchoring their malls – let’s do a reality check.

The world’s largest IKEA store, located at Kungens Kurva outside Sweden’s capital Stockholm, measures a whopping 606,000 square feet. The store at Shenyang (China) occupies 503,000 square feet and the newest one at Tianjin occupies 492,000 square feet. The first IKEA store in Thailand, which opened last November, is as big as 462,000 square feet.

The Indian stores are unlikely to be smaller than 350,000 square feet. Not a single Indian mall can accommodate  such a large box size. In fact, for any mall to accommodate a non-grocery, non-fashion anchor of 350,000 square feet, it needs to have total retail carpet area of at least 900,000 square feet.

India currently has only one operating centre of this size – Phoenix Market City Kurla in Mumbai – and just 3-4 under planning or development, but none of these can accommodate a furniture store of 350,000+ square feet. And it’s not just about the store size. IKEA stores typically have 6-8 unloading bays, as well as 300-400 feet long customer vehicle loading bays. They have 20-feet-high ceilings.

Under the IGR (Ikea Goes Renewable) initiative, back in 2006, IKEA announced a goal to use 100% renewable energy. The company owns 52 wind turbines in France and Germany that generate 95 gigawatt-hours of power and meet about 10% of its total power requirements in those countries. It is currently building a nine-turbine wind farm in Sweden that will generate 70 gigawatt-hours per year and power 17 of their Swedish stores. Forty IKEA buildings have solar panels,which are being installed in 110 additional buildings. Will Indian developers partner with IKEA in meeting such stringent renewable energy requirements? IKEA is likely to open nine stores in India in seven years (half the time it took in China), comprising two stores each in the NCR, Mumbai and Bangalore, and one store each at Chennai, Hyderabad and Pune. It is more likely for IKEA to opt for standalone suburban stores, not very different from what IKEA has done in most other markets or what German retailer Metro has done for its cash-and-carry stores in India

The writer is chairman of Asipac, India’s leading mall development managers and retail research consultants, and founder of Men & Boys, Asia’s largest chain of retail stores for men’s skincare and grooming

Tier II – the next shopping destination

The final session of the second day of East India Retail Summit 2012, discussed the untapped potential of the tier II markets and their viability to be rightly called as the next shopping destination.

The session titled “Retail Mall Spaces: National Retailers Meet Regional Retail Space Developers” started with a condolence message for Lt. Hari Narayan Shah, Founder, Moustache by Piyali Oberoi, Regional Head, Kolkata Bureau, Images Group.

Participating in the brain-storming discussion on tier II markets, Vineet Gautam, Country Head, Bestseller revealed the company’s future plans to make a headway in the tier II markets. “We prefer malls over high street, as we are a youth-centric brand. Our minimum store size is 1,500 sq.ft. depending on the demand of the market. We increase the size of the store as and how the market demands. In some of the tier II towns we underestimated the market’s potential and opened store sizes of 2,500 sq.ft. but now we have realized such markets are ready for bigger formats.” Gautam adds that the company aims to open 1,000 outlets by 2015.

Talking from the retail real estate angle, Pramod Diwedi, Head Marketing, Bengal Ambuja, said: “When euphoria of retail was happening mall developers wanted to go to every possible city but when recession struck we had to contract the size of our malls. However, having said so we have learnt opening mall formats that a particular town can handle is the profitable way out.

Other panelists of the session included Manish Gujral, CMD, Motimahal; Vishal Kapoor, PVR; Anant Daga, CEO, W; Satyam Sanghvi, Director, Merlin Group; Vineet Gautam, Country Head, Bestseller; Pramod Diwedi, Head Marketing, Bengal Ambuja; Kumar Nitesh, VP, Retail Head, Bata; and Subir Das, COO, Avani Riverside Mall.

What’s missing in Indian shopping centres?

It is not just about fashion and footwear…Why are we not willing to work harder to  bring the wide tenancy mix and infrastructure facilities that truly world-class shopping centres provide to the communities they serve?

At least five new shopping centres have opened across India in the last three months. Yet,apart from the noisy roller coasterat Infiniti-2, Malad West (Mumbai), I
don’t see much difference between these 2011 centres and those that opened in 2003-2004. This shows that the Indian shopping centre industry has not evolved much

You may bring a new international apparel brand in your mall, but this is only adding to the already overcrowded apparel and fashion category.According to early findings of an ongoing retail consumption study being done by Asipac, only 25.8 per cent of modern retail space is required for the broad apparel and fashion category,
including eyewear, footwear and accessories – yet, more than 60 per cent of space in Indian malls continues to be dedicated to this category. At Mantri Square mall in
Bangalore, Asipac only leased 44.4 per cent space to retailers in this category – perhaps the lowest ratio in the country. At the 4,75,000 square feet Mall of Travancore in Trivandrum, only 41.9 per cent area is provided for apparel & fashion,
thus bringing this mall even closer to the actual consumer expenditure patterns.

On the other hand, while the home & CDIT categories put together require 18.7 per cent space, less than one-third of this is actually provided to these important categories – at Mantri Square, Asipac had provided 11.6 per cent, and I find that barring one, all retailers in these categories are doing very well. Realising the need for adequate space for these categories from the latest research study, the upcoming Neomall in South Bangalore looks to provide the required 18.5 per cent space to various home and CDIT formats.Our study shows that F&B needs 14.8 per cent space – show me one recently opened shopping centre that has provided close to this number. At Mantri Square, Asipac had provided 12.5 per cent space for F&B outlets, which are all doing well; a similar percentage of F&B will be seen at Neomall as well as at Sobha Global Mall in Bangalore. Even at Mall of Travancore, almost 14 per cent space will be dedicated to the F&B category

Most shopping centres in India are providing less than 2 ECS per 1000 sq ft as against the growing need of 4.78 ECS per  1000 sq ft (or about 2,866 car parking spots) of retail built-up area – and the developers complain about retailers paying low revenue share rents. It is like giving your cook at home 12 eggs and asking him/her to serve fluffy omelettes to 50 guests

What about entertainment?
Apart from the almost mandatory multiplex and a forced family entertainment centre, what are Indian shopping centres doing on this front? The research study shows that this category needs 13.4 per cent space. At Mantri Square,we provided 12.3 per cent and the entire category is witnessing fantastic numbers. At Neomall, more than 15 per cent of the area is being dedicated to leisure and entertainment facilities, including some attractions that will be seen for the first time in India. At Mall of Travancore, 12.7 per cent space is being assigned for leisure & entertainment. Coming back to the apparel and fashion category, the study shows that 73.5 per cent of expenditure on this category in urban India is by people who are value conscious – in other words, they cannot afford brands/retailers of the likes of The Collective, Zara, Debenhams, Mango, Nine West, Promod, Esprit,Ed Hardy, Diesel and Energie. Yet, I can site new and upcoming centres in Bangalore as examples that have dedicated a large percentage of space to such high-end brands. One of these upcoming malls has one of the most traditional and value conscious area of the city as its primary catchment. Yet the promoter thinks that his mall will succeed if he brings in big international brands.

Another phenomenon that the study confirms is that almost 26  per cent of total expenditure on apparel & fashion (by both genders, including footwear & accessories)in urban India is on Indian wear.

But how much space is dedicated to Indian wear in Indian shopping centres?

At Mantri Square, several value brands were brought to occupy 31.2 per cent of the total space dedicated to the apparel & fashion category, yet we were criticised for “downgrading” the malls’s image. The reality is – most of these “value” retailers are doing far better than their counterparts who sell at higher prices. Same is More than 60 per cent of space in Indian malls continues to be dedicated to apparel & fashion category the story with Indian wear – 12.9 per cent of the total space in the apparel & fashion category is occupied by Indian wear, which is the best performing standalone category in the entire mall.

At Brookefields Plaza in Coimbatore, Lifestyle is averaging a turnover of `36 crores per annum from a 38,000 square feet store; while Indian wear department store RmKV is doing 3.5 times the sales from only 20 per cent larger space. This has prompted Bangalore-based Prestige Constructions to get RmKV as one of the anchors at their upcoming Forum Vijaya Mall at Vadapalani, Chennai. At Mall of Travancore in Trivandrum, 28.6 per cent of the total area dedicated for apparel & fashion is reserved for Indian wear. To me, it does not look like things are going to get any better soon – in fact, I believe that the scenario will get even worse, as many developers are now bringing in so-called “expert” mall planners from abroad – as if they have a better understanding of India.

How can they understand how our multi-ethnic, multi-religion,multi-language society co-exists and functions?When will we give up our phoren fixation and start respecting our own culture?
The problem (of not being able to understand the Indian consumer) is not just prevalent in our industry. One of the TV advertisements show Big B trying to tell a CISF security guard to buy an insurance policy.Do none of the people involved with conceptualising and approving the ad realise that Indian security guards are not paid enough to be able to afford insurance? Or that CISF already has several welfare funds and schemes at subsidised rates for its personnel. Why have people stopped thinking? Why have they stopped paying attention to what’s around them? Is this what economic boom has brought to our country? Unrealistic dreams – it seems like the whole of India is functioning like a Bollywood movie, with life revolving around dream sequences of our own creation.

International examples
The 3.3 million square feet Eastwood Mall complex in Youngstown, Ohio (USA), has 230+ stores, of which seven are anchor stores of more than 100,000 square feet each, seven other anchor stores of more than 50,000 square feet each, and 18 mini anchors of 20,000 to 40,000 square feet each. But it also has two multiplexes with total 20 screens, 35 F&B outlets, a 6300 seater minor league stadium, a 61,600 sq ft exposition centre, a 64-room Marriott Fairfield Inn Hotel and a Salt Water Aquarium. Central Plaza Chaengwattana in Bangkok has as many as 26 health & beauty clinics, about 22 education/tution centres and 14 bank branches. More than 20 per cent of the space in this shopping centre is dedicated to F&B. The 80+ health & beauty clinics, education/tution centres,bank branches and F&B outlets are mostly local brands/ retailers,even though many of the apparel/fashion brands are international ones from the west. Almost all large shopping centres in South Africa have four or more bank branches,thus ensuring that people from neighbouring communities visit the centre regularly and generating “extra” footfalls. In the tenancy mix, services are given a high amount of importance in South Africa. There are several salons,travel agencies, car rental agencies,dentists, optometrists, other medical service providers, florists,photo studios, mail/courier services, internet cafes, wedding planners,telecom company relationship centres, business centres, engravers, locksmiths, laundry, pram &wheelchair hire, amongst other consumer conveniences.So it is not just about fashion and footwear. The case is not different in good shopping centres in USA, UK, Thailand or Philippines. Developers/owners of shopping centres in most of the mature markets have realised, a long time ago, that shopping centres must try and provide as many “needs” of the consumers as possible, and not just cater to their discretionary shopping needs. When we copy from abroad, why do we only copy foreign shopping centres on a selective basis? Why do we only want to believe that, by
just getting 10-12 foreign apparel, footwear or cosmetics brands, our shopping centres will also become “world class”? Why are we not willing to work harder to bring the wide tenancy mix that truly world-class shopping centres provide to the communities they serve?
The 2.9 million square feet King of Prussia mall in suburban Philadelphia (USA) has 13,400 car parking spots. The 4.2 million square feet Mall of America (USA’s largest mall) has 12,500 parking spots. The 1.94 million square feet Canal Walk shopping centre in Cape Town (South Africa) has 9300 parking bays. The V&A Waterfront in the same city has 6200 bays for a retail built-up area of 856,000 square feet. It is not surprising that this centre gets 64,000 average daily footfalls and is one of the most successful shopping centres in the world. Because of its success, apartments neighbouring the shopping centre sell above `25,000 per square foot.

Time for introspection

Why are Indian shopping centre developers not willing to invest in the required number of parking spaces? A shopping centre with GLA or retail built-up area of 600,000 square feet in a metro city like Pune, Kolkata, Chennai or Hyderabad will need to do business of about `54 crores per month, in order for the retailers in that centre to afford the rentals.In order for the centre to do this much business, it needs to have a minimum of 27,313 average daily footfalls, considering an average
spend of `650 per person per visit. To sustain this, the centre will need to provide a minimum of 2,545 equivalent car spaces or ECS (1 ECS equals 1 car parking spot or 6 two-wheeler parking spots), in addition to 320 ECS for staff. So we are talking about 2,866 car parking  spots, or 4.78 ECS per 1000 square feet of retail built-up area. And this requirement will only increase in the future. Most shopping centres in India are providing less than 2 ECS per 1000 square feet – and the developers complain about retailers paying low revenue share rents. It is like giving your cook at home 12 eggs and asking him/her to serve fluffy omelettes to 50 guests. I often ask these developers – can they construct a 600,000 square feet shopping centre (without any additional basement floors) with just 600 MT of steel? Then how do they expect retailers to pay them high rentals when they’ve not provided one of the basic raw materials for a shopping centre – parking spaces? Apart from a lack of variety in the tenancy mix and pathetically inadequate parking, many other elements are missing from Indian  shopping centres. Most of them don’t have proper mall directories or maps that they can hand out.Hardly any have provided prayer rooms or feeding rooms for nursing mothers. The elevators (lifts) are too small. There aren’t enough parking check-out counters. At the newest Westfield centre in London and the largest shopping centre in Europe, Westfield Stratford City (located adjacent to the main 2012 Olympics Stadium), there is a “Find Your Car” system, where you just punch in your car’s registration number and you will see a photo of your car along with a map showing you where it is parked. This new jewel in Westfield’s huge shopping centre portfolio  also boasts of 72 F&B outlets, a 17 all-digital screen multiplex, a 65,000 square feet casino, a 20,000 square feet luxury bowling centre, and an outdoor ice skating rink. Majid Al Futtaim Properties (owners and operators of Mall of Emirates, Dubai, Deira City Centre and eight other shopping centres spread throughout the MENA region) are building a 3.2 million square feet shopping centre in Damascus, a city of 2.55 million people, roughly the size of Patna, Bihar’s capital and India’s thirteenth largest city. The district populations of Cuttack (Orissa), Ajmer (Rajasthan) or Gulbarga (Karnataka) are higher. Such is the potential of building shopping centres in India, but only if we get it right. Otherwise, we will continue to build less than 40 per cent of the required parking spaces and keep complaining that malls and modern retail in India are not
taking off.

Customer joy, not sales, key to retail success

Most modern retailers rely on simple logic to measure their success: if sales are up,business must be doing well. What they don’t consider is, you don’t have to do much to grow in India today. Modern retail accounts for 4-5% of overall trade while the number of consumers who want to shop in this format is much larger. So, a new store in a suitable catchment always does well as consumers accept new shopping opportunities. This trend will continue until the modern retail share exceeds 20% of overall retail. But modern retailers may be reducing their profits by spending more than what is required on marketing and customer acquisition. The focus is not on retaining existing customers by improving their shopping experience and using these customers for the free word-of-mouth publicity.Modern retailers believe they are providing good shopping experiences because the number of customer complaints is low (or none). Fact is, most unhappy customers don’t complain. Most of them just give up on that retail outlet and find another one.But achieving customer satisfaction is not that difficult. All that modern retailers need to do is change a few policies and processes.

The best retail lessons I have learned come from spending a few hours each week in various stores. I also make it a point to visit new stores in my city to explore new practices and issues. The other day, I attended the opening of a hypermarket and was appalled to find that only nine out of 21 check-out stations were operational.Customers were in queue with their trolleys feeling frustrated.Surprisingly, the store manager didn’t seem to be worried at all. He said most cashiers have been rostered for the evening shift. And this was at the opening!

A long wait at the check-out is one of the main reasons of customer dissatisfaction.
To avoid the queue, several people might actually avoid shopping there. A simple change of store policy here might retain these customers and even get new ones.Customers also get highly disappointed when advertised items are out of stock. They feel that the advertisement was just a bait to bring them to the store where they will be pressured (through subtle manipulation via the floor-plan,billboards, flyers, offers, panel colours, background music) to buy something else.Customers also get affected when items they regularly purchase are often not available. Such customers are less likely to return and definitely won’t recommend that store to their friends. Smart retailers understand that the cost of inventory is measured not only against the loss of one sale, but against future purchases as well. I believe at least two-thirds of any brand’s customers are willing to pay more for high quality experience and service. Price is not always the key driver for higher sales. While no brand can provide a problem-free shopping experience,their ability to solve customer problems quickly is what the customer values and is willing to pay extra for. I’ve observed that almost all customers who come to return a purchased item are honest but the process requirements don’t always treat them so and they end up quite frustrated. If store employees are encouraged to view each transaction as an opportunity to drive customers away or retain them, if the customer admits to having lost the receipt and seems honest, the staff should be encouraged to “break the rules” and process the return.

Policies and processes like these can cause serious damage to customer retention. Most of the time, both customers and staff don’t complain because they assume policies are unchangeable. With a little effort, modern retailers can encourage feedback from both. And by improving their customer experience,they will drastically improve their bottom line