India’s Tryst with Malls
Dheeraj Dogra, Realty & Retail Analyst explains the reasons for failure and solutions for success of shopping malls in India.
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 seems 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 for both the stakeholders. Similarly, the developer may insist on standard long term leasing agreements to safeguard their future income without understanding the dynamics of the retail trade.
While the Indian shopping mall industry still in its infant stage 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.
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.
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 or
Using analytics based metrics to optimize mall layouts
Heat maps- understanding hot/cold areas as well as crowding
Benchmarking – compare the performance of different stores against each other
Paths – typical paths at malls, segment-specific paths
Loyalty – patterns such as repeat visits and cross-shopping
Zone analytics – how different sections of the mall are performing against each other
Conversions – e.g. mall-to-store, store-to-store and zone-to-zone
Traffic – analyze/compare popularity of different parts & retail locations within the mall
Attribution – measure the impact of campaigns, displays, physical ads on shopping mall level
Utilizing analytic tools – collect information for positioning digital signing boards for generating non leasing income.