Retail Realty Disruptions

Retail Realty Disruptions
Jul 2017 , by , in Interviews

India is the 5th largest preferred retail destination globally. Sushil Mohta Chairman & Managing Director, Merlin Group of Companies briefs on the new and innovative ideas of retailing the real-estate sector has adopted.

 

Following an analysis of the Indian Retail Industry, India is among the highest in the world in terms of per capita retail store availability. The retail industry in India has witnessed commendable growth over the past 9 or 10 years. As a result, the traditional and unorganized family-run retail shops are facing stiff competition from the Indian and International retail chains.Retail industry in India is expected to grow to US$ 1.3 trillion by 2020, registering a Compound Annual Growth Rate (CAGR) of 16.7 per cent over 2015-20. According to A. T. Kearney, international Management Consultant, “India is the second most attractive retail designation globally, among thirty emergent markets.”

With the new and amended FDI policy of India, it is now easier for foreign brands to set up their stores and kick-start operations in India. This has heightened the demand for retail space. Few of the new foreign entrants in India are H&M, IKEA, Wal-Mart, Carrefour, Bally and many more.

 

Newer formats of retail space being experimented with

We are now seeing the creative utilization of unused mall spaces and even parking space to incorporate newer retail categories to attract consumers and drive additional revenue. Microbrewery, Fun Dining, Virtual Reality, Kids Educational centers are some of the newer formats. In addition to F&B, entertainment and retail, service industry is getting more and more presence.  For e.g. tattoo, nail art studios, salons, spas, dry cleaning services, mobile recharging booths, Ola and Uber booths etc.

  • Introducing novel categories and brands in spaces that were not utilized properly earlier, thereby generating footfalls in those micro-areas
  • Utilizing parking space and other ancillary spaces for advertisements, publicity and promotional events
    Enhancing advertising opportunities and thereby driving additional income through floor graphics, standees, plasma screens and similar media
  • Casual Leasing: Leasing of kiosks, vacant space or carts to children’s play area, tattoo stations, foot spas, etc.

 

Developers focus on retail projects as part of their portfolio

Developers are increasing their  focus on mixed-use office-cum-retail realty formats. The combination of retail and office complexes is fast catching on.

With introduction of REIT, the larger real estate companies are now looking into real estate assets with an eye to transfer them to REIT in future whereby they can keep a control of assets as well as liquidate their investment to a large extent.  Because of lower interest rate, rent securitization has become easy making funds available against rental income.

Shopping Malls have become an important ingredient for large scale development.  In a large size development, the actual cash flow required for development of a mall becomes available out of the sales proceeds of residential part on one hand and the Shopping Mall becomes an attraction for people to buy homes on the other hand.

 

The changing trends in consumer behaviour

The number of consumers making purchases online has dramatically increased in last few years making internet marketing to be the most suitable marketing strategy.Buying behaviour of consumers in India is greatly influenced by celebrities, their activities and movements. People in India are becoming more and more responsible towards the environment and this increase in environmental awareness has a great impact on their purchase decision. Products are being bought and sold based upon their eco-friendliness these days. Omni channel is a new way to reach target consumers because of change in consumer behaviour.

 

The new trends in Mall concept, planning and designs

India being a fast-paced market, developers are now designing their malls in a manner that allows a certain degree of flexibility and dynamism. In this way, they can introduce newer attractions from time to time.

Mall developers now regularly track the performance of brands in terms of sales per square feet so as to assess whether the brands are utilizing their space optimally. It has been evident in the industry that many brands are reducing their store sizes in order to maximize per square foot productivity. Intelligent superior mall design is a vital element for healthy circulation that provides good frontage and accessibility to all stores. Today, the priority is to enhance the per-square-feet productivity of the mall while simultaneously providing value to consumers.

The mall sizes are increasing and evolving into “destination malls” for guaranteed success.  The future is for  malls which will have large number of brands, hyper markets, departmental stores, MBO (Multi Brand Outlets), different kind of F&B and offerings, service outlets and of course most importantly entertainment and amusement.Professional management of the mall along with “focus on customer convenience” will be the key attributes for success.

Malls have the ratio of 10% Buying and 90% Leasing now a days. Major reasons are:

-Buying is going to cost you a lot more upfront than leasing.

-Will you outgrow your space and need to move in the next few years?

-Do you want to deal with the added hassle of maintaining the property?

 

Operational challenges for mall establishments

The biggest challenge for mall developers is the huge upfront fund requirement for development of the mall because the rental starts only once the mall is fully completed and tenants have moved in.  There is always a huge risk factor due to the large investment vis-a-vis renting out of mall.  The other challenges are –

How to increase foot fall

  • How to maintain low operational costs
  • How to ensure there is enough parking spaces with faster movements of car during peak hours
  • How to bring quality tenants and customers
  • How to attract talented people to join their organizations
  • How to increase sales for their tenants
  • How to adapt with Omni Channels’ purchase behaviour e.g. customers go through products in malls and purchase it online or vice versa

Impact of opening up of 100% FDI (Foreign Direct Investment) in retail –

The retail scene is changing really fast. Retailers are rethinking their approach towards the suppliers so that they can get the best pricing strategies. Allowing healthy FDI in the retail sector will not only lead to a substantial surge in the country’s GDP and overall economic development, but also help in integrating the Indian retail market with that of the global retail market in addition to providing a better paying employment, which the unorganized sector (kirana and other small time retailing shops) have undoubtedly failed to provide to the masses employed in them.

With the presence of more number of brands, the home grown brands will get competition and will feel the need to reinvent themselves for competing with foreign brands.  There will be extensive knowledge banks available in future due to the presence of reputed foreign brands who will bring in unparalleled knowledge and experience in the retail industry ultimately to be shared with all for the benefit of the entire retail industry.  With a condition that 30% procurement will be done locally by all the FDI brands, there will be a huge push for manufacturing within the country.

The licensing permissions, shops and entertainment act, high rate of municipal tax are some of the bureaucratic issues faced by retail developers. Also, aAvailability of quality retail space is the biggest challenge at present.

Opportunities ahead for the sector

The industry is growing on year to year basis.  The GDP is growing in the country and a major part of our population is young and aspiring who have disposable income.  This young population is well exposed and internet friendly with modern outlook thus making India a huge consuming country.

We are the biggest retail space in Eastern India with a portfolio of 1.5 million square feet spread in 3 malls – South City, Acropolis and Homeland. Our plans are to add another 2.0 million square feet in the next five years.

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