Pune’s Ishanya Mall is a pioneering and one-of-its-kind concept mall for Home Interiors and Design in India. A venture of Deepak Fertilisers and Petrochemicals Corporation Ltd (DFPCL), Ishanya was established some 10 years ago with an objective of making the joy of homemaking come alive. Over time, the shopping centre has expanded to include food & beverage and entertainment categories as well, besides home lifestyle – offering a differentiated category mix that is atypical to a conventional mall.
Touted as India’s largest destination in home and interiors today and now getting big on food and entertainment too, Ishanya is a home to more than 80 national and international brands in various formats spread across nearly 4 lakh square feet of space.
In a candid conversation with Shopping Centre News, CEO of Ishanya, Mall, Mahesh M spoke on the post GST scenario, evolving Indian retail landscape, challenges in brick-and-mortar retail, and the way ahead. Excerpts from the conversation…
The GST 2017 has been welcomed by (almost) all sections of the Indian business fraternity. Please share your overview of GST and its impact on the country’s retail sector.
For quite a while now, multiple indirect tax legislations have been in vogue and led to significant compliance and administrative costs, classification and valuation disputes and more often than not impaired the ease of doing the business. The aforesaid issues seem to have been addressed to a large extent with the introduction of Goods and Services Tax (GST). As one can observe, it tries to mitigate cascading or double taxation issues, eliminate state boundaries, and consequently, bring down the overall cost of production of goods.
With regard to retail, space rentals are one of the main costs of retail stores and attracts service tax at 15 per cent. Currently, the retailers cannot set off these costs like the other industries. Now they also probably will be able to claim Input Tax Credit (ITC) under GST.
On another completely different angle, selection of manufacturing location, warehousing location and its size, vendor partner, etc, which were hither to largely assessed considering levy of state taxes more minutely while compared to aspects such as operational efficiencies or the like, a relook is prompted thanks to GST.
The retail sector will have its post-natal pangs, given the nature of transactions and the length of the supply chain. For consumers, transparency and consistency will be long-term benefits while short-term pains could exist.
Can you tell us about any specific challenges that you have encountered with the new tax system?
There are initial bottlenecks in data mapping, system configuration, reconciliation of invoices for set-off GST readiness of our suppliers, increase in the number of returns to be filed, etc. These could well be teething issues or deeper – we will be able to comment once we go through two quarters of transactions and returns filing.
What is your observation on the customer payments scenario – is digital transactions increasingly becoming a preferred mode of payment nowadays?
We haven’t actually seen a significant change or shift in mode of payments. This is probably because, being an organised retailer and dealing with discretionary purchases, we have always had a huge chunk of credit and debit card payments. There has been a marginal increase though.
The Indian retail scenario is transforming drastically on all counts: faster pace, consumer demand and habits, brand availability, product assortments and offerings, technology-driven selling and buying process, intensified competition, regulatory and policy changes, etc. What are your views on the current phase?
While we would all like to embrace change, and talk about the pace of change, the role of technology, changing consumer behaviour and market forces at work, I think the fundamentals of retail remain quite rooted in seeking more value and satisfaction. The shift has happened in terms of proximity to information, peer-to-peer reviews and the rising Omnichannel trend.
Retailers may need to have a relevant and sustainable Omnichannel strategy rather than be one more rat in the race, due to market pressures. Even the regulatory framework should match the pace of change and durability in our context instead of aiming to be prescriptive or contending with western and much more developed markets.
So, how can the brick-and-mortar retailers keep up with the changing retailing landscape and find room for further growth?
Moving up the learning curve of Omnichannel retailing, physical retailers need to focus a lot more on the in-store experience given to customers. Nothing else will help them differentiate with their online counterparts or their own online channel. Technology is an enabler that needs to be harnessed inside the store quite extensively and intelligently for a superior experience.
Fundamental consumer expectations haven’t changed, only their buying process is a little more complex than earlier, so physical retailers need to stay focused on the experience quotient and drive their growth.
In the US, many major retailers and malls are struggling on account of sky-high operating costs, declining customer footfalls, growing influence of e-commerce, etc. Do you think the Indian brick-and-mortar retailers and mall operators should also be anxious?
We always tend to compare the Western phenomenon while it would be more relevant to look at Asian equivalents. Chinese malls are scaling rapidly, Thailand and Malaysia have a fast-growing mall culture – these markets also have exponentially growing e-commerce, retail rentals are also escalating, but growth fuels growth and I believe that we must closely watch and observe these markets as reference markers. Western examples are good for “let’s be cautious” but Asian markets help a developing retail sector such as ours to think “let’s look for potential growth levels”.
India’s modern retail is essentially based on the western model. How, according to you, the Indian retailers need to rethink, reinvent themselves to survive and thrive in the long run?
While our Indian retail models are influenced heavily by the West, as I mentioned earlier, we must look Eastwards and understand how their markets are responding, growing or changing. Secondly, I firmly believe that we must not get ruffled with too many winds of change because they only lead to temporary spikes of success, rather we must do more of what we are doing – getting our back of the house strengthened, margin models tweaked for sustainability, customer experience creation as a way of life and other such pillars of growth.
Technology as a growth lever should be utilised usefully and not overindulged in. Sustainable competitive advantage is a function of superior customer experience, differentiated product offering and genuine relationships.