The current altercation between the Multiplex community and moviemakers has lately occupied the centre stage of discussion. The Multiplex community was already into a state of standoff with the unions and the competitors of cinema before the moviemakers stepped into the scene. Finally the shopping mall owners found it their responsibility to stand by the Multiplex community for the sake of the retail community.
A Multiplex in a mall is considered as the Anchor, enjoying preferential rentals along with other credentials to deliver on what anchors do the best – provide consistent footfalls (of course, depending on the software or the movies available to them) which in turn provides a steady stream of customers to all the other tenants in the mall and especially to the food courts, which mainly play the role of fueling tired shoppers for the next round of shopping or to complete the outing experience for customers after shopping and food.
We don’t know the nitty gritties of Multiplex P&L’s but by virtue of being revenue sharing partners with them in some and managing few properties where they are tenants, we are sure that they don’t work on fat margins and walk a tight rope in terms of meeting the ever increasing expectation from customers. Additionally, they have to grapple with high manpower costs to provide customer service, besides paying numerous operating costs from air-conditioning to security arrangements, all the while coping with many flops and low occupancies during examinations, weekdays, morning and afternoon shows etc. I feel if they are pushed to the wall on reducing their share, in the long run moviemakers will lose more because running a multiplex is a capital intensive business – from interiors and fit-outs to high end equipments – it all costs a lot of money and this combined with a pretty high operating cost that can only be diluted by taking a number of screens to a threshold where it makes business sense. But if margins or comparative return on investments (compared to other business options) are not viable, I doubt if one can see more players, fresh investments and ultimately new screens coming up in the market. This invariably makes for a ‘not so healthy’ scenario for the moviemakers and with the reduced shelf life of movies they will find it very difficult to recover costs and make profits.
It may also reduce the number of new players giving more leverage to those with deep pockets who will therefore get into a position to dictate terms once demand supersedes the supply. With the inherent issue of unpredictability with respect to a movie’s outcome, it is already more of crystal gazing for multiplex executives to prepare business modules and predict numbers. At times, built-up capacities are seldom used, either on weekends or once in a blue moon when the celluloid god showers a super hit on (or rather, with the aid of) the unsuspecting public.
Mall developers find themselves in a very difficult situation between the two warring factions as they have already compromised on rentals or earnings on large areas in anticipation that movies are feeding consistent customers to the entire retail community in the mall. However, now that’s not happening and that too at the time of summer vacations when the number of shopping trips as well as the average time spent by shoppers in the mall has drastically gone down – causing a revenue drop affecting everyone from small retailers to parking management companies and all connected to the business.
With retailers already facing a challenging time, the standoff is not helping anyone and the revenue lost so far will not be easily compensated soon by either party. It is especially not a very encouraging scenario for corporate run multiplex chains to start the new financial year with negative earnings from the very first quarter.
Another issue which keeps getting a lot of media bytes and columns is Mall rentals, for retailers, revenue share and other financial issues.
One important fact that we all need to understand is that there is no “we against them,” the only possibilities and solutions remains to approach this situation is a “you and me both” mindset for retailers and mall operators because there is serious interdependency and both being in the infancy stage of the product life cycle in India, can’t afford to de – accelerate the growth of either, which could prove fatal at a later date.
Mall developers do understand and acknowledge the importance of the retailers but they also need to understand that organised retail is going through a challenging time and requires all the support possible from all stakeholders in the business – be it vendors , space providers, government, employees, share holders and financial institutions. As organised retail is at single digit in the country, yet it can still provide amazing employment opportunities in a job starved market, strong tax generation for the government and overall support to SME’s and entrepreneurs who do feed these retail businesses encompassing architects, masons, plumber, electrician, shelf maker, suppliers of merchandise, delivery truck operators, cleaners, HR agencies, et al.
At the same time developers have also invested money in land acquisition, construction and then on providing a reasonable mall management set up. The situation is exceedingly difficult for those developers who provided very reasonable rentals to start with (majority of them) and gone on actual figures on CAM and other charges. Beyond a point, reduction in rentals is near impossible and pressure on average rental yield has already influenced many developers to drop projects which had not been started and in many cases projects are delayed from whichever stage they were.
Soon there will be a demand-pressure and this is something that, once done, can’t be altered overnight. Unlike many western countries, in India, it does take time to acqui