Brands and developers need to wake up to the responsibility they have towards the industry • Sorabh S Tayal
Sorabh S Tayal, President of Reward Real Estate Co. Ltd., is an Electronics Engineer with a Masters in Finance. In the field of real estate for the last two years, his company is developing an ambitious Rs.400-crore integrated township project christened, “Empress City” which is spread over 25 acres in the heart of Orange City, Nagpur. To give Nagpur its first truly world-class township, Reward Real Estate has joined hands with the likes of architect Hafeez Contractor, Shapoorji and Pallonji for construction and Site Concepts (Singapore) for landscaping. The mixed-use facility comprises a state-of-the-art Information Technology Park, a 300-room five star hotel with Taj Hotels, a shopping mall and more than 300 luxury residential apartments.
The show lived up to its promise of prominence, with corporate bigwigs and head honchos talking and selling, selling and talking more. The show revolved around how big, how fast and how successful each brand would be over the next century. Unfortunately, it glossed over critical elements of the retail-real estate divide.
A stark and unabashed display of retail power from the brands once again highlighted the total lack of focus and sense of teamwork for long-term success in the retail industry. All CEOs certainly shared with justifiable pride how they created their successful brands. Yet, they appeared completely oblivious to the fact that had it not been the right locations and initiatives taken by the developers, the opportunity of transitioning from
the three stores in late 90s to the targetted 100 stores this year would never have happened.
As a high-profile forum and an opportunity for some of the largest brands and developers to congregate, this event would have seen better implementation as a platform for larger issues that affect the interests of the industry as a whole. The ‘forum’ has the requisite dimensions for ensuring policy changes that could lead to reduction of taxes and paperwork, enhanced infrastructure and transparency in sanction of malls. It could also be instrumental in effecting lower rental rates and reduce costs via the provision of higher Floor Space Index (FSI). These are very random examples of what a strong ‘lobby’ in the contemporary market could achieve for the industry as a whole.
However, what we have been concentrating on is how much each of us can eat and how fast.
No Groundrules To Follow
The figures pertaining to the potential of this industry for India are an open book for anyone even remotely involved in the supply chain. The question, however, is not what each one can take from this pie. Rather, it is what this industry has to do as a team to ensure that this pie lasts forever, for everyone.
Large and developed brands and developers need to be more aware of the responsibility that they have to the industry. After all, it has made them what they are today. They are the ones who can bring about a transition and set the ground rules for conducting business based on their experience and knowledge of the market. They have to set an example for the new brands and budding new developers jumping into the market. Even 10 years after the advent of the retail boom, there is no clear set of rules defining the market. We still have the co-existence of lease, business conduction, revenue sharing and leave and license. There is no real set of ethics to follow. The rates and terms are defined exclusively by how big you are and how desperate you are to sign the deal.
All of us are equally responsible for this virus. Its effect can be seen in Gurgaon, where we have successfully contrived to humble some of the best malls on the Indian retail landscape. The problem was neither with the construction nor with the interest of the brands; it was not even the interest shown by the consumers, who came in numbers in keeping with the size of the malls.
The loss was simply in our lack of respect for each other. It lay in the lack of teamwork sense between the brand and developer while each brand offered to pay for more visibility and presence in each property. This created a cascading effect for all brands to follow some of the larger ones into all properties, ignoring their individual business model. As a result, most stores were reduced to the cheaper and glorified billboard standards present in all malls, even those sharing a common wall. Developers, on the other hand, started increasing the number of malls, totally justified financially by the rates being offered from competing brands. Suddenly, we had a potent mixture of speed and greed, where two parts of the same team started moving on their own paths.
The Question Of Size
The situation today is that none of us has a clue about the direction to move in. The set plans and the target cities have all gone and the new mantra is ‘size is everything’. Everyone is on a bull-run, with developers running after developers and brands following brands. Developers are making larger and larger malls while the brands are signing up stores with a speed that nowhere matches the opening of these stores.
The developer is oblivious of the fact that ‘big’ is not always ‘beautiful’ – or successful – simply because he is being consistently pushed by his competitors and ably elbowed by the brands with promises of unrelenting support of numbers, both for rentals and for the number of locations. The brands, on the other hand, are not too far behind. The few large brands manipulate the developers to get sweet deals, while the wannabe brands are enticed by the developers and are made to pay for their dream of opening more locations, increasing evaluations and getting to the final destination – the IPO (Initial Public Offering).
Time To Realise
In order to prevent the whole industry from succumbing to the virus, we need to realise some basics:
• The developer and retailer are a team, and in the same boat. Our success can only lie in understanding each others’ strengths and weaknesses and working together
• We have common interests, i.e. to ensure higher growth of our business, with longevity.
• Increasing the rates of retail space or paying higher rentals to ensure you are one up on your competitor will eventually cause losses for everyone.
• Standardisation of ground rules for business conducting are mandatory. These would provide us with transparency and uniformity.
• There is so much potential in the Indian market that each one can take their due share simply on the strength of their products.
• We have to think long term, since the brand is not in the mall for business for the three years of lock-in, and the developer has not made the mall to run for only those three years.
• Success is not in opening 100 stores every year, but in making sure that the 20 running ones will keep running for the next 20 years, yielding returns and comfort to the developer.
• The focus has to be on long term lookout, increasing evaluations by more locations and working towards evaluations, IPOs, property and retail funds. Hoping for buyouts and FDI would not help.
A Potent Scenario
The industry today is at a critical juncture. If changes are not implemented and the whole team does not stand up to work in unison, we could be possibly looking at correction in the market. The loss of support and belief in the market will burn and scar the big and small alike, pushing all toward consolidations, takeovers, mergers and acquisitions, something we have already seen in the telecom sector. Simply put, the industry will take away all that it has given to us in the past few years.
The Indian retail sector is capable of taking any economy by its horns. Our strength lies in our sincerity and drive for success. Only by ensuring focus on teamwork, planning and tackling larger issues with the government and setting ground rules of engagement can we ensure that this juggernaut will keep on rolling.
Next target Rs.100,000 crore for Team Retail India
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