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“Retail Industry Crucial for Economic Growth of the Country”

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Shoppers in the tier-II cities of India are waking up to the advantages that modern outlets brings. Even the consumption in rural India is quite impressive. The retail business offers excellent possibilities for the economic growth of cities and the rural areas in India. This was stated by Dr Sudhir Krishna, Secretary, Ministry of Urban Development, Government of India, while addressing the audiences at the inaugural session of the Shopping Centre Forum 2012 that is being held at Mumbai from May 8-9. “The development paradigm catalyzed by the retail business is highly egalitarian, inclusive and progressive in character. It offers a win-win situation, an environment where there are only winners, no losers,” he added.

Ajit Joshi, MD, Infiniti Retail said that both retailers and developers have to look for a win-win model for the retail real-estate industry in partnership with the government. “India is a nation of young people, with 65 percent of its population currently below 35 years. The big question for retailers and developers is how to capitalize on this emerging constituency,”he added. “How many retailers are actually making space for the Tata Nanos and Harley Davidsons of the young customers in their parking lots? We have to learn to make way for the Nano customer too.”

Joshi said India is culturally very rich and retailers and developers have to exploit the cultural celebrations, festivals and family outings to drive footfalls into the malls. Consumption patterns in India mirror the changing customer profile. Are we ready for the new face of India?” he asked. Citing an example of the fast-changing preferences of the customers, he said on the newly launched website of Croma, most of the shopping takes place between 12pm and 4pm, which shows that on weekdays, people prefer to shop online from their offices. “About 250 million people have access to the Internet today in India. This would trigger a huge shift in buying behaviour and the mall industry has to be ready for it,” he said. According to Joshi, the most important challenges facing the industry include the changing technology, evolving shopping habits and the resistance of developers to invest money in the refurbishment of malls.

Anuj Puri, Chairman and Country Head of Jones Lang LaSalle India, said that in the long term, the story of Indian retail real estate remains intact. After all, India and China are the only two countries in the world whose GDP is set to grow over 7 percent over the next few years. “However, the liquidity situation remains very bad with the Indian mall developers. Between 2008 and 2011, around 11 million sq.ft. of retail space has been readied in the country, but has found few takers. This vacancy is a national wastage,” he added. “These are malls which have been badly developed, located or managed. Even if their rentals fall, there will be no takers as ultimately retailers have to attract footfalls. No major retail projects are in the pipeline in India beyond the next two years, as developers are now preferring rsidential projects and office blocks.”

Addressing the audiences, S Raghunandan, CEO – Retail, Prestige Retail Group, said that the mall business in India is only ten years old and still in its infancy. Malls are defacto public spaces in India which fulfill the social need of family entertainment and shopping centres open to everyone. “Malls need patient capital, but few investors are willing to wait for 8 to 10 years for returns. The single biggest challenge for developers is land acquisition which is very expensive and tiresome. On top of this, the National Building Code restricts height of malls to just 30 metres, which doesn’t make sense. Why cannot malls be 6 to 8 stories high?” he asked. According to Raghunandan, vertical is the way to go for the mall industry as land is at a premium. “The next big issue is debt. It seems we mall developers are working for the banks – debt servicing is very expensive,” he quipped.

Raghunandan said that more than multi-brand retail, it is single-brand retail that will help developers a lot. There are only about 150 brands in India and it does become difficult to fill a mall of 70,000 to 80,000 sq.ft. “The government has to relax the sourcing clause for FDI in single-brand retail to become a success,” he said. “Another issue is that the retail productivity is very low. It impacts the rent paying ability of retailers. Zoning is another problem – malls should not be allowed to be clustered together.”

-Sanjay Choudhry
[email protected]

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