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Adding a Local Tadka to the Tenant Mix

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When the mall revolution was setting in India, the first choice for majority of the mall developers was to rope in as many international retailers as they could. The reason was that because they grabbed eyeballs and gave the mall an international look and feel. Are malls still fascinated by having international names as part of their tenant mix or are they now more open and eager to have local retailers? And in turn, are local retailers willing to come out of their closet and have their presence in an air-conditioned environment or do they yet prefer stand-alone existence on high/ corner streets? Let’s find out more

Welcoming Them On-Board!

Putting things in perspective, , Director, , shares: “Retail all over the world has been transforming from high street to malls. Even in India this transformation will happen, albeit at a slower pace. With growth in per capita income, people are spending more and expecting more, which in turns requires retailers to move from their dominant locations to be more closer to consumers. This has given rise to the shift of local retailers to malls where shoppers prefer to flock and shop. Local retailers need to move out from their comfort factor, and in order to stay competitive, they should take on organised retailers head on, on their home turf which is malls.”

Highlighting the power of local retail brands, CV Ganesh, Vice President, Leasing and Marketing, Express Avenue, states: “Today’s local brand can become tomorrow’s national brand. You can never discount the power of a brand and the force behind it. As long as the retailer has a good offering and a sound business model, it definitely makes sense for them to enter the malls. It also gives them a chance to showcase and grow their business beyond their geographic boundary.”

Rajendra Kalkar, Senior Centre Director, The Phoenix Mills, wonderfully puts down the need for both the malls to have local retailers and the need for local retailers to have their presence in malls by stating: “Since past few years, malls have progressed from being the proverbial Mecca of shopping to a multi-utility destination centre where one can choose from a plethora of options pertaining to activities such as shop, play, eat, and unwind. More mall developers are opening up to the idea of providing consumers with more options ranging from spas and theatres to ice skating and much more. Now you would see that most of the indigenous brands are seeking a place in a mall to make their presence felt among the customers by not limiting their brand presence to their region. It is a logical move for the such brands to make brand visible at shopping centres as well since nowadays the consumers also look for customized and handmade products along with the other high-end brands available in the market. Malls provide the brand a perfect mix of audience to market their products, which helps leverage the footfall of the mall.”

Adding to this, , Vice President, , shares: “Malls are successful if they fully reflect the needs and aspirations of the catchment area, which are met by both local and international brands. In the last decade, we have seen both international and local brands opening and shutting shops at shopping centres. Malls offer far more convenience, comfort and safety than traditional high streets, and it only makes sense for traditional high-street retailers to adopt to this model as well. Considering the brand universe is limited, tenant mix in most malls is more or less the same and it is these local retailers who create a local and unique flavour by offering products that otherwise national and international retailers do not provide. Be it various categories such as food, accessories, gift articles and handicrafts”How apt is it for a local retailer to move to a mall? A million dollar question that has been a topic of debate and discussion at various forums and events off late. It is interesting to note that where today malls are open and willing to have local retailers, it is the retailers who are shying away from entering the malls. On what makes it imperative for local retailers to be a part of the mall culture, Pushpa Bector, Senior Vice President and Head, Leasing and Mall Management, DLF Mall of India, states: “We feel that the local retailers who have the strength to expand their business should be encouraged to be in the mall. These local retail brands have already market for the customers with a loyal customer base, which will help increase the footfall at the mall. Mall developers understand how crucial these brands are to create a right tenant mix and thus need to create specific zones where they can place these local brands and also offer them services that they would require to be operational in that space.”

Without mincing any words on why local retailers need to shed their inhibition and enter malls, , General Manager, CESC Properties (for Quest Mall), says: “I think this is a decision that the local retailers have to make. If they wants to grow and expand, they must be open to being a part of a mall as no other retail space is being created in the organised space. However, the other school of thought is that when you expand, your quality drops. But then again this applies to the F&B sector, though in other spaces I think it is a must.”

Challenges due to Change in Track

Sharing the challenges faced while roping in local retailers to be a part of DLF Mall of India, Bector says: “There are no big roadblocks when it comes to the performance of these brands. But there are instances where sometimes these brands do not understand the working and the marketing activities that are initiated by the mall. Unlike the international and established brands, it takes a lot of convincing to make them understand how marketing initiatives help in promoting their brands and also benefit the mall. However, the second and third generation of such brands are aware of the changes happening in the retail environment and understand the nuances of marketing and have the right kind of sensibility to understand the process required to fill the gap.” Thakur adds: “The major roadblock in signing local retailers is their mindset. They have grown in their owned properties and prefer to be at crowded places and paying rent prevailing in the market. Facility charges and HVAC charges are other stumbling blocks that local retailers have never experienced.” Gerald Mather, Marketing Manager, Infiniti Mall, raises a valid concern by local retailers, which poses a challenge for malls while signing them and states: “Local retailers are generally not exposed to the international trends. One has to be patient to explain the advantages of signing up spaces in the mall. They are very cautious of outgoing and generally look at the downside first and avoid taking any risk.”

Bringing in an interesting perspective on the challenges front on behalf of the malls, Kalkar adds: “It becomes a bit difficult to sign-up a local retailer if the brand presence isn’t that strong as we need to match up to the image of the shopping mall as well. We make sure that we get on board only those brands that will do justice to the mall’s identity without hampering our current retailers present in the mall.” Raising another concern area that malls have to keep in mind while signing a local retailer, Ganesh shares: “Local retailers will be a little tricky because if they do not make money for two to three months they will decide to quit. This is contrary to the national players who will go with the tide for at least two years before taking a decision because a national retailer has a reputation at stake, which a local retailer will not be bothered with if he is not making money.”

Making Them Feel at Home

It isn’t really a case of being uprooted to a new atmosphere altogether, but then for someone who is very much used to operating in a certain way and then being confined to certain rules and regulations to which they have to abide, the “comfort” factor often demotivates the local retailers from sustaining in a mall atmosphere. What is expected here from malls is a clearly defined policy and an understanding that there can be no one set of rules and regulations that would be applicable to all their tenants. For international brands, it comes naturally for them to have a sniff of what they can expect from being a part of a mall.But for a local retailer who is a first time recruit to a mall culture, rules are something that could suffocate him. Accentuating this, Deva Jyotula, Centre Manager, Korum Mall, says: “Local retailers are not receptive to the practices and business model to be followed for a store operated in a mall. Being used to function in unorganised retail, they find the processes and practices followed in the mall as restrictive. However, they usually adapt well with support from the mall and by learning from the success stories created by local retailers who came into the mall.”

Bector shares: “We feel the local players can perform better in the mall as they would get better footfalls and a better quality audience for their brands. At Mall of India, we have introduced the concept of zoning in place. This is the first time in the country that a mall has designed dedicated zones and levels for the tenants. We have dedicated a zone – The High Street that would house all the leading local brands. Clustering them in a specific zone will give them the right environment and would also get them the right kind of footfall and visibility. Mall in a specific region would help them venture into a new market and would also take care of their operational requirements, which will help these brands focus mainly on the sales.”

Reasoning on why this was needed, she elaborates: “Mall of India would like to create a unique tenant mix housing topline international and local established brands under one roof. But at the same time, it was important to create a distinct positioning for every retailer. Zoning strategy has helped us achieve the right mix with such distinct positioning. We have handpicked the best of the local retailers and put them on a single floor plate. This zone would be dedicated to the brands that offer ethnic, ethnic fusion, and jewellery options to the customers. These brands surely would complement the zoning strategy of the Mall of India.”

At Infinit Mall, placing of local retailers isn’t done in a cluster format but they have gone ahead to place local brands besides the national/international brands. Reasoning this out, Mathew shares: “We have not clustered the local retailers into one part of the mall, rather put them along with national brands so that they can get the visibility and footfall advantage. Their preference generally is on the higher floors to keep their fixed cost down.” Another interesting way to make local retailers feel at home at malls is devising an agreement that is conducive for them. On behalf of Oberon Mall, MM Asif says: “We offer our local retail tenants a short-term lease. Surely, as the other profiles in the mall also help enhance their sales. The commercials are set keeping in mind their price points and expected sales. A minimum guarantee rent and revenue share on net sales (which ever is higher) works out to be the best model.”

Talking about how a mall can make a local retailer feel comfortable, Jyotula shares what Korum Mall does to ensure comfort for the intimated new tenants. “It is a continuous endeavor at Korum to promote local retailers. It helps customers shop for local flavours along with international and national brands under one roof. Apart from overcoming the pain points of parking and unorganised business practices, local retailers can take advantage of the ready footfall that a mall commands, which increases the awareness of the brand and the business exponentially. Being in a mall helps the local brand to be perceived as an aspirational brand. And most importantly, it enables the retailer to be a part of a highly organised retail platform.”

Rentals and Space Decision

One of the most deterrent factors that pull local retailers from venturing into malls is the cost of rentals. Majority of the local retailers have been doing their business from their own property; hence, the concept of shelling out huge monies as rentals doesn’t really go well with them. This makes it imperative for the malls to guide them into booking appropriate space for themselves thus making them see value for their money. Explains Thakur: “Local retailers need a breathing period for sudden transition from high streets to malls, and we are more than welcome to offer this to a group of retailers since they will also bring in their loyal customers to malls, we follow regular minimum guarantee and revenue share model, wherein revenue share can be increased to lower the occupancy cost so as to get the store stabilise in the initial periods.” At Infiniti Mall, commercials are based purely on the carpet area and location they are signing. Mathew adds: “For some of the retailers, we do work out staggered rentals to give them little comfort during first year of operation.”

Discussing on the issue of an apt store size, Bector points out: “There is no specific store size of these brands. It depends from brand to brand. There are many local retailers who would want to have large sized stores to operate or would like to expand their space. It is subjected to how big customer base they would be targeting at. Talking about choosing between having a store of just operating via a kiosk, I would say it depends on only two factors – the kind of brand it is and the legacy and history it carries with it. Established brands that are confident can open exclusive stores and the budding and promising brands can also opt for shop-in-shop outlets as well.” On the best approach for narrowing down on the rentals for local retailers, Bector feels: “We commercially follow the minimum guarantee or maximum revenue share model for leasing the spaces. But we prefer to opt for the fixed rentals with the local players. We understand how these brands work and we customise the models as per the requirements.” Virendra Jain Pandya from City Mall shares: “We most of the times offer staggered rentals to them. They can pay low rental initially and when they are confident in few months time, they can start paying agreed rentals. Revenue sharing is not possible because of lack of proper accounting system on their part.” Thakur is of the opinion that it would be advisable to provide more than 1,000 sq.ft. for a local apparel retailer since beyond that area, overheads increase and the store becomes unmanageable.

Mehra is of the opinion that if a local retailer plans to be a part of the mall, he should do it with all the plans well in place instead of getting into the drudgery of first trying a kiosk space and then opting for a larger space. Reasoning his thought, he elaborates: “I think that is not right (to first have a kiosk and then a store) as the models are different, and also if you go in for a test case, you may not be able to get space later. It is important to know your model and business and stick to fundamentals.” While what Mehra says does make sense, but based on Pandya’s experience, this could well be challenged. As per what Pandya shares: “Opening a kiosk is definitely a good idea for testing the waters. We have almost 100 kiosks and many of the retailers have upgraded to an exclusive store.” Sharing a case from Korum mall, Jyotula says: “One of our partners Cool Wrist first explored as a kiosk and as the sales grew, the brand got elevated to a store format. Few established brands such as Hastakala and Panchavati Gaurav straight away opened as a full-fledged store/restaurant.”

Deriving Benefits

Business is business. If a tenant doesn’t bring in footfalls, it goes without saying that the mall would eventually chalk out an exit for the tenant for mutually beneficial reasons. But from what has been gauged through conversations with various mall developers, the presence of local retailers has managed to garner revenue benefits and better footfalls to the malls. Accentuating this point, Thakur informs: “Local retailers know the pulse of the market and more than that their customers personally, which gives customers comfort while shopping. Particularly with big ticket items in electronics, customers have assurance that their products will be replaced if any problem persists, even if the company people do not respond to queries. Local brands bring in additional footfalls who are loyal to these brands but have never entered malls due to fear of high pricing.”

Talking about Malls of India, Bector says: “These brands bring in the local and Indian flavour to the mall. Indian ethnic wear is a big hit. These brands would attract the local customer base especially from Uttar Pradesh where the mall is placed (Noida). And it definitely complements the philosophy on which the Mall of India is created. Mall of India as goes by name is going to be the largest retail destination in the country bringing the international flavour and also promoting Indian flavours to the larger audience.”

Another benefit that malls have by roping in local retailers is associated with the mall attracting tourists to visit and have a taste of the local flavour. Select CityWalk in Delhi does an amazing job here by having weekly flea market and the concept of having monthly kiosks being rented out to local retailers. As Yogeshwar Sharma, Chief Operating Officer, Select CityWalk, explains: “This helps us not only add variety to our mall but also build a strong rapport with local retailers and local community. The concept of flea market has become a hit for us and so has the monthly kiosks which are pre-booked now. This wasn’t the case earlier. When we introduced this concept, we had to approach the local brands to come and have their kiosks at our mall. Today the case is otherwise. The rentals we charge vary between Rs 50,000 and Rs 2,00,000 for the monthly kiosks depending on the category and also the location they choose. For the flea market, the stall rates begin from Rs 6,000.” Bector elaborates on the benefits of having local retailers. “Mall of India is a breakthrough project having a lot to offer to the customer base. Where on one side, it would give the hints of the international fashion and trends to the Indian customer base, on the other hand it would also give the local flavours of India to the tourists and enthusiasts who would be visiting the golden triangle.” Pandya shares: “In India, many towns have local specialties. For example, quilts of Jaipur, saree of Benaras, etc. It is always good to have such retailers in the mall and we can definitely promote the mall as a ‘tourist destination’ mall,” she explains.

Beautifully explaining the power of local retail brands that can be well used by the malls, Mathew says: “Mall does work on the concept of housing brands that cater to the catchment area. It certainly includes many local and regional brands and lot of people patronize these brands. There are many retailers who give tough competition to even national brands since they have been in the market place for a longer period. Most of the shopping centres these are days are built as a destination mall having complete bouquet of shopping, entertainment, theatre, services and F&B. It automatically becomes a destination by itself which does attract tourists.”

Aditya Sikri, CEO, Propcare Mall Management that manages the Mantri Square, states: “Local and indigenous retailers attract more footfalls in terms of traditional, wedding and festival shoppers. These local retailers reflect the beauty and grandeur of the local art and the ethnic culture. It opens a pathway for the local retailers to retain the traditional culture and encourage the skills of the local craftsmen. Promoting these retailers helps us add a local flavour and create a strong brand recall among customers who visit the mall and experience a holistic shopping experience with a mix of their favourite local and international brands. Tourists get a taste of all the leading local retailers under one roof rather than going around the city hunting for indigenous retailers. In fact. we have the leading local retailers starting from Vijaylakshmi Silks, Showoff, Kalanjali to Sangeetha Mobiles all under one roof to cater to the shopping requirements of our customers.”

Influencers

It wouldn’t be an exaggeration to state that when we talk of ethnic wear categories, it is the local retail brands that score above the big names with a chain of stores. One reason could be the pricing factor and the other could be that within India the taste varies between each region; hence, it is the local retailer who knows best what people of his region/locality prefer. Another category that has a good chance to succeed when we talk of local retailers having an edge above the other national chains is that of the food category. As much as South Indians enjoy having paranthas and gol gappas and as much as North Indians like to feast on idlis, vada pav and dosas, the local flavour is what shows a sustainable nature. A few names in the ethnic wear category that would be seen at the upcoming Mall of India would be – Meena Bazaar, Shakuntala and Nallito to name a few.

Mathew says: “When it comes to Indian wear and footwear, these brands do really well and no doubt leave national brands behind in terms of revenue.” Kalkar feels: “Brands dealing with apparel, bath and beauty do well as most of the consumers these days look for a customized product. Also local food and home décor brands are popular as people nowadays are ready to experiment and play with the new range of quirky products rather than sticking to the classic ones.” Ganesh adds his view: “F&B would be the first thing that comes to one’s mind, followed by things that we hold close to our culture.”

Mehra states: “Three areas that I feel the local players can challenge the national players would be – local food, jewellery and ethnic and local wedding attire and this is because these are specialty tastes that cannot be replicated by a person out of the local sphere.”

According to Pandya: “Mainly consumer electronics because of price flexibility and apparels mainly unbranded ethnic wear do well and attract customers to the mall.”

Verdict

Just as you cannot clap with one hand, the same applies here. Neither can a mall be truly successful without a strong local player as its tenant nor can local players who wish to grow really grow if they remain confined to their stand-alone stores. Where for malls, it would mean a loss of local flavour to attract more footfalls and tourists, for the local retailers it would mean gradual fading away of their clientele keeping in mind the infrastructure related to roads and traffic condition which make shopping at a high street difficult. The challenges for malls is of getting the local retailers understand the intricacies of being a part of an organised shopping culture; for local retailers, the challenge remains to do away with the mindset of saving on the rentals and considering that as an expense that does not reap them any benefit.

Where we notice that malls are gradually warming up to welcome local and high street retailers as part of their tenant mix, it is the local retailers who still need some induction and hand-holding. With the dearth of high streets in India, we are certain of Indian retail real estate coming together as one big community without being tagged under the category of international/national and local retail!

*This article was originally published in the Feb-March 2014 issue of Shopping Centre News.