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Success Factors for a Shopping Mall

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Lack of quality retail space in India’s top cities likely to pose as a deterrent for global brand entries.

There is approximately 52 million sq.ft. of retail stock in India spread across leading metropolitan cities and their surrounding regions. However, even after the steady growth in the supply of organised retail space over the past 10 years, retailers of the size of large anchors often find it challenging to secure space in a prime mall in any of these cities. This is essentially because the majority of retail space developed in India till date lags behind global standards and does not provide the quality, ambience, design, services or post-construction maintenance that global retailers are accustomed to. This is one reason why out of the more than 300 malls in the country, only a handful can be described as successful retail projects. These include , , and DLF Promenade in New Delhi, Inorbit in Mumbai and Forum in Bengaluru. The total size of these malls is just about 4–5 million sq.ft.

According to retail research estimates, India will require quite a substantial addition of organised retail space to sustain growth in the sector. This will necessitate a concerted effort from developers to construct successful shopping centres of global standards. Domestic developers are still in the middle of a steep learning curve where shopping centre development is concerned. However, many have a tendency to view shopping centres as simply another real estate property – no different from an office space or housing unit. In reality, in fact, shopping centres have an organic and perpetually changing quality that needs to be carefully planned, developed, owned and managed as a single property.

Interestingly, it is the limited availability of quality retail space in India’s core locations that is more likely to pose a greater barrier to new retailer entry in a number of key markets, rather than prohibitive rentals, according to CBRE Research. It is in this context that the role of global retail chains such as Walmart, Tesco and Ikea are likely to be crucial. These retailers possess extensive experience of running successful retail stores and properties in markets such as the US, China, Europe, Middle East and South East Asia with local partners to create successful shopping formats. By utilising this global knowledge, they will be able to help usher in a revolution in the development of organised retail real estate in India. Until such time that our developer fraternity takes a few cues from them, here are some of the most important success factors for building and sustaining a retail mall in India:
Planning and design: Developers must conduct initial feasibility studies taking into consideration the demographics in their catchment area, the targeted consumers’ behaviour and the prospective retailers’ preferences and expansion plans towards their proposed projects before they commit any investment funds. The macro-economic environment of a particular location, its prospective growth and purchasing power of key catchment zones must be studied before selecting the ideal location for development. The design must take into account circulation, services, car parks, traffic movement (ingress and egress), store visibility and an understanding of the shopping behaviour in the mall to structure the retail tenant mix accordingly.

Trade and tenant mix: It is essential to plan and zone the mall in a manner so that all tenants – global and domestic brands – belonging to the same category are positioned together. This is essential from the point of view of shoppers, who wish to compare stores, products as well as offerings before taking their purchase decisions. Trade mix and tenant mix planning helps create synergies to benefit consumers, thereby leading to enhanced footfall.
Ownership strategy: Developers should hold their projects in single ownership so as to pro-actively control their tenant and trade mix. It is extremely important to follow a ‘lease only’ model in a retail centre, as this helps developers control tenant positioning and manage mall promotion more effectively. Many developers tend to view malls as just real estate and as an investment from which they wish to achieve a short-term profit. However, the desire to sell a portion of the mall on a strata-title basis means that the builder does not maintain the facility’s property and enables investors to re-sell their shops, which ends up ruining the tenant mix. In order to achieve a more balanced and synergised trade and tenant mix, developers require knowledge of shop alignment by industry or market positioning. Proactive tenancy leasing, screening and management are also essential.

With increasing awareness of brand differentiation, and high vacancy levels across most investment grade retail developments, developers have begun to realise the need for evolving a customised tenancy mix, adopting efficient mall management techniques and protecting retailers’ interests in order to maximise their own earnings. The revenue share model, which developed against such a backdrop, allowed both developers and retailers to share equal stakes in the business of retail. The practice of revenue sharing gradually evolved with brands generally paying a minimum guarantee or a certain share of their generated revenues on a monthly basis. The adopted model differs according to the particular policy adopted by an individual developer – with some claiming a minimum guarantee as a fixed monthly rental or a certain percentage of revenues, whichever is higher – or with the perception of brand strength. Strong fashion apparel brands, for instance, often operate on a pure revenue sharing model.

Asset management: mall management requires providing quality services to customers. Developers should consider the entire shopping centre as a single entity and work on improving footfall and revenue streams for all zones and locations within the mall. Successfully managing a mall involves understanding of shopping behaviour, analysing footfall, effective mall management and revenue across the property, and launching initiatives to attract business and improve the image and marketability of the property.

Location and accessibility: Although no longer an exclusive success factor, location and catchment are of crucial importance to mall revenues. Shoppers in India are still willing to travel long distances to visit shopping malls that offer them an attractive shopping experience but the mall should be positioned within or next to an appropriate catchment area for its target customers.

Going forward, several factors, such as store location, brand positioning, mall management, and mall marketing exercises, should be carefully evaluated in order to maximise revenues for both the mall developer or management controlling the mall as well as the retailer leasing space within the mall.

About the author

is the Head of Retail Services at .