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    “With FDI what is the way forward for retail real estate in India in times to come”


    It is no secret that the retail sector in India, traditionally dominated by unorganised players, standalone boutiques and kirana stores, is undergoing a steady makeover. But dare I mark this movement as ‘slow’. Since liberalisation of the economy in the 1990s, India has witnessed the entry of various global players, booming capital markets, emergence of new industries, a mystifying evolution in consumer shopping habits, et al. One of the fastest growing retail markets in the world today in terms of economic value, the Indian retail sector is said to be worth over US$ 450 billion, making retail account for 14–15 per cent of the country’s GDP.

    The shopping culture in India has been undergoing some serious changes over the last few years. Where pre-2004 the retail industry was mainly understood to be the high-street markets with standalone stores, the recent years have brought in a rapidly emerging organised retail market in India where malls being looked at as a one-stop destination for consumers’ shopping, food and entertainment needs. However, only about 5–6 per cent of the Indian retail market is organised, which is strikingly minute when compared to Western economies where it is over 80 per cent of the total retail trade. Analysts forecast that in India the retail sector is likely to grow at an ambitious 25 per cent every year till 2020 – hinting at imminent amelioration in retail infrastructure and the overall shopping scenario. Retailing has played a major role globally in increasing productivity through a spectrum of consumer goods and services. Within the nation as well there have been many a long-drawn discussions and changes in retail FDI policies. Post the much discussed decision of the Indian government to allow FDI in multi-brand retail, it is only logical to expect this flourishing industry to grow dramatically. And here’s why.

    More liberal policies towards international players is expected to bring in to the domestic economy international expertise, better technology, variety, improved quality, etc. The end consumer will be witness to an even more vibrant melange of brands, products, and technology from the world over to acquire, exploit and enjoy. A large and educated middle-class and young consumers of this nation help drive demand across various product categories. This is another important point to acknowledge – the growing and multifaceted demand for shopping and entertainment exhibited by the Indian consumer.

    There has also been a huge shift in the shopping patterns of people in the recent years. The average consumer today is better aware in terms of the variety of brands available. They are more quality conscious, convenience loving and value seeking than ever before. Today, customers are looking for a holistic experience every time they step out to ‘shop’, which not only involves purchasing items from a list of needs but goes far beyond to include retail with entertainment and socialising, etc. Food, movies, child care, etc. are rapidly becoming popular value-added services sought by the end consumer. Convenient parking, security, and promise of quality are more examples of additional services that an average consumer expects when thinking of good retail destinations. Now upon comparison with high-street formats, malls score far higher on the board due to their ability to offer these aforementioned fringe services that package the retail process nicely. This, I would expect, is a major advantage also in the eyes of international brands as it simply means things like demographic studies, facility management, marketing campaigns, security, etc. have been actively organised to put together the right retail destination for the end consumer.

    Currently, the Indian economy and within it the retail industry houses a mere 5 per cent share of the total trade by organised retail. This highlights tremendous potential for organised retail sector growth in India.

    With international players coming in, the demand for retail space will double in the coming times. The cumulative retail demand for real estate across India is expected to reach 43 million square feet by the end of 2013. Around 46 per cent of the total estimated demand between 2009 and 2013 will come from tier-I cities. At this point stands the high street versus mall debate, which will now be directly considered by international brands in choosing locations to interact with their Indian audience.

    When it comes to malls and others forms of organised retail and entertainment destinations, it is now time to play up their advantages and offer a temperature-controlled environment, hygienic restaurants and food courts, a well-researched mix of brands all under one roof that have been so chosen based on the demographics, tastes, spending power, etc. of the very community that houses the property, entertainment, etc. In addition, mall management, facility management, marketing and promotional activities and the like are very important departments that will face immense pressure to show competence and superiority in attracting foreign players.

    Mall management has become an essential part of business as malls today are no longer merely shopping destinations but are also evolving as active hangout places. Customers are looking for a holistic experience and malls offer this with great success as compared to high-street shopping. So they will force the developers to create an atmosphere that will not only act as a destination to shop but also double up as a place to hang out at. It appears that while there might be a few concerns in the short term, the retail sector is bullish on long-term goals positing that by 2015 more than 300 million shoppers are likely to patronise organised retail chains as most international retailers expand operations in India. With the growth in the sector, retailers are looking at flexible space options through which various formats can be accommodated, and this is one area where malls are well placed to cater to new retail formats.

    The current environment is conducive for retailers to re-negotiate the rentals and bring down this cost. Large retailers like the , and are in the midst of furiously re-negotiating rentals to bring down costs. Some players have even managed a 40–50 per cent reduction in store rentals. The average size of malls is likely to increase as more number of foreign retailers come into play, and they tend to occupy large spaces. As an estimated figure, the average size of new malls is expected to rise by 2.5 times to touch 1 million square feet by 2017.
    Fixed rental model has fallen dramatically in the past few months, bringing both retailers and developers on equal footing. Today developers, who were earlier shying away from the revenue share model, are opting for the same and bidding adieu to fixed rentals. They are now ready to lease out their empty spaces. The model, under which retailers share a percentage of their sales with real estate companies, is considered a fair way of sharing risks between the two stakeholders. Revenue-sharing model increases the responsibility of the developer to bring in footfalls in the mall by providing good upkeep of the infrastructure. This is the way forward model, which is sustainable during the downturn where retailers do not have to take the hit alone. Players can leverage this opportunity by collaborating with developers to work out a win-win model.