The tug of war between online and offline retail is approaching a draw, and it’s time malls and shopping centres pulled up their socks and became anchors to both. In the times that we live in, where online players are busy setting brick-and-mortar targets for themselves and offline players are strengthening their Internet presence, it is time to reach a consensus with the only target being growth.
CEO, Viviana Mall, Sunil Shroff says, “Initially, malls were conceptualized as an amalgamation of stores meant only to be a shopping centre with the organized retail trend starting in 1999 in India. Malls only acted as aggregators of different retailers at a single location. Gradually, things started changing. Malls started creating avenues for dining and entertainment to create better engagement platforms. Now, malls have evolved into a single destination offering a gamut of products, services and entertainment acting as a one-stop solution to customers. Today, malls put a lot of emphasis on mall positioning, zoning, promotions/marketing, tenant mix, mall layout, customer walk flow management and facility management.”
The dynamics of the industry have changed and changed considerably well. There have been mistakes and with mistakes there have been learnings. Executive Director at Select CITYWALK, Yogeshwar Sharma makes a valid point when he says, “The last 10 years have been a turnaround for the retail industry. We all know that mall culture in India is not more than a decade old. And in these 10 years we have evolved and learnt through our mistakes. It is wrong to say that we need to base our learning from international countries where the mall culture is relatively matured. Each country and each region has its own uniqueness. What works at one place may or may not work somewhere else.”
Head and Executive Vice President, DLF Premium Malls, Pushpa Bector elaborates,“The Indian retail sector has witnessed an unprecedented development over the last decade. This progress can be credited to robust economic growth, rapid urbanization, globalization as well as advent of foreign brands in the country.” This, according to Bector, has in turn given a huge push to the real estate market and retail.
Executive Director of Pacific India Group, Abhishek Bansal credits the growth of retail to real estate and infrastructure growth in the country. Elaborating on the same, he shares, “India is one of the fastest growing G-20 economies today. Backed by an economic and policy reforms and improved investor confidence the market is burgeoning. One of the fastest growing and key contributors to this growth story is the infrastructure and real estate sector. An open economy, consumer awareness and increased disposable incomes have also led to increase in demand for better products, brands, quality goods and services that the retail market is striving to keep up with.”
He points out that with the desired support from the Government, the sector has the potential to grow. “The industry needs the desired support from the Government in the form of legislations, transparency and industry support,” shares Bansal.
Where Delhi and Mumbai remain the favourite hotspots for global brands, the industry leaders also feel that there is potential being shown by tier II and tier III cities and towns.
Pushpa Bector says, “From small-sized malls in the mid-2000s to luxury malls with millions of square feet space, retail real estate sector has enormously grown over the last few years. A few cities have even witnessed the emergence of high-end or luxury retailing formats catering to a new breed of retailers and shoppers. Shopping is just not about buying products now, it has become a wholesome experience with entertainment, food, rejuvenation options available. Metropolitan cities like Delhi and Mumbai continue to be preferred points of entry for global retailers, owing to the suitable real estate opportunities and right target catchment; while Tier II and Tier III cities are catching up.”
Be it in terms of fashion or entertainment, customers today are demanding and adamant on being offered things at par with international standards. Bansal reiterates, “The end customer has also evolved over time and shoppers today are more discerning and up-to-date about the latest in products and services than ever before, expecting a certain standard of shopping experience from retailers.”
He points out that there is a need for trained manpower and mid-senior level management professionals with technology becoming imperative for survival. He accentuates this saying, “As retail formats are increasingly using the latest in technology, logistics, marketing and supply chain management solutions, there is a requirement for re highly professional people who specialise in these fields.”
Shroff adds, “Though the beginning of malls and shopping centres was a bit delayed but finally the industry is picking up the momentum and heading towards the right direction. All it requires is Government support, better infrastructure and an excellent talent pool to take the industry forward. There has been no major disappointment but things can be streamlined for the benefit of the sector.
Encapsulating the past and present potential that is there before the industry, Senior Vice President at Infiniti Malls, Mukesh Kumar shares, “India has occupied a remarkable position in global retail rankings; the country has high market potential, low economic risk, and moderate political risk. The shopping centre is the most successful land use, real estate, and retail business concept of the 20th century. It dominates the retail landscape and is so pervasive that it served the entire metropolitan city in a hierarchical system, consisting of neighbourhood, community, regional, and super-regional centres. The large centres are not only shopping destinations, but also offer a wide range of dining, entertainment and recreation experiences.” He further adds, “Immigration and construction boom, combined with greater lifestyle and more convenient public transport, meant metro cities to begin spread. The pioneer shopping centre developers, and major retailers recognized that it was more sensible to go into the suburbs, where their customers lived, rather than expecting the customers to continue to come to them in the central business districts.”
According to CEO-Retail and Commercial, Brigade Enterprises Ltd, Vishal Mirchandani, “The Indian retail industry has been seeing significant and commendable growth in recent years with a noticeable shift to organized retail formats. Over 200 mn sq.ft. of shopping mall space was operational within a span of 18 years indicates a strong growth with higher success rates. Strong, young and consistently growing internal Indian economy makes us a highly preferred destination for dozens of retailers thus expanding the retail consumption story. This growth has been in spite of the various hampering factors we have discussed here. If those are removed, the industry would surge forward at greater pace and the economy will feel the positive impact of that.”
Growth and challenges go hand-in-hand and that remains universal irrespective of any industry that we talk about. Specific to malls and shopping centres, Bector shares, “There are certain challenges that the industry is facing, like lack of single window clearance system leading to longer gestation periods, cost escalation etc.”
Bector, like a majority of the other players, too has the issue of trained manpower in the list of challenges being faced by the industry. Talking further on obstructions, she says, “Another setback is the lack of advanced technology which leads to project mismanagement and hence postponement in delivery. Specific to retail real estate, the e-commerce boom and high demand in warehousing segment has led to a decline in demand for mall spaces. This further leads to the woes of a retailer, who ends up with huge unsold inventories. Lastly, unavailability of land, lack of infrastructure and connectivity is still a major challenge for real estate sector in large, developers also face issues in terms of political and social risks while operating in Tier-II and III cities.”
Drawing attention to a new challenge that is gripping the industry, Shroff adds, “The first and foremost issue is the order of liquor ban in states and union territories in shops, bars and restaurants situated within 500 metres of the outer edge of National or State Highways. While we respect the ruling of the supreme authority, we want to bring attention that such mandate would hamper the business in the long run. Since most of the malls and restaurants are located near the highways to reach maximum target audience, it is a challenge for malls that have on boarded international and well known restaurants and pubs that serve drinks to their customers.” Shroff highlights the problem of trained manpower that is faced by the industry as a whole.
According to Yogeshwar Sharma investing in human capital is something neither brands nor developers should ignore. He aptly states that it is the store staff that ultimately is the face for the brand when the customer is at the store and only if he is well groomed and well trained will he be able to sell confidently and retail the customer. Shroff adds, “Shortage of trained manpower is also a major challenge the industry faces currently. Unlike western countries, there is a dearth of trained and talented support staff in the retail real estate industry of India. Retailers find it difficult to maintain the current talent pool and are beleaguered with the continuous job-hopping by talents in the industry.”
He further adds on the continuous change in customer preferences and how this factor has become difficult to handle as well: “Changing customer preferences also is a challenge that the industry faces but it brings in with it immense opportunities that can be tapped. With the dynamics changing rapidly, each retailer and mall operator has to be on its toes to keep the customer satisfaction levels high and create benchmarks in customer service.”
Mirchandani, says, “In a hugely connected world, the Indian consumer is now very much like his global counterpart anywhere. He has increasing disposable incomes, is well-travelled, quality conscious and aspirational. So, the retail sector needs to keep pace to deliver to these aspirations and changing expectations. While there has been a surge in the scope and size of the retail industry in recent times, it is also constrained by the ‘system’. In Indian Tier II and III cities it is not easy to find properties that make the cut in the right locations, hence market penetration is a challenge. Laws, licensing and regulations also pose a challenge, but I would say most big and organized players in the retail industry have been able to take on these challenges and move forward. Skilled manpower is a challenge for any service industry, and it is no different in the retail sector. The industry can only circumvent this by constantly training and increasing its manpower resources.”
Being in Sync with Demand
According to Bansal, ‘retailtainment’ will be the in-thing in 2017 – a combination of retail and ultimate entertainment experiences to woo their consumers. He shares, “Malls will be more providing the customer with a lot of experiences in one place – this would involve innovative celebrations, specially conceptualized events, festivals, shopping experience including high street brands, cafes, bars, movie theatres, multi-cuisine restaurants, fine dining, kids and gaming zones, salons and much more, for people of all ages.”
Accentuating the fact that online retail is not here to cannibalize on offline retail is the fact the online players are seen setting stores in malls and other high street locations. Bansal shares the dynamics, “We have been growing exponentially and increasing in footfall year on year with the right mix of branded shopping, premium brands, high street goods, as well as the essentials like fine dining, value marts, entertainment zones etc. In fact, we get a lot of enquiries from online brands to the possibility of opening outlets in the malls as they feel they need to be present in both the verticals.”
He further adds, “Though online retail platforms have created diversions offline retail is here to stay. Omnichannel strategy will enable retailers to rethink their business strategy in order to tap the best of both worlds and maximise on footfalls giving the perfect customer experience.”
Who Takes the Lead?
With leisure and entertainment options being the focus point for the masses today, malls and shopping centres have the onus of satiating then need keeping in min the dearth of other options available. The other trend of shopping being done indoors makes it imperative for brands to rethink on their strategy to pull people to their stores and according to Sharma this isn’t the responsibility of malls alone. He stresses on the point that brands need to innovate themselves and their store fronts to make sure the customer comes to their store time and again. Where malls can attract shoppers with various collective offers and entertainment and leisure options, it is the brands that know their customers and it is up to them to retain them.
On the e-commerce phenomena, Bansal shares, “Experiential retail and large online formats have led to rethinking of traditional retail models. But off late the market is moving towards an Omnichannel strategy where Malls and shopping centres and becoming more of fun and entertainment destinations rather than just shopping areas.” Talking specifically about Pacific Mall, he shares, “We have increased our focus on creating niche campaigns and events for our customers based on their feedback and preferences.”
A very distinct point made by Shroff highlight the need for better utility planning. He explains, “Malls at their individual levels have been striving hard when it comes to efficient utility planning. Special steps must be taken to create environmental friendly solutions that can make mall business more cost effective and eco-friendly. For example, we have installed solar panels to save electricity. Our STP plant helps in converting leftover food from restaurants into manure which is distributed to customers free of cost.”
Mukesh Kumar adds, “Major technological innovations in the distribution system led to the emergence of another retail revolution and these innovations included highly computerized goods-tracking systems and inventory control, enabling the generation of instant databases and direct communications with manufacturers. To say that competition with online shopping is the biggest challenge is an over simplification of a more troubling issue. For any shopping mall, their biggest challenge is to ensure that they are (still) a relevant and viable logistic channel for buyers and sellers alike. Turning online traffic into foot traffic is a major problem to solve. Everyone is on mobile these days, and malls must adapt.”
It has been a while since the industry has been calling out to the Government to grant retail an industry status in the country. This is keeping in mind the employment it generates and not to forget the contribution it has towards the country’s GDP. Bector shares, “Real estate as an industry is the second largest employment provider in the country. By granting it industry status, the government would enable the sector to access debt lending at better interest rates and reduced collateral values. This will result in much efficient cash flow and will attract large companies and huge investments.”
She points out attention to some of the obsolete government laws, inadequate policy frame work and lack of coordination between state and central bodies, “The Government should decentralize decision-making process and empower urban local federations. The approval process should be streamlined by introducing single-window clearance mechanism backed by technology. Building development norms such as low FAR/FSI, density norms etc. should be reconsidered. Fees and taxes should be rationalized across project stages as they increase the construction cost by 30 to 35 per cent.”
Shroff insists that the sector would be a major driver in economic growth and job creator across its verticals going forward and hence an industry status is important. He elaborates, “It will help in creating efficient demarcation of rules and regulations required in the sector. Granting industry status to malls has been a long pending demand of mall operators. Currently it is very challenging if one has to raise funds from right sources at good rates. Industry status will help us to raise capital easily in order to fund new developments or projects.”
While the Government has announced major reforms for the boost of the real estate sector, there are certain measures which Government can undertake for enlistment of the industry, according to Bector. She adds, “We hope that the Government focuses on reducing its current account deficit, broaden its tax base and direct expenditure in a more productive manner. Also, the need of the hour is to adopt Public Private Partnership (PPP) framework to effectively address the major issues of the Indian real estate. The Government and private sector can work together to focus on skill training and technology to bridge the gap. A nodal agency to coordinate effort of various stakeholders should be formed. Better infrastructure, improved connectivity, favorable land acquisition policies and fast clearance of pending projects can give major boost to the sector.”
Bansal shares his take, saying, “The refurbishing of the capital gains taxes will pave the way for Real Estate Investment Trusts (REITs) being listed in India finally. The setup of the investment infrastructure fund will help in giving an added boost to the industry. The industry has witnessed substantial growth and progress in the past few years. Due to some of the recent policy changes including liberalization, disinvestment, FDI policy, GST implementation, major international and global players are setting up shop in key catchment locations. Real Estate Regulation Act (RERA) is also set to change to the way business would be conducted bringing in unprecedented transparency and accountability. Though the act is a game changer but it remains to be seen how much and how fast the states implement RERA.”
Mukesh Kumar draws attention to the requirement of positive incentives for the shopping centres as eventually a shopping centre does contribute to infrastructure development of the catchment. He explains, “Quality retail spaces are limited in most parts of the country. In absence of this, there is more unorganized retail in India, which puts a lot of pressure on the infrastructure of cities. Increase in shopping malls will help reduce this burden since malls provide most of the facilities required by a consumer. The Government will have to have a holistic view of this, maybe offer incentives to develop shopping centers as required.”
Talking about Government support, Mirchandani, says,”As the entire retail sector has been demanding, the Government should grant ‘industry status’. This will give the industry access to incentives that will help both big and small retailers grow their businesses and contribute to the economy. Also, the Government should take the initiative to do away with the multiple laws and
obsolete regulations governing the sector at the national, state and local levels and bring in legislation that resonates with the times. Grant infrastructure status to shopping malls above a threshold size.”
The Real Estate sector should be given industry status to wipe off the issue of cash crunch.
Developers would get access to low-cost funds via foreign direct investment (FDI), external commercial borrowings (ECB) and domestic banking assistance.
There is a dire need for collateral against loans to be reduced.
Rating systems would certainly help in creating benchmarks and improve standards but it needs to be properly monitored by an independent body comprising experienced individuals on board. It will drive malls to manage and serve customers efficiently in terms of safety, security, environment friendliness etc.
Where Dubai unanimously tops the list, there are other countries on the list as well. For Bector it is Singapore and Thailand. She says, “I really admire Singapore and Thailand for its retail real estate laws and development. The infrastructure and mall development in these countries is seamless. Further, there is an excellent metro connectivity through these properties aiding to the infrastructure. Basically, these countries are promoted as tourism destinations focused on malls. This leads to great mall developments and creates mall vibrant ecosystem.”
Singapore is a part of Shroff’s list as well. He states, “I admire Singapore as a country that has used retail real estate effectively. The distribution of malls across the country whether you are in the central districts or in the neighborhood heartlands, no one can ignore the large shopping complexes. A majority of the malls have utilised the space effectively with some great tenant mix and created better customer engagement touch points.”
Mukesh Kumar shares his favourite, “Doing business is by and large about the efficiency of regulations – how fast, how cheap, how simple it is to get a transaction completed and it further depends on to measure the quality of regulations. While 80 per cent of countries in the study improved their business regulations last year, only about one-third moved up. China, not only boasts tremendous consumer potential with more than a billion people, the country’s retail market saturation is currently only 42.3 per cent. And the country risk is still lower than Chile’s, Qatar’s, United Arab Emirates’ or Brazil’s. Relative to other developing markets, China’s performance is unparalleled and in 2014, its retail growth was an impressive 11.6 per cent. China’s retail market is expected to surpass the United States as the world’s largest retail market by 2018.”
The Road Ahead
Bansal concludes on a very positive note saying, “Retail has undergone a metamorphosis in India since its early days of inception a decade back. Today it’s one of the most dynamic and fast paced sectors accounting for more than 10 per cent of India’s GDP. The Industry has been through recession, slowdown, challenges thrown up by the changing customer preferences and the opening of the economy. Amidst these challenges and increasing real estate costs modern shopping centres are coming up with new formats and reinventing themselves to maintain footfalls and customer interest. They are targeting the consumer that is aware, well informed and looking for a more holistic experience and engagement. Despite the challenges the mood is upbeat and the opportunities tremendous.”
Bector adds, “Various Government reforms such as relaxation of FDI norms, ease in retail loan rates has infused positive sentiments among the consumers as well as investors. Interestingly private equity players have started showing huge interest in the sector. In the coming year too, the demand for organized retail space is expected to grow, probably exceed the supply in most top market. This may put upward pressure on rentals at major high street malls.