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To Re-Lease or Not to Re-Lease: Understanding the dynamics and nuances

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It isn’t uncommon to see new brands or existing brands shuffling space in malls every few months. We speak with experts on the reasons for the same and the results being achieved by this…

The Need to Reshuffle

Yogeshwar Sharma, CEO & Executive Director, Select CityWalk explains the top reasons for reshuffling of brands within the malls saying, “Optimizing the size, I would say is the correct way to put it. Other major reasons are the increase and decrease in sales, demand of new brands and sometimes the retail stores operations in India of international brands.”

Reshuffling is always directed at bringing in a positive change which works to the benefit of not just the mall but also the brand. It is always helpful to be extra vigilant before signing up a brand, least there is a clash of synergy.

Explaining this with reference being drawn from what is followed at Viviana Mall, Gurvineet Singh, Senior Vice President – Leasing at Viviana Mall says, “We as a mall believe in creating better synergies with our retailers. We have various parameters that we test internally before inviting a brand to be a part of our mall. This is the main reason why we have seen limited reshuffling in our brands. It is better to know if the brand can fit the target audience beforehand than inviting the brand and reshuffle.”

He, however, adds that Viviana shows no resistance towards working a way out to correct themselves in case their decisions of associating with an underperforming brand goes wrong. “At times, if we notice any drop in footfalls or revenue, we do assist brands in getting back on track.”

With a vast portfolio of brands across all their malls, DLF has been tactfully dealing with the issue of re-leasing and shuffling of brands. Pushpa Bector, Executive Vice-President & Head Premium Malls, DLF Utilities, throws some light on this saying, “Generally in a year, three to five brands per floor do end up being reshuffled. More often than not, they wish to either resize the store or move to a more relevant zone within the mall.”

Citing more reasons, she adds, “The reasons could include the fact that the brand may have changed its positioning, which eventually makes it irrelevant in a particular zone or if the zone itself has moved to a different part of the mall. The other reason could be that the revenue of the brand has dropped and the cost of operations is exceeding the revenues and therefore the brand has to move to a higher floor and give way. Generally, such movements are from ground floor to first floor.”

She emphasizes on the fact that a relevant brand mix is important for the sustainability and success of the mall.

Inorbit Malls – and specially the one at Malad in Mumbai – has been one of the most successful malls in the country. They too have gone ahead to rejig their tenant mix to drive in positive change eventually leading to an increase in footfalls and also extending better shopping options to their patrons.

Vipul Sachdeva, Associate Vice President – Leasing – Inorbit Malls, says, “Typically we look at an 8-10 per cent churn every year. Our team evaluates the sales performance of brands as a process, on a monthly basis. We also take into consideration regular customer feedback and plan churn accordingly.”

He shares a recent change introduced post feedback being received from their patrons, saying: “A consumer research conducted at Inorbit Malad discovered the demand for a gourmet store, a category missing from our mall. We fulfilled this demand by bringing in Godrej Nature’s Basket store, which will soon commence operations.”

Elaborating on the reasons for reshuffling, Sachdeva says, “The top objective for reshuffling will always remain performance enhancement for the brand. Reshuffling also depends on the tenure contracted as part of the license agreement with the brand. At Malad, we planned a facelift on completion of 12 years, at the same time we also got the opportunity to make some structural changes inside the mall for better customer circulation and got the leeway to enhance space allocation for the fashion category by adding new brands like H&M, Forever New, Steve Madden, Bobbi Brown etc.”

And how easy or difficult is it to convince brands to either shut shop or relocate? Sharma says, “By agreeing on mutual terms wherein we work with the P&L of the store and take a joint call for the relocation and downsizing.”

Usually, the mall management extends a grace period of two or three seasons before calling it a day. They have a meeting wherein the brand and the team from the mall management sit together with their performance data.

When and Why Brands Underperform

No brand, so to speak, would intentionally want to underperform. But complacency does set in after a point of time. Where industry experts point out the mis-match between the brand’s principles and the franchisee’s commitment to it as a major factor, the selection of staff and customer service also play a vital role.

According to Sachdeva, brands tend to lose focus in their drive to rapidly expand themselves or due to an unhealthy relationship with franchisee. Both of these can lead the brand to lose focus on operational efficiency.

Sharing a case study on how post intervention two brands that had been served notice to exit saw a positive change, Sachdeva reveals, “Two fashion brands that have served notice to exit were converted into profitable stores in our mall through discussions. We believed that they were strong brands and were not performing to best of their ability. In one case we provided extensive marketing support to increase visibility and later they moved into a bigger store, the other we provided our feedback on product mix between men and women category, this brand made necessary changes and proved the potential to grow. This further leads to them introducing their new concept design which was launched from our mall.”

According to Select CityWalk’s Sharma, trading density, uniqueness, innovation and consumer preferences remain the top reasons for brands losing their spark within the malls. Once a new brand comes in, he says that there is usually an immediate effect in footfalls in case of anchors but in case of vanilla stores, it does take some time.

Gurvineet Singh elaborates on the issue of franchise models where the strict practices of the brand are not reflected at the store level and the performance becomes weaker over time, also the design and fit-out of the store needs to be continuously upgraded. This may drive in complacency. To ensure that brands do not become complacent over time, Singh has a system in place where here is constant engagement with tenants to ensure that the thought process is in sync with the brand and mall requirements.

He says, “This helps us in creating better customer connect. At times, there are brands who does not upgrade to the new trends, we from our end try and engage with them and provide them alternative solutions that they can try to enhance their footfalls.”

Pushpa Bector points out that brands which do not evolve end up dying. She minces no words in stating that brands that do not invest in reaching out to their target audience generally see a drop. Further, according to her, merchandizing and brand’s fashion quotient plays a critical role clubbed with other softer issues of marketing. All these if taken care of can avoid a brand from being complacent.

What Brands Need To Do To Remain Relevant

Sharing his views on the factors brands need to keep in mind to stay relevant, Sachdeva says, “Today there are multiple shopping options for consumers so it is imperative for brands to stay relevant and active on both offline and online mediums. However, factors playing an important role are – the right look and feel of the store, the staff and service levels, the product – this remains the hero!”

On the stickiness factor that a brand needs to have to survive, Singh says that constant upgradation of products that matches changing customer preference is a must and so is it important to ensure that the brand thinks ahead of the time and is in sync with the required trend.

He says, “Keeping a tap of what is happening in the ecommerce space is imperative as well.”

Pushpa Bector adds, “Largely the factors that determine the brand’s survival comprise of – fashion quotient, visual merchandizing, merchandizing, pricing, promotion, efficient staff, well maintained store and its ability to being relevant in the market and in wardrobe.”

On the initiatives that need to be taken by brands to ensure they remain at the mall, she points out that it is always beneficial for the brands to get in touch with the mall to seek help / guidance on things that need to be rectified. A two-way communication channel always helps.

She explains, “Mostly, brands expect a call from us if their performance has been dipping for a while, let’s say, 9 out of 10 times. Proactive brands reach out immediately for marketing and visibility support and developers oblige. Most brands are willing to invest to turn around the situation.”

She highlights how even a change in staff can change the entire revenue stream of a brand saying, “tips from the management team of the mall often helps.”

Bringing in the Change

On the change in space allocation and its visible effect, Sachdeva shares, “If you look at Malad, the space allocation was increased for cosmetics and we saw 230 per cent increase in consumption of this category. With an increase in sales it also has helped the mall with new set of customers.”

Elaborating on the space factor, he adds, “We have few examples of brands that shifted from smaller stores to bigger stores or re-opened in a new zone with right adjacencies. The Body Shop operated from the first floor for almost 13 years. The store was relocated to the ground floor along with other similar cosmetic brands, to make it a part of the cosmetic zone. The size of the store was also reduced. All this led to the brand showing a trading density growth of nearly 45 per cent. Another example is FabIndia and AND, both opened larger stores on ground floor of the mall, thus being able to display better variety of merchandise for consumers and witnessed more than 55 percent sales growth.”

At Viviana, Singh shares that they successfully reshuffled Raymond Ready-To-Wear – Premium Formal Wear on to the ground floor itself giving them a bigger space. He says, “In terms of reshuffling of brands, we have added Wills Lifestyle and Indian Terrain on the first floor from ground floor to create more shopping options for the fashion lovers.”

Sharing instances of effective reshuffling/ resizing at Select CityWalk, Yogeshwar Sharma talks about how relocation and resizing of Pantaloons had an immediate and positive impact on consumer viability and the second case was that of the launch of Theobroma in place of a café whose tenure had expired. The launch has generated good footfalls for the mall, according to Sharma.

Sharing an example of change in place of a store, he talks about Modern Bazaar that was relocated to a much bigger space. He says, “This step was undertaken to give shoppers a wide variety of options when they go for grocery lookouts.”

On how brand replacement helped drive in footfalls at Viviana, Singh shares, “We had three small tenants that were consistently underperforming as observed in our BRM meeting; we replaced them with a single brand providing a larger space of around 1800 sq.ft. area to the single brand. Since then, the revenue has increased five-fold from the single brand in comparison to the combined revenues of the three tenants present earlier.”

A change in space too led one of the brands at Viviana see a revival in its sales. Singh shares details of the same, “A brand in the women ethnic zone was showing dip in footfalls and sales for two consecutive months. Through our customer feedback, we understood that there was demand for their products but customers were finding the store crowded during peak hours and hence were avoiding the store. Since the store had 550 sq.ft. of area we provided them with a larger space of 1,400 sq.ft. Our decision proved to be a successful idea and the brand witnessed a jump in their sales by more than three times. The brand has maintained its strong performance within the women ethnic zone.”

Sharing recent shuffling of brands that have created a positive impact to the footfalls throughout their malls, Pushpa Bector shares a few names that were removed and others that were brought to their malls. For e.g. YepMe being replaced with Miniso at Mall of India, Lee Cooper being replaced with Xiaomi at Mall of India, Guess being replaced with Mango at Mall of India, DKNY being replaced with adidas Originals at Mall of India, Gas being replaced with adidas Originals at DLF Place Saket and Bebe being replaced with Armani Exchange at Promenade.”

She shares how a change in the sq.ft. size of FabIndia impacted it positively. She shares, “FabIndia moved from a 1,500 sq. ft. to a 4,000 sq. ft. on the second floor of the Mall of India within a year of operation resulting in double sales and increased footfalls.”

When Is It the Right Time To Say Goodbye?

To know the viability of a brand to either stay or shut shop, at Viviana, they conduct research to check if the brand can add value to the current tenant mix and if it is suitable for their target group. Singh adds, “Secondly, our mall has been properly zoned to make it a complete destination mall. Hence, we have been able to minimize the possibility of a reshuffling. However, it depends purely on the requirement and changing customer preferences before we take a decision to reshuffle a particular brand. We keep analyzing the categories and ranking the top performing brands, the least performing brands are the first to be shuffled, each year we have maintained an average churn of 15 brands, we completed the first cycle of three-year license last year and shuffled 25 brands to get the more desired brands.”

Citing the top reasons leading the mall to ask a brand to either change space or leave, Singh shares the following –

– If a brand is not meeting the right target group
– If any particular brand is completely shutting operations in India then we replace it with other brand that can attract similar target audience
– Relevance of the brand to the target audience of the mall
– Change in customer preference as observed in the customer feedback mechanism
– Ranking of the brand in the category based on sales per square feet
– Synchronicity between customer demand and brand offering
– Brand value of the new tenant
– Performance of the brand in similar micro markets with similar demographics

Singh shares the procedure followed at Viviana, “Most of the times, it is a mutual decision taken by the brand and mall management. Reshuffling is done in a manner that protects the business objective of both the parties involved. We have our BRM with tenant’s regularly in which we inform tenant about their performance. This helps us to identify any concerns well in advance, avoiding any fall outs later and creating better relationship with our tenant.”

A grace period of six months is given before informing a brand to leave or change space.

On the action plan put to use to convince existing brands to either shift space or shut shop, Pushpa Bector says that they have devised means where they take into account the occupancy cost and sales per sq.ft. to know about the brand’s performance.

She explains, “Occupancy costs and sales per sq.ft. is the report card of the brand and also serve as the basis of all the reshuffle generally. If they are not clocking certain sales, they end up either not justifying the area they are occupying or the floor or zone they are stationed at and therefore require a shuffle to become profitable.”

Adding further, she shares, “Brands grow year on year provided a conducive environment is being maintained and the brand is adequately supported by the mall as well. A dip in month on month sales triggers an alert for the Mall. The mall will also cross check if the sales of the brand is dipping all across or only in their particular mall. The entire re-assessment is undertaken to evaluate whether the brand is relevant for the mall and the catchment of the mall. The mall generally provides 3-6 months subsequent to engaging them and requesting corrective steps before proposing a shuffle or exit.”

As Sachdeva rightly explains, “With changing times, we see a shift in consumer preferences and buying patterns. Over a period of time we have seen certain brand performances stagnate; while certain brands witness growth year on year. Few brands decide to change their strategy.”

He shares the example of adidas store at their mall which decided to introduce its new format and opened a bigger store with their new experiential concept.

Elaborating further, he shares, “Many brands with increases in their fashion assortment need more space, AND and FabIndia moved to bigger stores in our mall. The change in category allocation brings in the need to relocate in order to maximize business from the mall.”

On the grace period, Sachdeva shares, “The tenure and performance expectations are captured in the leave and license agreement and we follow the agreement. Also, these kinds of decisions are agreed upon mutually which are benefitting to both parties.”

He adds, “We enjoy our relationship with all brands present with us. If a brand is not performing well, the mall provides feedback to them and offers support through events and promotions. Most of the brands are quite open to feedback and work towards making necessary changes, suggested by the mall.

Setting Things Right

The rapport that a mall shares with its brand too has a direct influence on the brand’s performance. Talking about Viviana, Singh shares, “In our mall, there is so much of involvement with a brand even before their launch that we get a sense of how exactly it works. Our mall has been proactive enough to understand the brand’s value proposition and how apt that brand would be for our target audience. We have a regular BRM with tenants where they are informed about their performance periodically. The statistical comparison itself helps them to understand how their brand is performing vis-à-vis similar tenants in the mall. In fact, we have brands that are open enough to take feedbacks and counseling even if they at their end suspect something is not clicking with customers. We help them identify the problem, we provide them marketing solutions to help them revive their footfalls and improve their sales. Our feedback mechanism and assistance is designed in such a manner that our association with our retailers is strengthened and we move to a common goal of customer delight and business enhancement.”

Sharing a case study on how Viviana helped one of its retailer tenant revive itself, he adds, “We have a women ethnic brand that was struggling in footfalls and sales earlier, since it was a new brand compared to other established brands. We engaged with them, advertised about their products and offerings in our mall for free for a period of 15 days, we helped them understand the demographics of the customers visiting our mall along with their preferences obtained from our customer feedback mechanism. This actually helped the brand and effectively improved their sales.”

With a plethora of brands wanting to reach out to their customers and with the ever-existent dearth of space on the high streets, malls remain the only option for brands to set their stores. And with the kind of competition that exists in each category, remaining relevant and standing out is another pressure that brands undergo.

For brands to ensure that they have their presence in malls well visible and sustainable as well, it remains important for them to be in touch with the malls as soon as they notice a slag in the footfalls and sales. Malls and retailers together can devise means and methods for a mutually beneficial relationship if only timely action is taken instead of waiting for the time when the malls may have to call the shot and ask a brand to down its shutters at their mall.

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