Retail Dude

With only a dozen of malls surviving out of more than 200, I think the picture of Indian malls is fading gradually. This is the scenario of the Indian Malls at present and I presume it will be enough for the readers to envisage what I am going to mention.

It has been almost one decade of presence of shopping centres in India, as the first center appeared in late 90s - Ansal Plaza, New Delhi and since then the expansion really accelerated in 2002 – 2003. In the year 2008 – the year of economic slowdown, the development was less than expected and it is evident due to the fact that:

• 34 centres were opened (whereas 74 were planned for opening at the beginning of 2008)

• 8, 50, 000 square meter GLA (whereas 1,800,000 square meter was expected)

Besides the economic downturn, the problem also comes from the developers and retailers. In order to understand them better, a detailed study of the same is given below:

A.) Developers - The Greed for More

On one hand, it is good to see Indian developers investing and providing excellent infrastructure to the country which certainly enhances the overall image but on the other hand it is disappointing to see the blunders done by them for their own properties. Personally, I believe that a developer can accord to both Residential and Commercials at one time but when it comes to Shopping Centres (SC); they should not fire at their own feet!

The following attributes will give a brief idea of the mistakes done by the developers in past:

1. Poor site selection:

Selecting a location without even analyzing about the primary catchment area is a mistake commonly seen. There are many instances in the country wherein erecting a mall at National Highways has been a failure.

2. Vertical expansion:

This country has seen a lot of vacant malls with multiple floors. The ideal case is to have a shopping center with lesser number of floors no matter even if the size of the shopping center is small.

3. Commercialization Issue:

Poor commercialization is like a house built on sand - it will fall down any day. The first objective should be to position anchor stores in their respective position and second is to attract the vanilla brands by using anchors as a tool. It is also important to note here that with a good floor plan and bad commercialization, things could still work but poor floor plan along with good commercialization may lead to irreversible changes.

4. Lack of professional advice:

It is always better to take professional assistance before the commencement of project rather than after its completion, which undeniably reduces the scope of improvement as well as increases costs more.

5. Design issues:

It is rightly said that easy plans normally work, the more complicated you make, the more difficult it becomes. There are many instances like: the strange floor plans - proving to be a hurdle for the shoppers, no sitting arrangements, unplanned tenant mix – not making a mall a destination, low quality local stores or kiosk and so on that is diluting the overall image of the project.

B.) Retailers – Irrational decisions

The slowdown of 2008 has been a great lesson to the Indian Retail companies; they call it lately as correction! Before the year 2008, the expansions had been enormous but now the buzz is “expanding but cautiously.” After reading the factors listed below, one can certainly say the retailers have burnt their fingers themselves:

1. Juvenile expansion:

Before the downturn in 2008, the retailers used to expand frantically almost in every SC without giving much importance to factors like location, catchment analysis, long term vision, presence of the actual buyers, reputation of the developer and much more. These lead to problem of surfeit for which the retailers are still in distress.

2. Sky –scraping commercials:

During this massive expansion, the retailers were at ease to pay high fixed rentals which resulted in high fixed operating cost. Equivalently, the slowdown had a direct impact on the turnover which landed retailers in a miserable condition.

This resulted either in closing down of unprofitable stores or re-negotiations with the developers to reduce the rentals.

Thus, the term Revenue Sharing was introduced; convincing people of the fact it is a Win - Win model.

3. Brand visibility was more important than store profitability:

The expansion (prior to year 2008) accelerated in the most imprudent manner considering the fact that brand visibility* is more important than store profitability leading to calamity for many!

*For retailers, the numbers of stores are directly proportionately to brand visibility whereas store profitability is the result of high turnover and low operating cost.

4. Poor store visibility:

In order to enhance brand visibility; more and more outlets were opened which lead to poor project (mall) and location (store) selection. This yielded in low turnover and wastage of enormous capital expenditure on every store. The selected locations were so poor that even with the best marketing and information tools; no one was aware about the existence of these stores.

Hence, it was a Win–Lose situation wherein; the developer was successful enough in leasing out his space but not the retailer!

The road ahead:

The coming year will have a lot of consolidation. The existing smaller or vacant malls will either be converted into commercials or will be acquired by the larger players. The commercialization strategy will improve as the developers have seen enough and have learned to reject the worst and select the best. The tagline “everybody is welcome” will no longer be entertained and the landlords will be more selective in case of tenant mix and assigning locations.

Conclusion:

To assimilate the above, complete and professional asset management services are required to assist the developers and to create a good balance between the customers, retailers and the owners. It is possible by correct succession of steps beginning from thorough market research till the designing of the property.

Considering the fact that Indian real estate market has high potential and long way to go; the current phase demands improvisation through professional consultancy and other allied services. It is the time to see how owners employ the best use of these services in future.

And if all this is incorporated, one can hope that Indian Malls can once again be on a path of glory.

-
Amanpreet Singh Banga
Commercial Manager, Segece India, New Delhi, India

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Dear Readers,

A set of three new rule books for businesses in the country is going to transform and affect a company’s operations. Welcome GST, IFRS and DTC!

GST (The Goods and Service Tax) will be the one whole sole tax that the Government has proposed that will swallow all other indirect taxes that we end up paying. GST will treat as one market in terms of taxation and thereby only a single rate for products. Currently companies pay the central excise duties, the VAT imposed by the State Govt. Not to mention there are entry taxes and interstate taxes that is burdened upon. The proposed date of application of the GST is April 1^st 2010, although it’s almost ready to be postponed for sure as the Centre has a huge task of bringing all the States to the same page. Not to mention that the companies have a hefty back end work that will be needed to complete, this means aligning business documentation, supplier relationships, distribution, compensation policies, loan agreements to name a few. The benefits are major as the GST (proposed to be around 16% - 18%) will significantly reduce the total combined taxes (currently around 35%-40%) that are prevalent today to any sale of product or service provided. Talking about impacts, the first to flash is lowering of prices, this will increase demands. A single price for any product or service across the country which gives consumers a great relief. Talking of benefits to organizations, having regional warehouses instead of having one in every state impacts supply chain costs and capital investments. You will see a real application of the ‘hub and spoke’ model where a single warehouse caters to a lot many states at retail too. A significant change will be lower capital required to match the same level of production owing to consolidating the excise duty in GST.

IFRS (International Financial Reporting Standards) is a new basis of accounting that is more transparent being followed globally. About 100 countries have adopted it, which then makes comparison of statements across companies much easier. This will eventually replace the Indian GAAP structure. Again the adoption date is effective April 1^st 2010. Companies listed and unlisted will now have to consolidate their accounts, not just subsidiaries but associate and vendors they control (GAAP defines it as total control, but IFRS states that it could be partial control or directing activities too) . “Fair Value” accounting is to be adopted where all transaction or entry will be reflected in the current market value. This also means reporting for intangible assets like, manpower, copyrights, brands, patents, customer base etc, therefore a constant evaluation of assets take place. This will result in a wide variance in income and profits as companies will not be able to dump their losses into subsidiaries and associates. It is sure to have a big impact on FMCG, Pharmaceutical and the Automobile industries where a lot of vendors are implied. It’s sure to change a way of business in India.

DTC or the Direct Tax Code is a proposal to take an effect 2011. Under this regime the proposal is to cut the corporate profit tax from 34% to 25% all inclusive including surcharge and cess. The change in MAT (Minimum Alternate Tax) from the current 15% of booked profits to 2% on the gross assets for non banking firms. This simply means a loss making venture also can’t avoid this tax, but the losses can be carried forward too! These rules will even the playing field. Economics and not incentives will decide locations of new units. Tax holidays and Special Industry, what’s that? Location based incentives will be a passé. Special industrial zone status like (Baddi in HP) where a lot many FMCG and Pharma Co’s have their setup without much competitive advantage or Export oriented incentives/ SEZ’s or Software Parks / Infrastructure companies ( Sec 80-1A) rebates that they all enjoyed so far will be flushed out. However 9 businesses have been exempted like oil and gas, SEZ developers, power, cold chain, warehousing, hospitals (in select areas), fruits and vegetables, oil pipelines and infrastructure, as they are considered high risk developments. Although the incentive will on the amount invest and not where they invest.

Overall, the new regime if implemented on the deadlines will affect the way corporate houses do business and in the right way. There will be much more accountability and will be a change in which companies measure its customers. Pushing towards mere financial gains will come hard by. A better collaboration of industries will soon happen and therefore a better consolidation. The customers are sure to laugh their way back home.

Cheers to One India!

Sudip

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“Shopper’s stop BUT Women won’t…!”

For some it’s a hobby and a must for some. When they are happy, they shop… when they are sad, they shop even more. Shopping gives them a new focus and uplifts their moods. When real life can’t solve for them, “Retail Therapy” comes as a solution.

Financial freedom is one of the top priorities of Indian women, especially in the urban cities and with financial freedom comes the choice of leading a lifestyle that suits ones tastes and preferences. Women like to wear expensive jewellery, carry high-end gadgets and buy apparel and footwear that make them look good, feel comfortable and also exude their style statement in a subtle way.

Times have changed now and for the good. With factors like growing number of working women, changing fashion trends, rising information level and media exposure, and the foray of famous foreign brands in the Indian market, Indian women have become more conscious about the range of brands that should fill their wardrobes. They are more interested in benefits and features of the products. They want to know how the product can enhance their lifestyle or make their lives easier. They need time and space to make their choices (without forcing them to make quick choices). They need to know plenty of product information too, such as colors and styles, and a variety of options to make their shopping decisions easier. Most women like top-notch customer service, and nothing turns them off faster than difficulties with issues such as returns (so handle them with extra care).

Consumer shopping statistics reveal that women are responsible for 83 percent of all consumer purchases, including:

• 92 percent of home furnishings,
• 92 percent of vacations,
• 91 percent of all homes,
• 51 percent of all consumer electronics, and
• 60 percent of all car purchases (they actually influence 90 percent).

To capture the woman buyer you have to understand the woman psyche. Women live with a never-ending to-do list, and the pressure to get that list under control triggers stress. They have a different perception of value and at the top of their list are trust and respect, or they won’t buy. Women want you to help make their lives easier and to experience enjoyment in the buying process. Some key perspectives around women, trust and loyalty. Women believe:

• If I trust a brand I will recommend it-83-percent belief factor
• Selecting a brand I trust saves me time-75-percent belief factor
• Selecting a brand I trust makes my life easier-72-percent belief factor
• I am willing to pay more for brands I trust-70-percent belief factor

Marketers know that trust is central to loyalty for women. While advertising generates buzz, women generate talk and a lot of it. Women rule the checkbook and the credit cards, and they are having an impact on your business every day. It’s time to start considering what women want and how to capture this consumer group.

Satisfied female customers are much more likely to network (needless to say that) about your products. Women will share their experience with their friends (envy them to an extent that those envious women will buy that product in no time), and your sales will grow as the word spreads.

“Whoever said money can’t buy happiness simply didn’t know where to go shopping” - All Women on this earth

- Dipti

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Dear Readers,

As rightly said by Prateek and carrying it forward, the social commerce moves are definitely undergoing a facelift and change.

The change is also evident on how the cookie crumbles when it comes to marketing and business development. India over the decade has seen the boost of growing entrepreneurs which is a direct equivalent to the potential of the growing markets and the innovative quotient. The advent of social and professional networking seems to have opened a whole new platform of business development. The latest to join the bandwagon is Twitter, whose convenience of access through mobile phones and short text formats have yet again changed the way of communication.

It all started with the advent of Ebay who filled a gap of providing a platform for online sales to individuals. And now social networks are touted and been proved to be the next gen marketing tool.  Although the usage of a particular network is a bit sporadic shared by My Space, Orkut, Facebook, Linked In and now Twitter to be the lead flavor of the season. Although there aren’t standard rules but each of them uses their own policies and thus the exploitation of the community. If the service or product is too niche or too rural then the social vehicle is definitely not the medium to promote it. The best thing about this medium is the level of personalization that it can create to every individual user. It’s like a big loudspeaker that has enough takers online. These are the ‘Mavens’ who being the prospective customers are not afraid to explore and are hungry for information.

Imagine the benefits to organization that are actively using these mediums. Every community can be specific to a set of clients and customers. The website traffics could also be reduced significantly through these branches during recession and also amplifies during a product launch easing out costs complementing an effort to go green. Advertising revenues per click also gets a new face. These communities help build healthy leads for a sale or association. The new breed of entrepreneurs couldn’t have asked for a larger audience to be heard and cater to.

Social media is as good as word of mouth and therefore has its own share of the bad. Organisations like IBM had interpreted this very early and therefore set up a special team, that looks into major forums, sites and communities looking for every feed on IBM, either for a product or service. This group monitors every discussion trying to filter a genuine concern to bogus reviews from a rival. Although it provides a great test market as well to acceptance, but at the same time runs the risk of discomfort to a brand presence. You might as well have seen founders and CEOs who also are actively present in these networks only reiterating a fact that these groups needs decisive inputs from the decision makers themselves since it’s almost like a media release.

Social networking is definitely the next big thing if taken care of until the 3G networks hit India which would surely see a burst of M Commerce and application, all hand held for the KING.

Here is a small presentation that peeks into some other forms of marketing tools that are still strongly present although getting a little old. But old is still gold. http://www.4shared.com/file/124057358/5129e2da/Alternative_Marketing_Vehicles.html

Cheers

Sudip

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A fellow blogger is organizing a free webinar on the topic, “Small Retailers and the Down Economy: Turning Lemons into Lemonade”. Which would be broadcasted on Thursday, March 26th, 2009 at 10:00 am PST and will focus on effective tactics for small and medium-sized retailers in the recession. All attendees will receive a bonus white paper, “Best Practices for Retailers in the Economic Downturn.

Sounds interesting, and am getting my self registered, and would recommend the same to you. Here is the link to get yourself registered: http://spreadsheets.google.com/viewform?formkey=cFRpeTJrRHd6LWl5emJNay12dTZKVnc6MA

For more information please visit: http://www.inventrakpos.com/about-us/events/203-free-webinar-qsmall-retailers-and-the-down-economy-turning-lemons-into-lemonadeq

- Sarthak

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When we started off with Retail Dude, we had intended it to be a small blog for people of similar interest, to be cunning and straight. Then, we realised that if we agree with most of our own theories that we develop here, we need to grow! just like any other venture we throw sarcasm at, we need to provide you with more reasons to be happy, more reasons to do something

So, here is another attempt to do the same! Retail Dude Jobs, which can be found at the URL: http://jobs.retaildude.com (Bookmark it) where we intend to make it an open platform for recruiters to look for some quality retail workforce within India, keeping it free, and transparent.

Its a virgin start, no jobs yet

- Team RetailDude

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Since we at Retail Dude are committed to help out our new young brigade to learn more and better about retail, here is a small presentation that is shared in the download section. The presentation very easily is a thought provoking one which talks about some essentials in retail. These are basic pointers if you are to open up a retail store. This is just to facilitate more learning’s. This presentation is a big thank you to Global Purchasing Inc.

Retail up guys!

- Sudip

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Keeping up with our trend of providing you with quality reference material, we have uploaded two new articles in our DOWNLOADSsection, The first article focuses on the “Twist in Retail sector” providing you real insight into the world of retail in India, and the second article provides an insight into the hottest issue right now - The US Financial Crisis. As a RetailDude.Com featured article, you can expect these article to be straight forward, cunning with a bit of sarcasm and humor. Looking forward for your feedback as well

Cheers!

- Sarthak Taneja

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The India Retail Report 2009 compiled by research group Images F&R Research is again optimistic about Indian Retail Industry. As per the report, spiralling income and rising economic growth (I don’t know where it is) will fuel the growth of industry and it will touch Rs. 18,10,000 crore by 2010. Organized Retail is expected to constitute 13% of it i.e. Rs. 2,30,000 crore. The report says that though people are perceiving that organized retail will hit mom & pop format hard, but modernizing retail will generate employment for 15 million people in different activities.

The report is based on rising economic growth rate of 8-9 per cent and a hike in average salaries by about 15 per cent which may trigger the rate of consumption. But with subprime crisis in US, Indian companies are also affected in big way, and even stock market is suffering. We hear news of cost cutting and layoffs daily. So, I don’t know how far it is right to believe growth rate of 8-9% and hike of 15%.

Food and grocery dominated the retail segment with 59.5 per cent share valued at Rs 7,92,000 crore, followed by clothing and accessories with a 9.9 per cent share at Rs 1,31,300 crore.

-          Rajeev Damani

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