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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We have seen worst in the last quarter and even during the beginning of this New Year. We were unable to properly welcome 2009 because of the global crisis and credit crunch. But what I am hearing form all around is the worst is still to come. What will be that worst even a blurred thought of that shivered me to the bottom. So instead of thinking of the worst, I tried to analyze things and tried to find out are there some facts that really backup the predictions people are making or it’s just a negative aura around people which forcing them to say like that. I can see in the last few months to cope with the economic crisis RBI and Govt. had taken lots of steps and so do the retailers and manufacturers. The Reserve Bank swiftly initiated a series of measures, which helped to assuage liquidity conditions, while reassuring the market that the Indian banking system continued to be safe and sound, well capitalized and well regulated. And because of some of the steps taken by govt. we saw an increase in consumption demand mainly reflecting rise in basic exemption limits and tax slabs, Sixth Pay Commission awards, debt waiver for farmers and pre-election expenditure. So there is still consumerism prevailing in the market, there can be different factors for that like the policies and measures taken by govt., reducing oil prices, bumper promotions given by retailers, reduction in inflation, decline in WPI driven by decline in prices of minerals oil, iron and steel, oilseeds, edible oils, oil cakes, raw cotton. Also retailers are controlling their inventories and manufactures are regulating their production, Manufactured products inflation, year-on-year, also moderated to 5.9 per cent on January 10, 2009 as compared with the peak of 11.9 per cent in mid-August 2008. So the policy measures are now in place and many other are in pipeline which resulting as a healing effect for the situation and I can see some stability in the economy. And as far as consumer behavior is concerned, Most of the consumer behavior we saw in 2008 will continue well into this year, Rosalind Wells, the National Retail Federation’s chief economist, predicts “Shoppers will be seeking value and trading down to discount and off-price retailers in order to stretch their purchasing power.” indicating shoppers will shop.

The GDP growth declined but it’s still positive and there is still GROWTH. I might sound too optimistic so using this open forum I will appreciate reader’s comments on this topic. I know in the back of everyone’s mind this is a question- “Are there any signs of recovery?”

- Prateek Katiyar

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Hope you did read the 1st? That would help….

Last quarter was bad - globally. Pathetic specifically for India. We found vehicle sales plummeting, sophisticated software companies revealing crude misappropriations, IIP on an all time low, re-ignition of the India-Pak short-circuits & what not. Overall a gloomy situation, fanning senses of insecurity.

However, two sectors have been growing relentlessly, silently at times and definitely (without any fudging that is). Telecom and FMCG. How? Why? Aren’t the consumers delaying expenditures here?

As we did discuss a few months back, certain sectors seem to be completely “insulated” from eventualities!

Not only have FMCG & Telco majors like HLL, ITC, Airtel notched up better top-lines. They have also managed significant improvements on their bottom-lines! IF cost-cutting and SKU-rationalising were the secrets behind such successes, then shall we say that all other did ”very poorly” in comparison?

The difference is simple & just requires us to remove the blinkers. Even if for a little while.

Almost ALL the growth of these companies came on the back of exceptionally good “rural” traction! I have sopken to quite a few people from our hinterlands in the past week or so. You know what? They have not even heard about Satyam or Nifty or Madoff! Neither have their “liquidity” dried up. Fuel price cuts have made them very happy though. Moser-Baer’s clever DVD pricing has delighted them. But big cuts in airfares are way above their radar!

I presume that’s a whole lot one can say about resilience of the Indian economy.

Pet Shop Boys had a huge top-of-the-pop hit around the 90s. It featured on MTV for not less than 3 months, regularly. The track was “Go West”.

It’s time we had such good news. Go Rural dudes, there’s enough for 3 generations…..to make a success of.

Related Reading : http://epaper.timesofindia.com/Repository/ml.asp?Ref=Q0FQLzIwMDkvMDEvMTQjQXIwMjIwMQ==&Mode=HTML&Locale=english-skin-custom

- Arnab

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These days came to fill some colors to the black and white balance sheets of american retailers, or we can say black, cyber and mobile days came to save the holiday season in this weak economic period. And as a result retailers not only got huge footfall but also an awesome sale. Some store managers quoted –

“Morning traffic was “awesome”, and “even better than last year.”

“I’m guessing it was about 85 percent credit and 15 percent cash,”

“People are happy, and few — if any — mention the economy.”

 As soon as I heard about these black Friday and cyber Monday, one thing came into my mind and that was Big Bazaar. It’s the only retailer in India who leveraged these similar occasions in India like “Maha Saver theen din” on Dhanterash and something similar even on Independence Day(I am not saying other retailers don’t do these kind of promotion but the kind of advertisement Big bazaar do just overwhelm all others). And because of this it made huge retail sales, regardless of razor thin margins due to offers there was profit, reason was volumes. But there is negative aspect of these days and that is handling tremendous traffic and rush, which Big Bazaar many a times failed to handles and same happen on Black Friday, retailers were unable to handle rush and on Cyber Monday most of the retail websites goes down too often causing inconvenience to customers. But in the last what matters were the sales for retailers and special offers to consumers.

And whats there in this for Indian retailers – a lesson to form a community not a competition and organize these days nationwide and organized retail wide, together they will be better equip to handle rush and to make profits.

- Prateek Katiyar

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This news did bring a wide smile to my bearded face http://www.indiaretailing.com/news.aspx?topic=1&id=2755

No, it was NOT the comment by Mr. Goenka’s, who generalised “his or his group’s own pov” as that of the Indians’! I am surprised by his “understanding” of the Indian “Consumer-Set” at the same time.

Anyway, what does make me happy is use of the following sentences, by very “qualified” retail managers:

1. it is the bottom of the pyramid where innovation will lead to sustainable consumer markets,

2. An encouraging regulatory environment and more physical investments are required to stimulate development,

3. No such thing as ‘average consumer’ exists in today’s consumer markets. It is very important to understand the diversity in terms of the type of consumers along with connecting to the consumers locally,

4. Customisation according to the local needs of the customer and simultaneously tapping the existing global opportunities is a big challenge facing the Indian retail business today,

5. Several resource constraints will provide the opportunity to rethink existing business and product models. Diversified product range, recreating value chain according to consumer needs & that India needs more innovative models like e- chaupal developed by ITC.

Though I am no visionary, I must blow my dusty, rusty trumpet sometimes!

It was around Jan/Feb’08, when I floated the idea of retail and real-estate entering dead-end-ahead lanes, on my Linkedin page. I also, in the same breath “publicly” offered a “fresh & unique business-model”, which could (and still would) add real-bottomlines to the retail business. If implemented, the model would have added at least 800 Crores to the wise retailer’s kitty, this fiscal. WITHOUT adding almost any cost! The messages should be available even now, in case you’d like to verify claims from a minnow.

Though I took pains to send the proposal to ALL retail big-wigs in India, no one bothered to even reply! As a matter of fact, my good friend Rajeev Karwal, who was tuned-in to this model, went to the extent of suggesting that I go ahead, on my own!

Today, when the big guys are feeling small in front of the mounting debt burdens, skyrocketing interest costs & dwindling productive footfalls, I do feel a perverse sense of vindication. Though it’s not really a sentiment I admire, there’s little I can do to be stoic about it!

Along with the times, the dimes that “can” keep organised retail “rolling”, if not “rocking”, have switched wallets…no, pockets!

Well, loose-change, in India, will always be the ONLY constant!

- Arnab

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I apologise for a late entrance & a late welcome to Roli.

Getting back to business, that of Retail now…There is general misunderstanding, among most, about Recession & Depression.

Recession is broadly defined as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.”

A sustained recession may become a depression.

Generally, periods labeled “depressions” are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology

Therefore, the time is hardly ripe, to judge general consumer spend-trends & specifically that via organised retail.

FMCG consumption via Indian organised retail is just about a “single” digit of the total, naturally. On top of this, we need to understand that juxtpaosition some tactically publiseh trends, though “textually” similar sounding but actually worlds apart, may not be addressing the real problem at all.
For example, Roli mentions “17-18% FMCG growth, followed by “more foreign brands” entering India & so on so forth”.

IF we agree to FMCG’s lion’s share selling through unorganised retail, these observations are very unrelated!
A daily labourer who bought 2 extra packs of Lux, because he could not afford two new sets of clothes, for his teenaged daughters could well be the scenario!

We can safely presume that at least 70% of our population (check if your housemaid knows) are quite unaware of the turn world / Indian economy has taken! And “that” is a BIG number of Indians, consuming a BIG chunk of FMCG! Of course there will be growth here!

In a very disturbing report, recently, we also get to know that many “global” retail biggies are actually conducting “experiments” in partnership with glamorous Indian partners! Needless to say, we Indians ARE the guinea-pigs. The same learning will again to “sold” to us at high prices. Look at the pharma industry, for instance.
As I have posted in various earlier rolls, I request the fresh minds, like yours’ to look “beyond” the made-up retail face. Scratch & peel off the foundation, it’s just a few layer-years deep! The surface below has been shaped & moulded by decades of austerity, food-control & malnutrition. All “actionable” like British rule was, through the fight for independence!

Yes, organising retail, developing supply-chains, eliminating fakes/spurious products - all these have huge potential in India.

The path, however, is nowhere close to the high-speed expressways we’ve been sold on. There are huge undulations on this road which will shake our confidence, miles of dust which may choke our verbose throats, rocky dry riverbeds most likely to challenge the J-Lo ish Michelins & steep climbs on where it will be easy to lose grip - the glitzy CRVs & Beemers will not make it I’m afraid!

But then, that does not mean they’ll run amok in the city streets either!

- Arnab

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