Images Report 2005 on shopping centre development in India - II

The fast growing middle-class population and the rise in women workforce and consumerism over the decade are the major force in driving demand in the retail sector. To the present generation shopping means much more than a mere necessity and malls are now fast becoming image benchmarks for communities. The future of Indian malls is in the Hybrid format, the Discount malls and Gen X malls that have emerged as the hottest concepts in 2005.

Chesterton Meghra findings

a. Middle-class forms 20-25% of the total population (200-250 million), and is driving demand in the retail sector.

b. Increased spending by India’s middle class is estimated to be over US$ 300 million.

c. Lifestyle orientation of people is changing: The super rich class of 17 million will increase to 35 million in 5 years.

d. Over 40 million in India have same purchasing power as Americans.

e. Overall consumer spending grew at a pace of 6% pa in last 10 yrs.

f. Around 75% of population in India is under 40 years of age.

g. Among factors that spurred the mall mania on: Dearth of organised retail for one and the demand to replicate the mall experience of shopping in foreign countries was the other reason.

h. Age of Gen X malls: Greater than 500,000 sqft with large entertainment area, ample parking spaces

i. Enter Discount malls: At least 5 outlets in each of the major cities this fiscal - to provide goods that are at least 25-50 per cent cheaper than the retail price, manufacturers can directly sell to the end-users.

Hotel shopping plazas gaining popularity

Traditionally hotel retail was restricted to jewellery and handicraft items but post 2003 this is changing with various international retailers entering the market preferring the hotel environment more suitable to get a feel of the market. Assessing this demand, new upcoming hotels are incorporating distinct retail areas in their plans on the lines of Grand Hyatt in Mumbai and Leela Galleria in Bangalore.

Jones Lang Lasalle findings

a. Hotel shopping plazas with sizes varying from 10,000- 220,000 sqft coming up

b. Existing hotels are making efforts to revamp and expand their existing retail spaces

c. In 2004-2005 Oberoi Hotel Delhi, Taj Mahal, Mumbai, Imperial Hotel Delhi, Maurya Hotel, Delhi have seen prime retail space being increasingly leased to high end retailers

d. Apparel consumes more than 50% of this hotel retail space.

Acute shortage of anchor retailers

One of the key challenges for a developer in India today is the lack of choice with respect to anchor retailers that is limited to a total of less than 15 as of now and clearly presents a demand-supply imbalance, especially with more than 300 shopping mall projects coming. For the developer, this means inability to create a distinctive positioning and character for the mall and also inability to replace a “not so well performing” retailer with a better performing one.

Pricewaterhouse Coopers findings

a. Majority of upcoming mall developments remain fragmented and sub-optimally planned

b. In near future there is likelihood of a shake-out within shopping mall business

c. Emergence of few large, dominant and relatively more professionally managed national/regional and a host of specialty/niche local players likely

d. With globalisation of the real estate sector, shopping malls of international scale and quality would soon emerge.

With FDI, India can replicate the Chinese experience in retail growth: Food and apparel most happening sectors India is the most compelling opportunity for retailers in 2005 though “timing” is one of the most crucial decisions in retail, which if not tackled properly, can cause retailers to exit the market. Fierce domestic competitors and shaky infrastructure are among the major obstacles for international retailers, says A T Kearney report. The success story of China is a glaring example where the domestic retail industry is still thriving despite FDI. Food and apparel present the greatest opportunities for global retailers in the Indian retail market, the study says.

A T Kearney findings

a. In 2005, India offers most compelling opportunity for retailers

b. India’s retail industry (food and non-food) is the second largest employer after agriculture

c. India’s retail industry is world’s second largest untapped market (after China)

d. Department of commerce has recently proposed that 100% FDI be allowed in retailing

e. Benefits from FDI: A multiplier effect on the economy as a whole, manufacturing, food processing, packaging & logistic services to gain

f. FDI to bring significant increase in employment in front-end and supply chain streams

g. FDI to lead to greater export opportunities for Indian suppliers due to increased sourcing by major players

h. Strong retailing sector will boost tourism as seen from the experience of Singapore and Dubai

i. In China: FDI permitted in 1992; retail sales have grown at the rate of 15% CAGR year on year; initially FDI was restricted to 49% equity shareholding, restrictions have gradually been phased out

j. Since 1992, foreign retailers have pumped USD 3 billion into China, have set up more than 2,200 branch stores, yet sales of foreign retailers make up less than 3.5% of all retail sales in China, indicating that the domestic retail industry is thriving

k. Food and apparel present the greatest opportunities for global retailers in India - most of the growth over the next few years is expected to be in these two sectors.

REITs can provide better finance solutions for retail estate

Financial structuring is among the most crucial aspects in mall development as the cost of a retail development is generally 40 per cent higher than any residential or commercial development and the mall takes 4 to 12 months post construction period operations to get fully occupied. REIT (Real Estate Investment Trusts) can provide a good alternate financing solution to retail real estate development as they bring in the flexibility to rope in retail investors and still maintain the overall control on the tenant mix and other aspects of the mall management, says the study by Cushman & Wakefield.

Cushman & Wakefield findings

a. Cost of a retail development is generally 40% higher than residential or commercial developments and malls take 4-12 months post construction period to get fully occupied.

b. REITs can provide a good alternate financing solution to retail real estate development

c. Ongoing mall projects estimated to require construction cost funding of approx INR 128 billion

d. In the next stage of large scale stabilisation, more sophisticated funding mechanisms will emerge

e. The Indian retail real estate market is poised for an even greater revolution in the years ahead.

Concept based positioning more important than design/looks

During the last 10 years, four clear shopping center models have emerged: the Family Center, the Fashion Center, the Themed Mall experience as a leisure enhancement for tourists, and the Community based center - each suggesting quite different approaches to the interiors. Colour and materials are still important, but they’re no longer the whole story, says Mr Stan Laegreid, AIA, principal, Callison.

Modern retail practices and mall management call for expertise in various specialised fields and for sure the country is deficient in terms of trained professionals for these tasks, in retail as well as retail real estate - this is one major challenge that the industry will need to address in right earnest.