Challenges Faced by Retail Managers at Indian Malls

chillibreeze writer — Uma Avantsa

“Once the stores are leased out, the developers are not worried about the promotion any more. Though a few malls organize some in-house promotional activities but that alone doesn’t guarantee a good footfall.” – A retailer at The Great India Place
“Majority of the developers have done nothing about the branding, marketing, budgeting, financing part of running a mall. This is hurting the efficiency resulting in set back in the main business,” - Rajneesh Mahajan national head-retail services Cushman and Wakefield
“The retailers are treated as cash cows instead of being considered an integral part of mall “- Amit Rai, Business Head of Oliver, an apparel brand.
“There is a lot to be desired from the mall developers in India” - Wong Kok Wing, a mall management veteran in Singapore and South East Asian countries.

With over 100 malls operating in India and more than 300 being developed, the opportunities offered in the retail landscape are immense. Mall space is expected to touch 60 million square feet by end-2008. With such a huge supply of space, mall owners and developers in India need to focus on vision, scalability and processes and create a distinct proposition for themselves in the market. The emergence of specialty malls is a step in this direction.

Retailers today face many challenges, including increasing competitive pressures, thin margins, high occupancy costs and unpredictable supply base that come in the way of their attaining operational efficiency and profitability. As organized retail grows, the market will only become more competitive and developers will have to work hard to differentiate. Faulty mall management along with inappropriate tenant mix would lead to poor mall traffic and closure of individual stores in malls. Professional third party mall management service providers are hence likely to come to the fore. They not only understand these business challenges, but also have the ability to help retailers effectively deal with them.

Generally there are two types of consumers who visit malls – focused buyers and impulse buyers. The time spent by focused buyers inside the mall is relatively lower as compared with impulse buyers who spend a lot of time window shopping. Malls which have entertainment zones and/ or promotional activities have larger foot falls and more percentage of impulse buyers. Mall management becomes critical to attract impulse buyers. For example, Ansal Plaza in Delhi has ensured its success through good promotional events and mall management practices since its inception in 1999. Its amphitheatre which is dedicated to promotional activities has ensured footfalls despite newer malls coming up in the NCR region.

Contrary to popular misconception that mall management is synonymous with facility management, mall management actually takes care of the issues like:
- positioning
- zoning (tenant mix and placement within mall)
- promotions and marketing
- facility management (infrastructure, footfalls, ambience)
- finance management

Various business models are adopted by retailers/ developers while utilizing the services of a professional firm as given below. The fees are either per annum or per assignment.

Business Model	Key aspects	Benefits for Mall Developer	Benefits for Mall Management
Contract Model	Fixed fee	Fixed cash outflows. Higher inflows if mall is a success	Risk minimization
Revenue sharing model	Percentage of sales	Risk minimization	Share of revenues if mall is a success which leads to higher income
Partial revenue sharing model	Fixed fee + percentage of sales	Risk minimization (fixed fee less than that in the case of contract)	Minimum payment guaranteed and also portion of revenues in case of success

There are very few mall management companies in India at present. Large real estate developers and retail chains either have their own mall management divisions or have contracts with international consultants. In developed markets mall management is an established independent service line. Till recently contract model was the norm in India. But the revenue sharing model is increasingly becoming popular with retailers in India due to the present economic situation.

India is yet to embrace the concept of third party mall management in retailing. Some of the issues could be:
- Planning the mall around anchor tenants
- Lack of market research by developers
- Tendency to lease out on a FCFS basis
- Perceive outsourcing as additional cost
- Lack of accountability for in-house promotional activities
- Improper planning for space (lack of parking space, single entry/ exit points)

With the slowdown of the realty sector, developers might give the mall management practice a thought in order to ensure that the slowdown does not affect its footfalls. Mall market in India has become extremely competitive especially due to the sudden boom in the real estate sector. Malls have come up in the Tier II cities and rural areas as well albeit in a smaller and different format. With increasing competition from high street retailers, developers are finding it difficult to achieve 100% occupancy rates.

A specialist’s retail property management skills enable property owners to receive the benefit of master planning and development expertise which is critical to ensure that malls are strategically positioned for long-term growth and success.

CASE STUDY

Southgate Mall in Australia is a good example of how a retail centre was transformed into a brand.

Southgate mall was built in 1983 and comprised of 58 specialty stores with a total built-up area of 250,000 square feet. Its anchor tenants are popular local department stores. During 1999-2000, Southgate gave the task of complete makeover of the premises to a professional mall management company, which completed the task commendably. The repositioning and refurbishment was undertaken with an investment of AUD 13 Million.

In 2006, an additional 20,000 sq ft of space was added to the shopping centre. The mall management firm provided support to place lease tenants. This resulted in an additional income of AUD 620,000 per annum for the property and potential additional sales of AUD 20 million. Further, the mall management firm reinforced mall’s retail mix by emphasizing on fresh food offers. It launched Freshworld which helped in increasing customer traffic by 11.4% and moving annual turnover (MAT)

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—About our writer:

Uma is a Business Writer who graduated from IIM Bangalore and has authored research reports, insightful articles and compiled newsletters.

She received acknowledgements for assisting Prof. R Narayanaswamy in the third edition of his book 'Financial Accounting - A Managerial Perspective'

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