The Indian mall is evolving. Abhilesh Babel and Deepak Hariharan discuss the challenges and opportunities in India's retail space  The golden days of the booming Indian economy have witnessed a parallel and correlated phenomenon' the rise of malls across the country. In the last decade, malls have been sprouting across the country, reflecting a gradual shift from unorganised retail to more organised formats. Indian customers show an increasing propensity to spend, and now expect the conveniences available in developed countries to be there in India as well.The surging confidence in the Indian economy promised significant growth in consumer demand, and the high levels of optimism drove real estate developers and retailers alike to invest heavily in malls. With malls coming up by the dozen in metros and tier-1 cities, the growth has been rapid and uncontrolled. A case in point would be MG Road in Gurgaon, which plays host to about eight malls over a two-kilometre stretch. The duplication of offerings at these malls tends to confuse customers, and footfalls are shared across them. Retailers need to have multiple outlets, in order to ensure that they are present in the malls people choose to go to. Therefore, there may be two franchisees of the same leading pizza chain just across the road from each other. Some of the malls are practically empty 'white elephants' for the developers. This overcrowding clearly goes against business sense for both the developers and the tenants. Most major cities in India are reaching a scenario similar to that in Gurgaonóthe supply of retail space is increasing incommensurately with the demand from the customers. It is fast turning into a competitive market of malls, akin to competition in any B2C business. Gone are the days when a developer would build a mall with all the space rented out on prebookings, and customers would automatically flood in from the first day. Following the gloomy economic scenario and with somewhat limited consumer spending expected in the near-medium term, it is time for both developers and retailers to understand that this is no longer a supply-driven market and shift to a customer-centric approach. Developers need to focus their energies on understanding the needs of the customer. They must work with the tenants right from the conceptualisation stage to provide customers what they want, thus making them want to visit repeatedly. Developers would do well to adopt an attitude similar to that of the hospitality industry. Soft strategies and customer relationship management are essential to convert a mall from a plain vanilla mall to a favoured destination for customers. The critical question to answer here is: What makes a customer come to a mall? The drivers can be classified as a need to purchase goods, the desire for a superior shopping experience and a place for social experiences with entertainment and dining facilities. Differentiation is the key and malls are transforming from generic models into innovative spaces for specific target audiences.  The Niche Customer behaviour varies in accordance with the products purchased. Premium and super-premium products such as suits and jewellery are generally purchased after significant planning due to the high monetary or sentimental value these products hold for the consumer. A customer would be willing to travel the extra mile to choose the perfect product, and is likely to prefer a destination where he can compare a variety of offerings before making his choice. Niche malls with a specific focus, such as the Gold Souk in Dubai with over 300 jewellers situated within the mall, are specifically designed with this aim in mind and attract serious buyers. Random walk-ins are less likely, and the conversion ratio of customers is likely to be high. Such malls would typically be smaller in size, but highly profitable both for the developer and the tenants. For products that require relatively less decisionmaking, and are more likely to be impulse purchases, customers expect a more complete experience, along with some entertainment and refreshments. These malls should focus on attracting large audiences and look to convert footfalls into purchases by strategically and creatively conceptualising the layout in order to convert the high footfalls into purchases, while ensuring a satisfying shopping experience.
It has been a recent trend to integrate hypermarkets and supermarkets inside malls as anchor stores. While this is likely to continue, it makes sense for large tenants like Future Group and RPG to continue with both independent and mall-based formats, with the focus of the former being on residential areas and the latter on the upmarket areas. Shopping Experience Customers' choices to shift from high street retail to the mall format are driven primarily by the difference in the quality of experience they expect from the latter. The mall should look to become an invisible enabling environment that would allow customers to shop, eat and relax on their own terms. To this end, malls should avoid intruding into the customerís space and apart from optimising sales for tenants and returns for developers, the design of the mall should be made in consideration of customer sensitivity,
For instance, a common marketing strategy is to provide escalators at such locations as would require customers to walk across entire floors to use them, thereby increasing the store frontage they see and driving impulse purchases. However, most customers tend to get irritated if they need to walk across the stretch of the mall repeatedly just to use consecutive escalators, and the irritation makes them much less likely to return. Another example would be parking, which could take up to 15 minutes of the customerís time at either end of the visit, and discourage them from visiting the malls more often. Simple measures such as optional valet parking would help alleviate the problem, at a marginal additional cost to the developer. Small souvenirs offered by the mall, for example, a keychain for purchases above Rs 1000, would add to brand recall and invite repeat visits. Mall loyalty programmes would encourage customers to frequent the same malls. Simple innovative measures can go a long way in making the customer's experience much more pleasurable and the mall more attractive. Hence, many more interesting innovations will be employed in the near future.  Malls as Entertainment Zones Over the last few years, customers have been visiting malls focusing more on entertainment than on shopping. Customers regard malls as some of the best locations for social interactions, be it with friends or family.
Movies are the largest avenues of entertainment and a significant number of footfalls are driven by the multiplexes. As seen across cities, multiplexes are fast replacing standalone movie halls with their integrated offerings of movies, dining, partying and shopping. The multiplex culture is likely to continue to be one of the largest crowd-pullers at malls. Restaurants have also been attracting good business due to their presence alongside movies and shopping, and are likely to continue in the same manner. However, unlike multiplexes, standalone restaurants are also expected to survive outside the mall-based model. With new trends like food tourism catching up fast, there are interesting niche models possible 'a cluster of restaurants serving different cuisines integrated in a single building, for example' a more elaborate dine-in version of the food courts, on the lines of Dilli Haat. The close integration of entertainment and shopping is a trend that is likely to catch up in the near future, at a minimal additional cost. For example, men would love to watch a cricket match on a television while their partners shop around. Multiplexes could achieve a brisk sale of co-branded movie paraphernalia, perfumes endorsed by movie stars, limited-edition collectibles and the like.  Developer-Tenant Relationships
In the initial years of mall development, developers thrived on the success of the model, with curious customers flowing in to experience this new retail format. Tenants were more than willing to pay the high rentals charged by developers for space in malls and capitalise on the footfalls the mall generated. Over time, as more malls were set up and the mall concept was well-entrenched, tenants gradually started gaining a foothold in partnership structuring.
Today, with the excess of mall space in the major cities and inter-mall competition, market rationalisation is taking place. With falling real estate prices and the increasing scale of operations of retail chains, the bargaining power is in the hands of the tenants. Developers had to stall several mall projects in the major cities due to the increasing inventory of existing space that remains unoccupied. In the National CapitalRegion (NCR), the major developers have shelved plans or converted unoccupied spaces into commercial office spaces. Clearly, this is a period of consolidation and the realignment of real estate to market conditions is long overdue. Newer formats of arrangements will undoubtedly emerge in the relationships between developers and tenants. It is likely that the developers will shift their focus to ensuring the profitability of tenants, by entering into innovative risk-reward sharing arrangements. Revenue-sharing mechanisms and performance-based rental schemes are likely to become popular. This ensures that both the developer and tenant work towards the common goal of maximising profits. In addition, freebies and deal sweeteners such as lower maintenance charges are gaining ground. After tapping the potential of the major metros, both real estate developers and retailers are gradually shifting focus to tier-I and tier-II cities. Here, they have the opportunity to start building afresh and incorporate the knowledge gained from previous experiences. The positioning of upcoming malls is likely to be more inclined towards the mass market, but a few niche specialty malls are likely to emerge. Overall, we can expect a paradigm shift from a developer-tenant relationship towards a more mutual single focus relationship right from the conceptualisation stages. The image of malls should shift from that of a commercial retail space as it is now 'with confused and distributed operational responsibilities' to a living, dynamic organism. This shift in viewpoint and structure would enable the resolution of the problems inherent with malls as they exist today. In conclusion, a contraction in demand for retail space is expected in the immediate future owing to the decrease in footfalls. However, in the long run, we can be confident that malls will stand taller and stronger, built on innovations and new heights of relationships.  Green Malls
With technological advances and widespread support for ecologically friendly and energy-saving buildings, it is only natural that malls would also experiment with the ëgreen mallí concept. Green malls would be built using eco-friendly techniques and materials, with the objective of energy conservation, climate control, rainwater preservation, water reuse, solar energy harvesting, etc.
From a developer's perspective, the cost of construction for a green mall is expected to be 5 per cent higher than that of conventional malls, which would translate into higher rentals for the tenants. On the other hand, customers are not likely to be willing to bear the extra burden, as a green mall offers them no special advantages. Tenants would benefit in the long run by bearing the costs of the technology in terms of energy and water saving, but in the current scenario, they are likely to focus on protecting their struggling business and minimise the rental payouts. Hence, in the short term, we do not expect any significant progress on the green mall front. However, once the economy recovers and the ecological movement strengthens further, most developers will opt for the green mall concept. Malls of the future will be environmentally friendly and will have zones specifically made for the entertainment of customers. These malls will provide a better shopping experience for their customers than the malls of today. What the Future Holds Indian retail enjoys the status of one of the ten major retail markets in the world. Thus, the fears that malls may be replaced by retail outlets like Wal-Mart and Big Bazaar may prove to be unfounded. Indian malls won't be relegated to a less important role in retailing. What is on the cards though, is a significant transformation in the look and feel of malls. Entertainment, niche positioning and customer-centric designs will dominate mall development. Malls in India will continue to develop beyond retail-becoming the prime spots for entertainment, socialising and leisure. Abhilesh Babel is the Manager, Infrastructure Advisory Division, Feedback Ventures. Deepak Hariharan is the Deputy Manager, Infrastructure Advisory Division, Feedback Ventures Anchor Stores |
