Monday, June 28, 2010

Mall Management in the Indian Scenario

The Indian retail market is expected to continue its growth trajectory into 2010. Mall management has been identified as a critical factor for the success of malls and the retail industry across the world.
Mall management broadly includes mall positioning, zoning, tenant mix, promotions/marketing and facility/finance management. Currently, the Indian retail market lacks designated mall management firms. Large real estate developers and retail chains either have their own mall management arms operating as subsidiaries or have contractual agreements with international property consultants.

Till recently, mall management was limited to facility management by a majority of developers in India, leading to gaps in mall management practices. Given the high future supply of malls and increasing competitiveness within the Indian retail market, developers must correctly address these gaps to ensure success.

Organised retailing in India witnessed a gross turnover of USD 320 billion1 in 2006. Although this figure is low compared with other developed economies, industry experts expect the growth rate of this sector at 35%2 until 2010. At present, about 100 malls are operational at a Pan-India level with a total area of 19 million sq ft. As per the current estimates, about 3003 additional malls are expected to be constructed across the country by 2010

According to the Jones Lang LaSalle Retailer Sentiment Survey 2006, 95% of the respondents expect their gross turnover to improve and have plans for expansion in 2007. About 70% of those who have expansion plans said they prefer malls over high streets for their expansion, indicating the rising demand for malls as the preferred destination of organised retail in India. Moreover, about 65% of those who preferred malls over high streets also said that mall management is expected to become the deciding factor for a mall’s success in the future.

However, a sense of concern was expressed over the following challenges to the Indian retail market:
- lack of quality locations
- shortage of trained staff
- rising rental values
- mall management

The first three concerns can be classified as external factors, whereas mall management is internal. External factors are common to all players in the Indian retail industry, whereas mall management is specific to individual malls. We anticipate that the success of Indian malls will not only be achieved by housing the biggest and the best mix of retailers, but also by setting up new standards and procedures in mall management that will provide a platform to differentiate its products and services from competitors.

In the current market scenario, both consumers and retailers have limited choice in terms of mall shopping experience. As organised retail grows, we expect the market to be more competitive by providing more choices to consumers and retailers. At this point, developers will have to work harder to create a differentiation for their product. We believe consumers and retailers will be attracted to malls that are professionally managed, making effective mall management a critical factor behind the success of a mall.

The prime objective of landlords as well as of investors is to attract shoppers and persuade them to purchase goods and services. This will in turn boost retailers’ turnover and benefit their bottom line. Efficient mall management can help landlords achieve this goal.

Globally, mall management broadly includes:
 - positioning a mall
 - zoning – formulating the right tenant mix and its placement in a mall
- promotions and marketing
 - facility management – infrastructure, traffic and
 - ambience management
 - finance management

Indian Scenario for Mall Management
The partial foreign direct investment (FDI) relaxation in 2006 allowed 51% ownership in joint ventures by single-brand companies in the retail market. This triggered high international singlebrand retailer interest in the Indian retail market. Additionally, large Indian conglomerates such as Reliance Industries and Aditya Birla Group are commencing their foray into retailing across the country. This prompts the Indian retail industry to undoubtedly move on a high growth curve. However, at this juncture, retailing is still faced with one major
challenge: systematic mall management.

Currently, there are very few designated mall management companies in India. However, big retail chains such as Future Group and some large developers have set up their own mall management divisions that operate as their subsidiary companies. Some developers such as DLF have also recently entered into contractual arrangements with international property consultancy firms to manage their malls. Historically, developers were managing their malls in-house, which is expected to change going forward.

Earlier in the decade, mall developers were more inclined towards exiting the project early by selling retail mall units to investors at the pre-completion and post-completion stages and booked profits. As the ownership of individual retail spaces were with different entities, there was no central authority managing the malls. There was no control over the various facets of mall management mentioned earlier in the paper. Even though there have been some examples of professionally managed malls in recent years, organised retail in Indian malls have a long way to go to achieve optimum mall management.

Issues Related to Mall Management in the Indian Retail Market
a - Lack of Feasibility/Market Research Prior to theDevelopment of a Mall – In the past, some malls were constructed without carrying out a rigorous due diligence exercise on their feasibility. The market scene is gradually changing wherein more and more developers are approaching property consultancy firms to conduct feasibility and positioning studies for their projects.

b - Zoning – Landlords/developers tend to lease out retail space on a first-come-first-served basis. This creates a sub-optimal tenant mix like a food and beverage outlet next to a designer apparel shop instead of an accessories or a footwear shop.

c - Design Issues – At present, most of the popular malls have long queues and congestion outside their main entry points during weekends and festive seasons. Having only one entry and exit points also leads to overcrowding. Similarly, the visibility of retail units from all vantage points is poor in many malls.

d - Few Promotional Activities – There are very few promotional activities organised in the majority of malls at present. Developers perceive that these events only help increase foot traffic and not revenues.

e - Facility Management – Good infrastructure/facility management of common areas becomes a problem in malls where retail outlets are sold as strata title.

f - Parking – Many malls in India do not have adequate parking. Since most malls are being built in the city, developers typically provide basement parking facilities. However, these parking spaces are inefficient due to low ceiling heights, bad lighting and single entry and exit points.
1CII-A T Kearney report, 2006
2CII-A T Kearney report, 2006
3Source: Jones Lang LaSalle Meghraj, 2007


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