R E A L E S TAT E Knight Frank Research

T
HE organised retail sector in The advent of malls has brought
India has undoubtedly wit-
nessed a radical transforma-
tion over the last four-five years. Be it
for branded apparel, packaged food
Searching for space with it the concept of an anchor,
which occupies a sizeable percentage
of the total usable area in a mall. The
anchor is expected to attract a vari-
or electronics, the Indian consumer ety of consumers to the mall and
has begun to ask for more and is cor- hence is the key to increasing the foot
respondingly being bombarded with traffic in a mall. The success of a mall
an increased variety of options. could be largely dependent on the
However, our markets are woefully ability of the anchor to attract con-
disorganised. We have 12 million sumers. Due to the strategic role that
retail outlets but organised retail an anchor plays in the success of a
contributes only 2 per cent to overall mall and the fact that it occupies a
revenues. sizeable area in a mall, the
The success of large malls such as capital\rental values paid by an
Crossroads in Mumbai, Spencer anchor are at a significant discount
Plaza in Chennai and Ansal Plaza in to those paid by other occupants.
Delhi has encouraged a number of Smaller retail players, in their pen-
developers to join the retail band- chant to grow fast, have found
wagon. However, though rentals unique and attractive ways to lease
achievable are marginally higher prime retail space, whereby they pay
than high-street rentals, there are a property owners a percentage of
number of challenges that these sales generated from the leased
developers will face. space or a minimum guaranteed
In Mumbai, for example, malls will amount whichever is higher. On the
have to compete with thousands of other hand, landlords need to charge
local corner shops, which are paying retailers fair rentals that make their
nominal rents on account of their businesses financially viable so their
protected stature. The other major lease agreements can be renewed at
issue is ease of purchase. Groceries a later stage.
and other domestic supplies from Unorganised retail in India, which
these corner shops can be availed of accounts for the bulk of retail trans-
telephonically in conjunction with actions, is expected to face stiff com-
credit periods ranging randomly petition from the organised sector
from 30-45 days. which is trying to eat into the unor-
After the much hyped dotcom ganised segment’s huge market
boom and subsequent bust, one won- share. Corner shops are improving
ders whether Internet shopping will their fit-outs, displaying and laying
Pic: Shashi Ashiwal

ever compete with traditional retail-
ing. The average Indian being cash-
centric, with low credit card and
Internet penetration, the ‘touch’ fac-
tor and the fact that domestic help is
available at affordable prices are the
primary reasons why dotcoms would
find it hard to survive in India. It is no
surprise, then, to find that they have
not.
So, is there a future for malls? Yes,
of course there is, on the condition
that they provide the wonderful
ambience associated with them
internationally, as well as the right
tenant-mix. It is the ‘experience’ fac-
tor that will ultimately differentiate a
successful mall from a run-of-the-
mill one. A lot of factors come togeth-
er to make this experience enjoyable.
These include a clean environment, a
wide range of shops that complement
each other, adequate restaurant
facilities and ample car parking.
The organised retail sector in
India is at a nascent though dynam-
ic stage. The challenges that the
retail players face are that their sell-
ing price is pegged to the maximum
retail price that they can charge.
Also, high rentals, archaic property
laws, low purchasing power, conserv-
ative spending habits, shrinkage and
value driven consumers waiting for
discounts to buy goods, all cut into
the retailers’ margins. The one way
that the retailers can meet these
challenges is by expanding to meet
the desirable economies of scale and
also be able to establish some bar-
gaining power with the branded
goods manufacturers. This expansion
drive of the organised retailers will
create demand for retail real estate
and keep retail development ven-
tures buoyant.
out goods in a more organised way,
providing credit periods and home
delivery and also depending on their
personalised service to win the battle
against the larger players. On the
other hand, the organised retail sec-
tor is trying to pull in the consumers
by providing a win-win solution to
the consumer, i.e., a comfortable
shopping environment, convenience
and a larger variety of competitively
priced goods sold under one roof.
The retail sector is an extremely
important sector of an economy.

76 Praxis ✦ Business Line ✦ January 2002 Praxis ✦ Business Line ✦ January 2002 77

Retail developments on the anvil - Mumbai
Development
Nirmal Lifestyle (Nirmal group)
Runwal Arcade (Runwal group)
Venus Builders
Citimall (Ajmera group)
Dheeraj Consultancy
Crossroads (Primal group)
Individual
Shagun Shopping (Dynamix)
Millennium Mall (Phoenix Mills)
Landmarc Citi (S. Kumar’s)
E-City (Essel group)
Hiranandani group
Mindspace (K. Raheja)
The demand for
real estate is likely to
be kept buoyant by
the expansion plans of
various retailers.
78 Praxis ✦ Business Line ✦ January 2002
investments to pour into this sector in ply chain management are feasible.
India. The FDI policy needs to be Specialty stores and restaurants Retail developments on the anvil - New Delhi
Location Approx. Expected framed in such a way that it becomes have taken root in India and are all
retail space (sq ft) opening attractive to foreign players to invest set to grow. Barista, Cafe Coffee Day
in India. FDI will not only bring in the and other such chains of coffee shops Development Location Approx. Expected
Mulund 300,000 2002 much needed capital to fuel growth are expanding fast and wide. Pubs retail space (sq ft) opening
Mulund 300,000 2002 but also sophisticated systems and such as Geoffrey’s, and specialty
Jogeshwari 80,000 2002 know-how and will shorten the eateries such as Copper Chimney and MGF Mall Gurgaon 400,000 2002
Andheri (W) 80,000 2002 learning curve. Mainland China are creating a niche
Malad 75,000 2002 DLF City Centre Mall Gurgaon 300,000 2002
As of now, global players are enter- for themselves and are expanding
Nariman Point 75,000 2002
Juhu 70,000 2002 ing India in a number of different their franchise. Sahara Mall Gurgaon 230,000 2002
Goregaon 62,000 2002 ways to circumvent the fact that FDI Organised grocery retailing
is not allowed in the retail sector. through mini-supermarkets is well
The Centrestage Mall Noida 60,000 2002
Lower Parel 180,000 2002
Worli 200,000 2003 Marks & Spencers has come to India entrenched in South India. DLF Mega Mall Gurgaon 300,000 2003
Andheri (W) 120,000 2003 through the licensee route. Tricon, FoodWorld, promoted by the RPG
Powai 100,000 2003 the parent company of Pizza Hut, has group, is the fastest growing super- Ansal Properties Gurgaon 50,000 2003
Malad 350,000 2003 appointed franchisees in India. market chain in India. Other promi- * Source: Knight Frank India Research
* Source: Knight Frank India Research Tricon collects a one-time fee from its nent players in this segment of retail-
franchisees on the opening of a new ing are Vitan and Nilgiris. The con-
outlet and regular royalties as a per- cept of supermarkets within recre-
centage of sales. McDonald’s has ation clubs and other special loca-
However, it has not yet received the been present in India through a tions such as office complexes is also planned commercial and residential A great deal of
kind of attention it deserves from the 50:50 joint venture with its Indian catching on. We believe there is enor- real estate projects have been
Government. According to a partners. mous potential for supermarket shelved. retail space across
McKinsey report, if appropriate A number of global brands are chains to flourish as there are a large The larger organised retail players
reforms are carried out, this sector is also expected to enter the Indian number of educated dual income such as the department store opera- the country will be
capable of creating eight million jobs market in the next couple of years couples in South Indian cities who tors have witnessed a dip in sales in ready for occupation
in the next 10 years, and also provide and existing players are likely to are willing to pay a premium for the last six months due to the slow-
job opportunities for people transi- aggressively expand their presence hygienically packed items. down in the economy. The consumer by next year.
tioning from agriculture. in India. Local brands too are seeking The slowdown in the technology sentiment has also suffered a major
On the FDI (foreign direct invest- to grow and reach a level that sector has had adverse implications setback after the terrorist attacks in
ment) front, although a number of would make their operations viable. for the retail real estate market in the the US. The offtake of luxury goods
retail players have been advocating All in all, branded players are cyber cities of India. The purchasing has been poor and it does not seem
FDI in the retail sector, one needs to making a push towards reaching a power capacity and consumer confi- likely to improve in the near future.
understand that just by allowing FDI critical mass whereby their dence of the people in these cities has Traditional retailers selling low
in retail, one should not expect the investments in advertising and sup- taken a severe beating. A few priced goods are doing marginally
Praxis ✦ Business Line ✦ January 2002 79
 Retailing in a number of cities in
Retail developments on the anvil - BANGALORE India, till date, has been location spe-
cific. People shop in the retail pockets
of the area where they reside.
Development Location Approx. Expected According to us, this is unlikely to
retail space (sq ft) opening change, even with malls springing up
and providing a comfortable shop-
Embassy Heights Magrath Road 160,000 2002
ping environment to the consumer.
Belview Towers Hosur Road 65,000 2002 However, there is a noticeable
Janardhana Towers Koramangla 60,000 2002 change in that the shops in the retail
pockets are improving their facade
Salapuria Centre Koramangla 30,000 2002
and offering a better shopping envi-
Shoba Alexander Commissariat Road 25,000 2002 ronment so as to not to lose their
Prestige Mall Koramangla 300,000 2003 clientele to the swanky malls. We
believe that the success of a mall will
Purva Mall Church Street 42,000 2003
depend on it being surrounded by a
Brigade Building Cambridge Road 28,000 2003 primary and secondary catchment
* Source: Knight Frank India Research area with good potential. As of now,
expecting people to travel to reach
destinations for shopping and enter-
tainment seems a little far-fetched
better than their counterparts. There what with the infrastructure not
is a distinct change in shopping being up to the mark.
habits with people seeking maximum The shape of organised retailing in
value and waiting for discounts to India has undergone a sea change
make their purchases. These dis- over the last few years and a more
counts are hurting the margins of the radical change is expected in the
organised retailers. Against this near future. Retailers are making a
background, a huge amount of push to get to the developments,
organised retail space is expected to which have the first entrant advan-
be available in India for occupation tage in a location, and are trying to
by 2003. get the best rental deals for longer
time periods. They understand that
location and viable lease rentals are
two very important ingredients for
Retail developments on the anvil - PUNE their success. On the other hand,
developers are rushing in to make
sure that they are among the first
Development Location Approx. Expected entrants in a catchment area with
retail space (sq ft) opening good retail potential as that strategy
has spelt success in the past. Also,
they are keen to have the right tenant
Sai Constructions Ltd Behind Pune station 130,000 2002 mix in their developments in order to
attract repeat visits by clients. It is
Kolte Patil Dhole Patil Road 50,000 2002 clear that the one winner in this
Vascon Engineers Ltd Near Poona Club 90,000 2003 retail rush is going to be the con-
sumer. ■
Godrej Castlemaine Bund Garden Road 50,000 2003
Godrej Eternia ‘C’ Shivajinagar 30,000 2003 (This article has been contributed
by Knight Frank India Research,
Mumbai.)
* Source: Knight Frank India Research

80 Praxis ✦ Business Line ✦ January 2002

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82 Praxis ✦ Business Line ✦ January 2002