Real Estate Trivia

Transformation of New Age Retail Landscape in India

By: Merlin Group | June 24, 2017

The growth pattern of Real Estate in India

India is the 5th largest preferred retail destination globally. Following an analysis of the Indian Retail Industry, India is among the highest in the world in terms of per capita retail store availability. The retail industry in India has witnessed commendable growth over the past 9 or 10 years. Organized retailing has forayed into the retail market of the country. This sector has adopted new and innovative ideas of retailing. As a result, the traditional and unorganized family-run retail shops are facing stiff competition from the Indian and International retail chains. Retail industry in India is expected to grow to US$ 1.3 trillion by 2020, registering a Compound Annual Growth Rate (CAGR) of 16.7 per cent over 2015-20. According to A. T. Kearney, a well-known International Management Consultant, “India is the second most attractive retail designation globally, among thirty emergent markets.” With the new and amended Foreign Direct Investment Policy of India, it is now easier for foreign brands to set up their stores and kick-start operations in India. This has heightened the demand for retail space. Few of the mention worthy new foreign entrants in India are H&M, IKEA, Wal-Mart, Carrefour, Bally and many more.

Newer formats of retail space being experimented with –

Indian mall developers have understood the importance of offering the right combination of retail categories, entertainment and F&B. Therefore, we are now seeing the creative utilisation of unused mall spaces and even parking space to incorporate newer retail categories to attract consumers and drive additional revenue. Microbrewery, Fun Dining, Virtual Reality, Kids Educational centres are some of the newer formats. In addition to F&B, entertainment and retail, service industry is getting more and more presence.  For e.g. tattoo, nail art studios, salons, spas, dry cleaning services, mobile recharging booths, Ola and Uber booths etc.

  • Introducing novel categories and brands in spaces that were not utilised properly earlier, thereby generating footfalls in those micro-areas
  • Utilising parking space and other ancillary spaces for advertisements, publicity and promotional events
    Enhancing advertising opportunities and thereby driving additional income through floor graphics, standees, plasma screens and similar media
  • Casual Leasing: Leasing of kiosks, vacant space or carts to children’s play area, tattoo stations, foot spas, etc.

Developers focus on retail projects as part of their portfolio –

Developers are increasing their  focus on mixed-use office-cum-retail realty formats. The combination of retail and office complexes may not be entirely new to metro cities, but the trend of setting up such combined projects is fast catching on.

With introduction of REIT , the larger real estate companies are now looking into real estate assets with an eye to transfer them to REIT in future whereby they can keep a control of assets as well as liquidate their investment to a large extent.  Because of lower interest rate, rent securitization has become easy making funds available against rental income.

Shopping Malls have become an important ingredient for large scale development.  In a large size development, the actual cash flow required for development of a mall becomes available out of the sales proceeds of residential part on one hand and the Shopping Mall becomes an attraction for people to buy homes on the other hand.

The changing trends in consumer behaviour –

The number of consumers making purchases online has dramatically increased in last few years making internet marketing to be the most suitable marketing strategy. Buying behaviour of consumers in India is greatly influenced by celebrities, their activities and movements. People in India are becoming more and more responsible towards the environment and this increase in environmental awareness has a great impact on their purchase decision. Products are being bought and sold based upon their eco-friendliness these days. Omni channel is a new way to reach target consumers because of change in consumer behaviour.

The new trends in Mall concept, planning and designs –

India being a fast-paced market, developers are now designing their malls in a manner that allows a certain degree of flexibility and dynamism. In this way, they can introduce newer attractions from time to time. Mall developers now regularly track the performance of brands in terms of sales per square feet so as to assess whether the brands are utilising their space optimally. It has been evident in the industry that many brands are reducing their store sizes in order to maximise per square foot productivity. Intelligent superior mall design is a vital element for healthy circulation that provides good frontage and accessibility to all stores. Today, the priority is to enhance the per-square-feet productivity of the mall while simultaneously providing value to consumers.

The mall sizes are increasing and evolving into “destination malls” for guaranteed success.  The future is for  malls which will have large number of brands, hyper markets, departmental stores, MBO (Multi Brand Outlets), different kind of F&B and offerings, service outlets and of course most importantly entertainment and amusement. Phoenix, Market City, Bandra, Kurla are few nameworthy examples.  Professional management of the mall along with “focus on customer convenience” will be the key attributes for success.

Operational challenges for mall establishments –

The biggest challenge for mall developers is the huge upfront fund requirement for development of the mall because the rental starts only once the mall is fully completed and tenants have moved in.  There is always a huge risk factor due to the large investment vis-a-vis renting out of mall.  The other challenges are –

  • How to increase footfall
  • How to maintain low operational costs
  • How to ensure there is enough parking spaces with faster movements of car during peak hours
  • How to bring quality tenants and customers
  • How to attract talented people to join their organizations
  • How to adapt with Omni Channels’ purchase behaviour e.g. customers go through products in malls and purchase it online or vice versa
  • How to increase sales for their tenants

Impact of opening up of 100% FDI (Foreign Direct Investment) in retail –

Consumers are always hungry for modern ways of shopping. Indian retail sector is growing fast and its employment potential too. The retail scene is changing really fast. Retailers are rethinking their approach towards the suppliers so that they can get the best pricing strategies. There is no surprise why from Ambani to Mittal, Godrej to Birla, everybody is ready with their plans to kick start retail revolution in India. So we can safely say that India is a rising star and is going to be one of the fastest growing regions in the future. Allowing healthy FDI in the retail sector will not only lead to a substantial surge in the country’s GDP and overall economic development, but also help in integrating the Indian retail market with that of the global retail market in addition to providing a better paying employment, which the unorganized sector (kirana and other small time retailing shops) have undoubtedly failed to provide to the masses employed in them.

With the presence of more number of brands, the home grown brands will get competition and will feel the need to reinvent themselves for competing with foreign brands.  There will be extensive knowledge banks available in future due to the presence of reputed foreign brands who will bring in unparalleled knowledge and experience in the retail industry ultimately to be shared with all for the benefit of the entire retail industry.  With a condition that 30% procurement will be done locally by all the FDI brands, there will be a huge push for manufacturing within the country.

Retail lease/ purchase formats prevalent today –

Malls have the ratio of 10% Buying and 90% Leasing now a days. Major reasons are:

  • Buying is going to cost you a lot more upfront than leasing.
  • Will you outgrow your space and need to move in the next few years?
  • Do you want to deal with the added hassle of maintaining the property?

Bureaucratic bottlenecks facing the retail development –

The licensing permissions, shops and entertainment act, high rate of municipal tax are some of the bureaucratic issues faced by retail developers.

Challenges facing the retail sector growth India –

Availability of quality retail space is the biggest challenge at present.

Opportunities ahead for the sector –

The industry is growing on year to year basis.  The GDP is growing in the country and a major part of our population is young and aspiring who have disposable income.  This young population is well exposed and internet friendly with modern outlook thus making India a huge consuming country.

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