Dissertation, Gaurav Goyal, A1210208A17, A 1210204020

8/6/2019 Dissertation, Gaurav Goyal, A1210208A17, A 1210204020

http://slidepdf.com/reader/full/dissertation-gaurav-goyal-a1210208a17-a-1210204020 1/119

FINAL DISSERTATION- SUBMITTED TOWARDS THEFULFILLMENT OF POST GRADUATE DEGREE IN

INTERNATIONAL BUSINESS

“Impact of shopping malls on customer and shopowners”

SUBMITTED BY:Gaurav Goyal

IMBA-IB (2004-2008)Roll No. : A1210208A17/A1210204020

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDAAMITY UNIVERSITY – UTTAR PRADESH

Amity International Business School, Noida



CERTIFICATE OF COMPLETION

This report entitled “Impact of Shopping Malls on Customer and Shop Owners”submitted for the award of degree in Masters In Business Administration to AmityInternational Business School, Noida is a piece of original and authentic work carriedout by Gaurav Goyal under the supervision of Faculty guide.

This work has not been submitted in part or full to any other institute/university or organization for any additional mileage.

____________ ____________ Student Faculty Guide



TABLE OF CONTENTS

Sr. no Topic

1. Preface

2. Acknowledgement

3. Introduction3.1 Overview of the Retail Sector

3.1.1 Global Retailing Industry

4. Executive summary4.1 The Far East Experience4.2 Retail Scenario In India

5. Objectives of the research study

6. Foreign Direct Investment6.1 Positive Demographics

7. Online Retailing

8. Challenges of Retailing in India

9. Employment in Retailing

10. Retail Models in India10.1 Evolution of Organized Retailing10.2 Growth in organised retailing10.3 Impact of Organized Retail

11. Shopping Mall and its Global presence11.1 Different types of Shopping Mall



12. Review of literature

13. Findings and recommendations13.1 Chesterton Meghra findings13.2 Jones Lang Lasalle findings13.3 Pricewaterhouse Cooper’s findings13.4 A T Kearney findings13.5 Cushman & Wakefield findings

14. Current Situation

15. Present Study

16. Methodology

15. Appendix15.1 Questionnaire & Results



ACKNOWLEDGEMENT

A project is never the sole product of a person whose name has appeared on thecover. Even the best effort may not prove successful without proper guidance. For agood project one needs proper time, energy, efforts, patience, and knowledge. Butwithout any guidance it remains unsuccessful. I have done this project with the bestof my ability and hope that it will serve its purpose.

“To be or not to be is not anything which matters, how to be thankful is what reallymatters”

It was really a great learning experience and I am really thankful to Amity InternationalBusiness School considering my candidature for Dissertation and thus providing mean opportunity to work for such an upcoming field.

I am also indebted to my Faculty Incharge, Mr. Aditya Gupta who not only guided me but also motivated me and helped to bring the best out of me .

I sincerely thank to all the Manager-in-Charge of various outlets, who spared his precious time and helped in expanding my knowledge.

I also would extend my sincere gratitude to all of mine respondents with out whoseefforts the report would not have been successfully completed and the process of learningwould not have been easier.

Last but not the least; I am also thankful to all the respondents who have spent their valuable time and efforts in providing me some very valuable inputs.

(Gaurav Goyal)



Overview of the Retail Sector :An IntroductionUnlimited Opportunity

GLOBAL RETAILING INDUSTRY

Retail has played a major role world over in increasing productivity across a wide rangeof consumer goods and services .The impact can be best seen in countries like U.S.A.,U.K., Mexico, Thailand and more recently China and India. Economies of countries likeSingapore, Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by theretail sector. Retail is the second-largest industry in the United States both in number of establishments and number of employees. It is also one of the largest worldwide. Theretail industry employs more than 22 million Americans and generates more than $3trillion in retail sale annually. Retailing is a U.S. $7 trillion sector.

The latter half of the 20 th Century, in both Europe and North America, has seen theemergence of the supermarket as the dominant grocery retail form. The reasons whysupermarkets have come to dominate retailing are not hard to find. The search for convenience in food shopping and consumption, coupled to car ownership, led to thebirth of the supermarket. As incomes rose and shoppers sought both convenience andnew tastes and stimulation, supermarkets were able to expand the products offered. Theinvention of the bar code allowed a store to manage thousands of items and their pricesand led to 'just-in-time' store replenishment and the ability to carry tens of thousands of individual items. Computer-operated depots and logistical systems integrated storereplenishment with consumer demand in a single electronic system. The superstore wasborn.

On the Global Retail Stage, little has remained the same over the last decade. One of the

few similarities with today is that Wal-Mart was ranked the top retailer in the world thenand it still holds that distinction. Other than Wal-Mart’s dominance, there’s little abouttoday’s environment that looks like the mid-1990s. The global economy has changed,consumer demand has shifted, and retailers’ operating systems today are infused with far more technology than was the case six years ago.

Saturated home markets, fierce competition and restrictive legislation have relentlessly pushed major retailers into the globalization mode. Since the mid-1990s, numerousgovernments have opened up their economies as well, to the free markets and foreigninvestment that has been a plus for many a retailer. However, a more near-term concern,has been the global economic slowdown that has resulted from dramatic cutback in

corporate IT and other types of capital spending. Consumers themselves have becomemuch more price sensitive and conservative in their buying, particularly in the moreadvanced economies.

From an operational point of view, active practitioners have voiced their opinion that retailer concerns in 2003 have turned to deflation, lack of pricing power, global over-capacity, low interest rates, economic stagnation, slump in world tourism and declining consumer confidence.



But, even before the global economic slowdown that forced retailers into monitoringcosts more effectively, technological advances were a way of life in retail organizations.Technology has become the real enabler for retailers over the last six years. Supply chaininnovations for retailers were particularly strong in the second half of the 1990s and havecontinued into today. With all the emphasis on technology and cost-cutting, a major

thrust of retailers continues to be demand-based: finding new markets throughglobalization efforts. For Four years, more than half (53 per cent) of the top 200retailers operated in a single country. Today, only 44 per cent remain single-countrymerchants. This globalization trend can only intensify in the years ahead. The benefits of increased sales and greater economies of scale are too large to be ignored.

The global retail industry has traveled a long way from a small beginning to an industrywhere the world wide retail sales alone are valued at $ 7 trillion (Source: 2003 Global

Retail Report, Deloitte Touche Tohmatsu). The top 200 retailers alone account for 30% of worldwide demand. Retail sales being generally driven by people’s ability (disposableincome) and willingness (consumer confidence) to buy, compliments the fact that the

money spent on household consumption worldwide increased 68% between 1980 and 2003. The leader has in-disputably been the USA where some two-thirds or $ 6.6 trillionsout of the $ 10 trillions American economy is consumer spending. About 40% of that ($ 3trillions) is spending on discretionary products and services. Retail turnover in the EU isapproximately Euros 2000 billion and the sector average growth looks to be following anupward pattern. The Asian economies (excluding Japan) are expected to grow at 6%consistently till 2005-06. Positive forces at work in retail consumer markets today includehigh rates of personal expenditures, low interest rates, low unemployment and very lowinflation. Negative factors that hold retail sales back involve weakening consumer confidence.

World’s Top 15 Retailers





GLOBAL RETAIL (Source: CSO, MGI Study)

1999 2002 2005

Total Retail (US$ billion) 150 180 225

Organized Retail (US$ billion) 1.1 3.3 7

% share of organized retail 0.7 1.8 3.2

The Far East Experience:



The Retail Industry in the Far East has evolved into what could be called ‘the breeding ground’ for emerging models with countries like Singapore being the home to some of the big players in the industry in these parts of the world. The presence of all the major

players of the retailing industry is found in Singapore. Singapore has 2 hypermarkets, one

run by Carrefour and the other by Giant Hypermarket, part of Dairy Farm International .According to the government, there are slightly more than 11,000 market stalls operatingin 150 markets located all across Singapore Island. The markets further spread to China,Thailand, and Malaysia thanks to the major support that the local governments providedin creating the necessary regulatory framework in establishing their presence. Singapore,Malaysia and Thailand not only fueled the retail industry within the country, but alsoattracted hordes of tourists to experience the shopping “experiences” that they created inthese islands. The markets are now saturated with no additional space for a new entrantand are expected to consolidate within the next few years. Apart from Singapore, which is a more recent development, Japan enjoys an active spot

on the retailers’ map. The retail industry is as huge as US$ 1088 Billion, with a split of US$ 594.8 Billion in the non-food segment and US$ 493.2 Billion in the food-retailingsector. The leaders in sales are Ito-Yokado, Aeon, Daiei, Takashimaya, and Uny, in thatorder. Several retailers, however, have made recent improvements in their warehousingand distribution technologies to make their presence felt in the Japanese market.Convenience stores , which are small and suitable in a country where land is veryexpensive, continue to do well. Food, in fact, has been one of the few sectors that haveexperienced growth over the last several years. A period of shake up in the industry islikely now that Wal-Mart has entered Japan. Numerous smaller, less efficient retailersmay become takeover targets. The entire Japanese retail sector will likely undergo someform of restructuring over the next decade as a result of overcapacity, dismal profits andthe Wal-Mart factor.

In Mainland China , the retail markets have mushroomed over the years of intenseeconomic development to a very considerable size. The total volume of retail sales for consumer goods and food increased by 10.6 percent in China over the last couple of yearswhich shows tremendous growth. Consumer spending has held strong. A decade ago, thetop five retail enterprises in China were all traditional merchandise companies, but nowthe top five are mainly supermarkets and chain stores. The world is enamored withChina’s potential and opportunities. But in medium-sized and small cities and rural areas,traditional retailing methods, such as department stores and local retailing networks, will

be sufficient, as consumption is lower.

In Indonesia , Wet markets and supermarkets remained the major distribution channelsfor food products. Although these retail sub-sectors also offered non-food products, suchas household goods, food products remained dominant in terms of the number of items.Wet markets’ distribution of food products tended to be much greater than non-food asthese retail channels mainly provided fresh produce. Conversely, supermarkets had analmost equal distribution, with food taking up the greater proportion.



On the other hand, the distribution of non-food products benefited from both food andnon-food retailers. For example, some food retail formats offered non-food items, such assupermarkets, hypermarkets, and convenience stores. These retail outlets provided some

basic non-food products, such as toothpaste, soap, or detergent. However, non-food retailoutlets rarely provided food items, except certain department stores or druggists.

In Malaysia , a majority of food retailer outlets offer food and non-food items, with atleast a 70:30 distribution. The traditional food distribution system in Thailand is throughso-called 'wet markets' which sell fruits, vegetables, meat and fish, together with small'mom and pop' food stores which distribute dry goods. However, the rapid growth of theeconomy, particularly during the decade before the financial crisis began, has led todramatic changes in the structure of the food-retailing sector. Modern supermarkets,superstores, hypermarkets and convenience stores developed at breakneck pace to servicethe growing middle class with their demand for more sophisticated food stores and agreater variety of products many of which were imported.

RETAIL SCENARIO IN INDIA: Touching Meteoric Scales

Spread of Organized Retailing in India

Organized retailing is spreading and making its presence felt in different parts of thecountry. The trend in grocery retailing, however, has been slightly different with a growthconcentration in the South. Though there were traditional family owned retail chains inSouth India such as Nilgiri’s as early as 1904, the retail revolution happened with variousmajor business houses foraying into the starting of chains of food retail outlets in SouthIndia with focus on Chennai, Hyderabad and Bangalore markets, preliminarily.



In the Indian context, a countrywide chain in food retailing is yet to be established as lotsof Supply Chain issues need to be answered due to the vast expanse of the country andalso diverse cultures that are present.

Table 1: Components of Service Sector in India

Components Share % in Growth duringGDP (2002-03) 2002-03Construction 5.3 7.3Trade 14.0 4.5Hotels & Restaurants 1.1 4.0Railways 1.1 5.7Other Transport 4.3 6.0Storage 0.1 -7.8Communications 3.5 22.0Banking & Insurance 6.9 11.6Real Estate, 6.1 5.9

Business/LegalServicesDefense 5.9 5.3Other Community & 7.8 6.2Social ServicesTotal 56.1 7.2Source: Presentation to FICCI by MBN Rao (Chairman,Indian Bank): “Strategy for Financing Service Sector”

(Sept. 15, 2004)

A. T. Kearney Inc. places India 6th on a global retail development index. The countryhas the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around7% of the population in India is engaged in retailing, as compared to 20% in the USA.

In a developing country like India, a large chunk of consumer expenditure is on basicnecessities, especially food-related items. Hence, it is not surprising that food, beveragesand tobacco accounted for as much as 71% of retail sales in 2002. The share of food-related items had, however, declined over the review period, down from 73% in 1999.This is not unexpected, because with income growth, Indians, like consumers elsewhere,have started spending more on non-food items compared with food products. Salesthrough supermarkets and department stores are small compared with overall retail sales.

Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about30% per year during the review period). This high acceleration in sales through modernretail formats is expected to continue during the next few years, with the rapid growth innumbers of such outlets due to consumer demand and business potential.

Some of the facts which are very much responsible for the growth of the Indian retail



sector can be expressed as follows:

• Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry inthe modern sense of the term. This presents international retailing specialists with a great

opportunity.• It was only in the year 2000 that the global management consultancy ATKearney put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which will increaseto Rs. 800,000 crore by the year 2005 – an annual increase of 20 per cent.

• Retailing in India is thoroughly unorganized. There is no supply chainmanagement perspective. According to a survey b y AT Kearney, an overwhelming

proportion of the Rs. 400,000 crore retail market is UNORGANISED . In fact, only aRs. 20,000 crore segment of the market is organized.

•

As much as 96 per cent of the 5 million-plus outlets are smaller than 500 squarefeet in area. This means that India per capita retailing space is about 2 square feet(compared to 16 square feet in the United States). India's per capita retailing space isthus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).

• Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). There is no data on this sector's contribution to the GDP.

• From a size of only Rs.20, 000 crore, the ORGANISED retail industry will growto Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above

will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by2005 (source: survey by AT Kearney)

• Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in theIndian context.

• The first challenge facing the organized retail industry in India is: competitionfrom the unorganized sector. Traditional retailing has established in India for somecenturies. It is a low cost structure, mostly owner-operated, has negligible real estate andlabor costs and little or no taxes to pay. Consumer familiarity that runs from generation

to generation is one big advantage for the traditional retailing sector.• In contrast, players in the organized sector have big expenses to meet, and yethave to keep prices low enough to be able to compete with the traditional sector. Highcosts for the organized sector arises from: higher labour costs, social security toemployees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Organized retailing also has to cope with



the middle class psychology that the bigger and brighter sales outlet is, the moreexpensive it will be.

• The above should not be seen as a gloomy foreboding from global retailoperators. International retail majors such as Benetton, Dairy Farm and Levis have

already entered the market. Lifestyles in India are changing and the concept of "value for money" is picking up.

• India's first true shopping mall – complete with food courts, recreation facilitiesand large car parking space – was inaugurated as lately as in 1999 in Mumbai. (This mallis called "Crossroads").

• Local companies and local-foreign joint ventures are expected to moreadvantageously position than the purely foreign ones in the fledgling organized India'sretailing industry.

•

These drawbacks present opportunity to international and/or professionallymanaged Indian corporations to pioneer a modern retailing industry in India and benefitfrom it.

• The prospects are very encouraging. The first steps towards sophisticatedretailing are being taken, and "Crossroads" is the best example of this awakening. Moresuch malls have been planned in the other big cities of India.

• An FDI Confidence Index survey done by AT Kearney , retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retailchains would make an impact circa 2003.

A Synopsis:

(Please note that the figures given in this report have been contested by some people in India itself. So, they may not be accurate. Yet, they are indicative).



• India has registered a very impressive growth of its middle class -- a class whichwas virtually non-existent in 1947 when India became a politically sovereign nation.• At the start of 1999, the size of the middle class was unofficially estimated at 300million people.• The middle class comprises three sub-classes: the upper middle, middle and

lower middle.• The upper middle class comprises an estimated 40 million people. They haveannual incomes of US$600,000 each in terms of Purchasing Power Parity (PPP). (Pleasenote that the calculation of PPP is complicated, but suffice it to say that it is based onwhat a unit of currency can PURCHASE in one country compared to what the samecurrency can purchase in another country. It is also known as the "law of one price" that governs the price level of general goods and services between the two countries).• The middle class comprises an estimated 150 million people, each with PPPincomes of US$20,000 per year each.• The lower middle class comprises an estimated 110 million people. An estimateof their annual income is not available, but they are mostly the relatively affluent people

in the rural areas of India.• The middle classes ON THE WHOLE (i.e. upper middle + middle + lower middle classes) is expected to grow by 5 to 10 percent annually.

The Indian retail sector can be broadly classified into:

Food Retailers

There are large number and variety of retailers in the food-retailing sector. Traditionaltypes of retailers, who operate small single-outlet businesses mainly using family labour,dominate this sector .In comparison, super markets account for a small proportion of food

sales in India. However the growth rate of super market sales has being significant inrecent years because greater numbers of higher income Indians prefer to shop at super markets due to higher standards of hygiene and attractive ambience.

Health & Beauty Products

With growth in income levels, Indians have started spending more on health and beauty products. Here also small, single-outlet retailers dominate the market .However in recentyears, a few retail chains specializing in these products have come into the market.Although these retail chains account for only a small share of the total market , their

business is expected to grow significantly in the future due to the growing qualityconsciousness of buyers for these products.

Clothing & Footwear

Numerous clothing and footwear shops in shopping centers and markets operate all over India. Traditional outlets stock a limited range of cheap and popular items; in contrast,modern clothing and footwear stores have modern products and attractive displays to lure



customers. However, with rapid urbanization, and changing patterns of consumer tastesand preferences, it is unlikely that the traditional outlets will survive the test of time.

Home Furniture & Household Goods

Small retailers again dominate this sector. Despite the large size of this market, very fewlarge and modern retailers have established specialized stores for these products.However there is considerable potential for the entry or expansion of specialized retailchains in the country.

Durable Goods

The Indian durable goods sector has seen the entry of a large number of foreigncompanies during the post liberalization period. A greater variety of consumer electronicitems and household appliances became available to the Indian customer. Intense

competition among companies to sell their brands provided a strong impetus to thegrowth for retailers doing business in this sector.

Leisure & Personal Goods

Increasing household incomes due to better economic opportunities have encouragedconsumer expenditure on leisure and personal goods in the country. There are specializedretailers for each category of products (books, music products, etc.) in this sector.Another prominent feature of this sector is popularity of franchising agreements betweenestablished manufacturers and retailers.

Forecast total retail sales

Retail sales are predicted to rise more rapidly than consumer expenditure during 2005-2008. The forecast growth in real retail sales during 2005-2008 is 8.3% per year,compared with 7.1% for consumer expenditure. According to KSA TechnoPak, aleading consulting firm, the organised sector will grow to almost Rs 30, 000 crore by2005, representing 6 per cent of the total retail market. Inevitably, modernisation of the



Indian retail sector will be reflected in rapid growth in sales of supermarkets, departmentstores and hypermarkets.

Foreign Direct Investment:

For most of the 1990s, total foreign direct investment (FDI) flows attained new recordlevels every year (figure 1), and increasing investment flows were taken for granted inmany countries. Then, in 2001, investment plummeted, and the subsequent years saw asteady and steep decline in global FDI flows.

Given this backdrop, the recent clamour about opening up the retail sector to ForeignDirect Investment (FDI) becomes a very sensitive issue, with arguments to support bothsides of the debate. It is widely acknowledged that FDI can have some positive results onthe economy , triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards , apart from greater integration into theglobal economy. Supporters of FDI in retail trade talk of how ultimately the consumer is

benefited by both price reductions and improved selection, brought about by thetechnology and know-how of foreign players in the market. This in turn can lead togreater output and domestic consumption. But the most important factor against FDIdriven “modern retailing” is that it is labor displacing to the extent that it can onlyexpand by destroying the traditional retail sector.

Though most of the high decibel arguments in favor of FDI in the retail sector are notwithout some merit, it is not fully applicable to the retailing sector in India, or at least, notyet. This is because the primary task of government in India is still to provide livelihoodsand not create so called efficiencies of scale by creating redundancies. As per present regulations, no FDI is permitted in retail trade in India. Allowing 49% or 26% FDI (which have been the proposed figures till date) will have immediate and direconsequences. Entry of foreign players now will most definitely disrupt the current

balance of the economy; will render millions of small retailers jobless by closing thesmall slit of opportunity available to them. Imagine if Wal-Mart, the world’s biggest



retailer sets up operations in India at prime locations in the 35 large cities and towns thathouse more than 1 million people.

The supermarket will typically sell everything, from vegetables to the latest electronicgadgets, at extremely low prices that will most likely undercut those in nearby local

stores selling similar goods. Wal- Mart would be more likely to source its raw materialsfrom abroad, and procure goods like vegetables and fruits directly from farmers at preordained quantities and specifications. This means a foreign company will buy bigfrom India and abroad and be able to sell low – severely undercutting the small retailers.Once, a monopoly situation is created this will turn into buying low and selling high.Such re-orientation of sourcing of materials will completely disintegrate the alreadyestablished supply chain. In time, the neighboring traditional outlets are also likely to foldand perish, given the ‘predatory’ pricing power that a foreign player is able to exert. As

Nick Robbins wrote in the context of the East India Company, “By controlling both endsof the chain, the company could buy cheap and sell dear”. The producers and traders atthe lowest level of operations will never find place in this sector, which would now have

demand mostly only for fluent English-speaking helpers. Having been uprooted fromtheir traditional form of business, these persons are unlikely to be suitable for other areasof work either.

It is easy to visualize from the discussion above, how the entry of just one big retailer iscapable of destroying a whole local economy and send it hurtling down a spiral. Onemust also not forget how countries like China, Malaysia and Thailand, who opened their retail sector to FDI in the recent 13 Census 2001, Registrar of Census, GOI 14 Robbins,

Nick, “The World’s First Multinational.” The New Statesman, (Dec. 13, 2004) past, have been forced to enact new laws to check the prolific expansion of the new foreign mallsand hypermarkets.

Given their economies of scale and huge resources, a big domestic retailer or any newforeign player will be able to provide their merchandise at cheaper rates than a smaller retailer. But stopping an Indian retailer from growing bigger is something current public

policy cannot do, whereas the State does have the prerogative in whether foreign entry inthe retail sector should be stalled or not. It is true that it is in the consumer’s best interestto obtain his goods and services at the lowest possible price. But this is a privilege for theindividual consumer and it cannot, in any circumstance, override the responsibility of anysociety to provide economic security for its population. Clearly collective well-beingmust take precedence over individual benefits.

Positive Demographics

Indian economy is set to grow at a CAGR of 7%. GDP growth is fast translating intohigher income levels and with a median population age of 25 years, Indian earning classis expected to multiply. India’s urban population at 28% is expected to rise to 38% by2025.This coupled with the benign interest rates and growing plastic money is resultingin higher consumer spending. Western experience points towards India with favorable



demographics and policy initiatives to deliver one of the highest growth rates in theorganized retailing industry over the next decade.

Rising share of organized retail

Organized retailing is currently pegged at around Rs280bn. Share of organized retail hasrisen from about 1% of total retail sales in 1999 to almost 3.5% in 2004. This is expectedto rise to 8-10% over the next 5 years. The industry offers huge growth potential andmany have been quick to seize this opportunity, as seen in rising level of large retailformats. Total new mall space of 75mn sq ft is expected to spring up by 2007 in thecountry. The big three retailers Pantaloon Retail, Shoppers’ Stop and Trent plan to doubleretail space, together adding almost 3mn sq ft retail space by 2007.

Ascending the learning curve

With most of the players operating for over 5 years now, new formats have been tested

and back end systems have been put in place. Not only are footfalls growing, butconversions are rising and so are average ticket sizes. Most of the players have raisedcapital either through private placement, rights or public issue and are in the process of executing their aggressive growth plans.

Robust growth in earnings

We expect sector earnings to grow at a CAGR of 55- 60% over the next 2 years. Marketleader Pantaloon with expected earnings CAGR of 65% remains our top pick in thesector. We also reiterate our Buy on Trent (Expected earnings CAGR of 63%). Werecommend Book Profits on Shoppers’ Stop

Managing growth - the key challenge

The fast pace of growth throws up major worries - Do the players have the necessarysupply chain and IT systems in place to manage the growth? Is FDI in the sector reallyrequired? Are increasing footfalls resulting in conversions – as growth would rest not onfootfalls, but on conversion of window shoppers to consumers. Players inability tomanage the growth and high inventory write offs could be the key risk to our estimates.

Informed Consumer

Over the years, the increasing literacy in the Country and the exposure to developednations via satellite television or by way of the overseas work experiences, the consumer awareness has increased on the quality and the price of the products/services that isexpected. Today more and more consumers are vocal on the quality of the

products/services that they expect from the market. This awareness has made theconsumer seek more and more reliable sources for purchases and hence the logical shiftto purchases from the organized retail chains that has a corporate background and where



the accountability is more pronounced. The consumer also seeks to purchase from a placewhere his/her feedback is more valued.

Social Trends

Social trends of a country have impact on the scheme of growth of food retailing in acountry. India is country that is vast geographically and diverse culturally. This has takenits toll on food retailing with retailers having to adapt to the local cultures and palates of the area in which they have established or plan to establish. This is a major reason for many or most retailing chains restricting their operations to a certain part of the country.But the trends now are slowly moving towards cultural integration where people of allstates and diametrically opposite cultures tend to try out foods and materials of other states and communities. This movement towards social integration would make it veryfeasible in the near future for retailing chains and erstwhile local chains to spread acrossthe country.

Increased income levels and more women willing to make use of their education by joining work has increasingly affected the shopping pattern that is moving towardsfulfilling the need of convenience shopping in the form of Supermarkets (now graduatingto Hyper format) home deliveries. Indian consumer is quality and price conscious andthis awareness would drive the retailers to rework their supply chain relationships.

A recent analysis shows that countries go through a distinct food consumptionevolutionary pattern. In the first stage the focus is on obtaining basic dietary inputs, thesecond stage focuses on improving and building basic foods, before moving to the thirdstage of adding premium food to the diet. Most of urban India has already moved to thethird stage and it is a great avenue for food retailers, if they could slowly introduce therest of India to it. The future would witness creation of specific models/formats one for the upwardly mobile urbanite and the other for the rural markets. Also since the tastehabits change from place to place in India, there would emerge a leading

Online Retailing

The single most important evolution that took place along with the retailing revolutionwas the rise and fall of the dotcom companies. A sudden concept of `non-store' shoppingemerged, which threatened to take away the potential of the store. More importantly, thevery nature of the customer segment being addressed was almost the same. Thecomputer-savvy individual was also a sub-segment of the `store' frequenting traffic.Internationally, the concept of Net shopping is yet to be proven. And the poor financial

performance of most of the companies offering virtual shopping has resulted in store-



based retailing regaining the upper hand. Other forms of non store shopping includingvarious formats such as catalogue/mail order shopping, direct selling, and so on aregrowing rapidly. However, the size of the direct market industry is too limited to deter the retailers. For all the convenience that it offers, electronic retailing does not suit

products where `look and see' attributes are of importance, as in apparel, or where the

value is very high, such as jewellery, or where the performance has to be tested, as of consumer durables. The most critical issue in electronic retailing, especially in a countrysuch as ours, relates to payments and the various security issues involved.

However, using the internet to be able to source products and also check for availabilityof stock among stores of retail chains has been proven to be effective and cuts down onwastage by a vast amount. It makes logistical support very easy and efficient. The trendin India is such that usage of the electronic medium for business purposes and integratingit into the systems is increasing. This would slowly spread into the retailing sector aswell. It has already started in the case of some large retail houses where the affects arehere to see. This again would result in the supply chain getting leaner and vertically

integrated. Though the initial costs to implement these systems are high, in the long run itresults in cost reduction where this privilege can be passed on to the final consumer.



Challenges of Retailing in India

Retailing as an industry in India has still a long way to go. To become a truly flourishingindustry, retailing needs to cross the following hurdles:

• Automatic approval is not allowed for foreign investment in retail.

• Regulations restricting real estate purchases, and cumbersome local laws.

• Taxation, which favours small retail businesses.

• Absence of developed supply chain and integrated IT management.

• Lack of trained work force.

• Low skill level for retailing management.

• Intrinsic complexity of retailing – rapid price changes, constant threat of product obsolescence and low margins.

The retailers in India have to learn both the art and science of retailing by closely followinghow retailers in other parts of the world are organizing, managing, and coping up with newchallenges in an ever-changing marketplace. Indian retailers must use innovative retailformats to enhance shopping experience, and try to understand the regional variations inconsumer attitudes to retailing. Retail marketing efforts have to improve in the country -advertising, promotions, and campaigns to attract customers; building loyalty by identifyingregular shoppers and offering benefits to them; efficiently managing high-value customers;

and monitoring customer needs constantly, are some of the aspects which Indian retailersneed to focus upon on a more pro-active basis.

Despite the presence of the basic ingredients required for growth of the retail industry inIndia, it still faces substantial hurdles that will retard and inhibit its growth in the future.One of the key impediments is the lack of FDI status. This has largely limited capitalinvestments in supply chain infrastructure, which is a key for development and growth of food retailing and has also constrained access to world-class retail practices. Multiplicityand complexity of taxes, lack of proper infrastructure and relatively high cost of real estateare the other impediments to the growth of retailing.

While the industry and the government are trying to remove many of these hurdles, some of the roadblocks will remain and will continue to affect the smooth growth of this industry.Fitch believes that while the market share of organised retail will grow and becomesignificant in the next decade, this growth would, however, not be at the same rapid pace asin other emerging markets. Organised retailing in India is gaining wider acceptance. Thedevelopment of the organised retail sector, during the last decade, has begun to change theface of retailing, especially, in the major metros of the country.



Experiences in the developed and developing countries prove that performance of organisedretail is strongly linked to the performance of the economy as a whole. This is mainly onaccount of the reach and penetration of this business and its scientific approach in dealingwith customers and their needs. In spite of the positive prospects of this industry, Indianretailing faces some major hurdles (see Table 1), which have stymied its growth. Early signs

of organized retail were visible even in the 1970s when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their operations. However, as a result of the roadblocks(mentioned in Table 1), the industry remained in a rudimentary stage. While these retailersgave the necessary ambience to customers, little effort was made to introduce world-classcustomer care practices and improve operating efficiencies. Moreover, most of thesemodern developments were restricted to south India, which is still regarded as a ‘Mecca of Indian Retail’.



Employment in Retailing

A simple glance at the employment numbers is enough to paint a good picture of the relativesizes of these two forms of trade in India – organised trade employs roughly 5 lakh people(see Tables 8 & 9), whereas the unorganized retail trade employs nearly 3.95 crores5!According to a Government of India study the number of workers in retail trade in 1998 wasalmost 175 lakhs. Given the recent numbers indicated by other studies, this is onlyindicative of the magnitude of expansion the retail trade is experiencing, both due toeconomic expansion as well as the ‘jobless growth’ that we have seen in the past decade. Itmust be noted that even within the organised sector, the number of individually-owned retailoutlets far outnumber the corporate backed institutions. Though these numbers translate toapproximately 8% of the workforce in the country (half the normal share in developed

countries) there are far more retailers in India than other countries in absolute numbers, because of the demographic profile and the preponderance of youth, India’s workforce is proportionately much larger. That about 4% of India’s population is in the retail trade says alot about how vital this business is to the socio-economic equilibrium in India.



Organised retail is still in the stages of finding its feet in India even now. Though organisedtrade makes up over 70-80% of total trade in developed economies, India’s figure is loweven in comparison with other Asian developing economies like China, Thailand, SouthKorea and Philippines, all of whom have figures hovering around the 20-25% mark. Thesefigures quite accurately reveal the relative underdevelopment of the retail industry in India.

(Here development is used in the narrowest sense of the term, implying lean employmentand high automation).

Retail Models in India: Current & Emerging

• Hypermarts

• Large supermarkets, typically (3,500 - 5,000 sq. ft)

• Mini supermarkets, typically (1,000 - 2,000 sq. ft)

• Convenience store, typically (750 - 1,000 sq. ft)

• Discount/shopping list grocer

• Traditional retailers trying to reinvent by introducing self-service formats as well as value-added services such as credit, free home delivery etc.

The Indian food retail market is characterized by several co-existing types and formats.These are:

121. The road side hawkers and the mobile (pushcart variety) retailers.342. The kirana stores (the Indian equivalent of the mom-and-pop stores of the US), within

which are:0 a. Open format more organized outlets.12 b. Small to medium food retail outlets.



Modern trade – the organized retailers

Within modern trade, we have:

11. The discounter (Subhiksha, Apna Bazaar, Margin Free)

232. The value-for-money store (Nilgiris)453. The experience shop (Food world, Trinethra)6 74. The home delivery (Fabmart)

While the focus of this chapter is on modern organized retail trade, we hereunder presentinsights into the smaller, semi and unorganized retailers.

Hawkers – ‘mobile supermarkets’

The unorganized sector is characterized by the lari-galla vendors (also known as “mobilesupermarket”) seen in every Indian bylane and is, therefore, difficult to track, measure andanalyse. But they do know their business – these lowest cost retailers can be found wherever more than 10 Indians collect – a rural post office, a dusty roadside bus stop or a villagesquare. As far as location is concerned, these retailers have succeeded beyond all doubt.They have neither village nor city-wide ambitions nor plans – their aim is simply a longwalk down the end of the next lane. This mode of “mobile retailers” is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of freshfoods in India occurs in Mandis and roadside hawker parks, which are usually illegal andentrenched. These are highly organized in their own way. Hawking of food products,cooked food and FMCG products is a very interesting model of retailing. Much has beenwritten about these roadside “malls” – from social security issues to their nuisance value.However, if you put these hawkers together, they are akin to a large supermarket with littleor no overheads and high degree of flexibility in merchandise, display, prices and turnover.While shopping ambience and the trust factor maybe missing, these hawkers sure have asystem that works.

Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores

Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores arecharacterized by the more systematic buying – from the mandis or the farmers and selling – from fixed structures. Economies of scale are not yet realized in this format, but the frontend is already visibly changing with the times. These stores have presented Indiancompanies with the challenge of servicing them, giving rise to distribution and cash flowcycles as never seen elsewhere in Asia. The model is very antithesis of modern retail interms of the buyer (retailer)-seller (FMCG) equations. It is not unknown for MNC leaders tolink the supply of one line of products to another slower moving line of products.

Evolution of Organized Retailing



Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to theconsumer, especially in the urban areas. This is slowly giving way to international formatsof retailing. The traditional food and grocery segment has seen the emergence of

supermarkets/grocery chains, convenience stores and fast-food chains.

The traditional grocers, by introducing self-service formats as well as value-added servicessuch as credit and home delivery, have tried to redefine themselves. However, the boom inretailing has been confined primarily to the urban markets in the country. Even there, largechunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has,therefore, probably not looked at the other markets as seriously. Second, the modernretailing trend, despite its cost-effectiveness, has come to be identified with lifestyles.

In order to appeal to all classes of the society, retail stores would have to identify withdifferent lifestyles. In a sense, this trend is already visible with the emergence of stores withan essentially `value for money' image. The attractiveness of the other stores actuallyappeals to the existing affluent class as well as those who aspire to be part of this class.Hence, one can assume that the retailing revolution is emerging along the lines of theeconomic evolution of society.

It was only in the year 2000 that the economists put a figure to it: Rs. 400,000 crore (1 crore= 10 million) which is expected to develop to around Rs. 800,000 crore by the year 2005 – an annual increase of 20 per cent. Retailing in India is unorganized with poor supply chainmanagement perspective. According to a recent survey by some of the retail consulting

bodies, an overwhelming proportion of the Rs. 400,000 crore retail markets areUNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. Asmuch as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet area. Thismeans that India per capita retailing space is about 2 square feet (compared to 16 square feetin the United States). India's per capita retailing space is thus the lowest in the world(source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon

Associates).

Growth in organised retailing



Currently the retail landscape is filled with Supermarket chains with over 1000 outlets allover the country to increase to around 5000 by the 2005. The success of a couple of Hypermart’s indicating the evolution of hypermarkets in the country prominent among themis Giant, Metro, Big Bazaar models. While the average bill value at a supermarket is in therange of Rs.300 per bill, the average bill amount at a Hypermarket is in the range of Rs.750-1000, indicating that the model is in tune with the global models where the average spend isincreasing with the shopping experience.

Impact of Organized Retail

Organized retailing is spreading and making its presence felt in different parts of thecountry. The trend in grocery retailing, however, has been slightly different with a growthconcentration in the South. Though there were traditional family owned retail chains inSouth India such as Nilgiri’s as early as 1905, the retail revolution happened with the RPGgroup starting the Food world chain of food retail outlets in South India with focus onChennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped richdividends and the group is now foraying into other territories as well. Owing to the successof Food world model of RPG group, several new models such as Trinethra, Subhiksha,Margin Free and others have made their foray into this sector albeit at regional levels.Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the organised food retail segment is about 1 per cent and increasing at a pace of over 20% year-on-years.

To be successful in food retailing in India essentially means to draw away shoppers from,the roadside hawkers and kirana stores to supermarkets. This transition can be achieved to



some extent through pricing, so the success of a food retailer depends on how best heunderstands and squeezes his supply chain. The other major factor is that of convenienceshopping which the supermarket has the edge over the traditional kirana stores. On anaverage a supermarket stocks upto 5000 SKU’s against few hundreds stocked at an averagekirana stores.

Though with excellent potential, India poses a complex situation for a retailer, as this is aCountry where each State is a mini-Country by itself. The demography’s of a region varyquite distinctly from others. In order to appeal to all classes of the society, retail storeswould have to identify with different lifestyles. Hence we may find more of regional playersand it would take enormously long time before nation wide successful retail chains emerge.This is the main reason as to why the successful retail chains in the country today operate atregional segments only and are not aiming at nation wide presence, at least for the time

being.

In the organized retail industry , the gestation periods are long, institutional funding is

difficult, and there is none or little Government support. But the belief among top retailer chains in the country is that the industry will see large investments coming once the current ban on foreign direct investment is lifted. But that could be two-three years away. Food andgrocery retailing is a tough business in India with margins being very low, and consumersnot dissatisfied with existing shops where they buy. For example, the next-door groceryshopkeeper is smart and delivers good customer service, though not value.

As of now, while Chennai has about five organised food and grocery retail chains, other bigcities such as Delhi, Bangalore, and Mumbai average only two-three such chains. Almost allfood retail players have been region-specific as far as geographical presence is concerned inthe country. To illustrate with examples, the RPG Group's Food World, Nilgiris, MarginFree, Giant, Varkey's and Subhiksha, all of which are more or less spread in the Southernregion; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko andRadhakrishna Foodland are Mumbai-centric; while Adani is Ahmedabad-centric. Industrytopography in India is such that spreading presence across cities is a tough call. As pointedout by many experts, organised food and grocery retailing chains going national requiressignificant investments. Retailing within this sector is not just about the front-end, butinvolves complex supply chain and logistics issues as well.

The trend and mindset of the present retailer chains in India can be best understood bystudying FoodWorld as an example, which came in first in the food and grocery retailingsector. The chain has no plans to venture beyond the Southern region just yet. Current plansare to focus on the Southern markets and achieve saturation. The intention is that by 2005,they could look at the other regions. Subhiksha, a Chennai based discount chain, too wantsto be the principal store of purchase for at least 40 per cent of all consumers living within500-750 meters of the store, that is, within walking distance.This makes the point very clear that the strategy among most existing retail chains of various formats is to completely saturate the markets where they are already established

players and then move on to virtually untouched areas where the challenge of sourcing



resources and extending their supply chain model to best suit the size and expanse of themarket would be a challenging task.

Meanwhile, the RPG group plans to take its new formats such as Giant Hypermarketsnational over the next three years. Grocery is a large component of this format, but not the

only one. To elaborate on the hurdles of going pan-Indian, fundamentally, the way a basicgrocery retailing model works is that the high set-up costs in terms of setting up buying/distribution infrastructure is gradually amortised over a larger number of stores. The back-end costs without distribution centre costs, or what in retail jargon is called retailadministration costs, should stabilise at around 2.5 per cent to 3 per cent of sales.

It can be explained that the obstacles of looking at a pan-India model for grocery areseveral. Given the federal nature of the country, the weak infrastructure and the major variances in eating habits in different parts of the country, one will have to replicate theretail administration costs for at least each region and therefore the gestation period of the

project becomes huge. However, if a model is in place where the upfront store revenues

scale very rapidly, then it is possible. Therefore, if one is to attempt a pan-Indian groceryforay, it will have to be in the hypermarket format with its attendant investment numbersand risk profile.

If a close look is taken at the nature of the Indian Retail Markets, it can be seen that there isso much potential to extract from individual regions that players are in no tearing hurry tospread out. Based on a recent study by a renowned government institution in India, in thesix major metros, Delhi has the highest per capita consumption of food and grocery, amongsupermarkets. Chennai, “the mecca of retailing”, comes at fourth place. This shows the high

potential the sector presents. Chennai has some five supermarket chains, and each of these isdoing well for themselves. So there is enough scope to expand even in one single city inIndia. Sabka Bazaar , a supermarket chain restricted to Delhi alone, is now generating sales of about Rs 11 crore from its 19 stores which best illustrates the potential of each individualcity. This explains the reason for delay in intentions of retailers to spread far and wide.

Pantaloon Retail (India) Ltd , which operates two types of retail formats, made its maidenforay in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloongroup's discount store chain, has taken off to a roaring start in Delhi. The Pantaloon BigBazaar in Delhi is the sixth for the group, and the first in North India. It has been found thatexisting Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attractaverage footfalls of 20,000 to 25,000 per day, more so during weekends.

While Big Bazaar is essentially a discount store retailing product categories ranging fromfood and grocery to apparel to footwear to home and interior products, food and groceryretailing forms a significant part of the chain's business. Typically, while food and grocery



retailing does well at the beginning of the month, the apparel sector sees maximum off takeduring festivals. It can be observed that the most popular retail format in India is the ‘supermarket’, besidethe corner shop/grocery store/’mom and pop’ store. Hypermarkets have very recently come

into being and are negligible in number though most retail chains do intend to expand their presence through this format as well very soon. ‘Discount chains’ are also substantial innumber and are growing at a fast pace through the country, predominantly, in the southernregion.

Given that organised retail has been registering growth rates of approximately 40 per centover the last three years, it is expected to grow to about Rs 35,000 crore in 2005, and closeto Rs 70,000 crore in 2010. If projections were to be made considering the current trends infood retailing in India, some years down the line, food and grocery stores will becomedominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such stores. Also, onceestablished, in-store label brands will become a real threat to the industry as manufacturerswill have to compete with the store label brands that are generally very price-competitive.As for the spread geographically, strong chances stand that the major chains would spreadto the next grade of cities in the country over the next 5 years or so and then progressivelystart covering every corner of the country. Most chains have already started developing their own unique supply chains that would suit their needs precisely. Replicating the successstories of the big names of the Western nations may still be a distant dream for Indian foodand grocery retailers, but at least the winds are blowing in the direction of growth.

Shopping Mall and its Global presence

1. An urban shopping area limited to pedestrians.2. A shopping center with stores and businesses facing a system of enclosed walkways

for pedestrians.

A Shopping center, Shopping Mall, or Shopping plaza, is the modern adaptation of thehistorical marketplace. The Mall is a collection of independent retail stores, services, and a

parking area, which is conceived, constructed, and maintained by a separate managementfirm as a unit. They may also contain restaurants, banks, theaters, professional offices,service stations etc.

A Shopping Mall (or simply Mall ), Shopping Centre or Shopping arcade is a building or set of buildings that contain stores and have interconnecting walkways that make it easy for

people to walk from store to store. The walkways might be enclosed.

In the United Kingdom and Australia these are called shopping centres (and sometimes amall) or shopping arcades. In North America the term mall is preferred.



The first shopping mall was the Country Club Plaza, founded by the J.C. Nichols Companyand opened near Kansas City, Mo., in 1922. The first enclosed mall called Southdale openedin Edina, Minnesota (near Minneapolis) in 1956. In the 1980s, giant mega malls weredeveloped. The West Edmonton Mall in Alberta, Canada, opened in 1981 - with more than800 stores and a hotel, amusement park, miniature-golf course, church, "water park" for

sunbathing and surfing, a zoo and a 438-foot-long lake.

In the mid-20th century, with the rise of the suburb and automobile culture in the UnitedStates, a new form of mall was created away from city centers. The Valley Fair Mall,located in Appleton, Wisconsin was built in 1954, and is recognized as the first enclosedshopping mall in the United States.

A very large shopping mall is sometimes called a Mega Mall . The title of the largestenclosed shopping mall was held by the West Edmonton Mall in Edmonton, Alberta,Canada for 20 years. One of the world's largest shopping complexes at one location is thetwo-mall agglomeration of the Plaza at King of Prussia and the Court at King of Prussia in

the Philadelphia suburb of King of Prussia, Pennsylvania, USA. The most visited shoppingmall in the world and largest mall in the United States is the Mall of America, located near the Twin Cities in Bloomington, Minnesota, USA.

Mall can refer to a Shopping Mall , which is a place where a collection of shops all adjoin a pedestrian area, or an exclusively pedestrian street, that allows shoppers to walk withoutinterference from vehicle traffic. Mall is generally used in North America and Australasiato refer to large shopping areas, while the term arcade is more often used, especially in

Britain, to refer to a narrow pedestrian-only street, often covered or between closely spaced buildings. A larger, often only partly covered but exclusively pedestrian shopping area is inBritain also termed a shopping precinct or pedestrian precinct.

Shopping malls have become a way of life in America. The opening of the South daleCenter in the Minneapolis suburb of Edina, Minnesota, in October 1956 heralds the

beginning of mall mania in USA. By 2000, there were more than 45,000 shopping malls inthe United States, with 5.47 billion square feet of gross lease able space.

Different types of Shopping Mall

Regional Mall



A regional mall is a shopping mall which is designed to service a larger area than aconventional shopping mall. As such, it is typically larger, and offers a wider selection of stores. Given its wider service area, these malls tend to have higher-end stores that need alarger area in order for their services to be profitable.

Regional malls are also found as tourist attractions in vacation areas.

Super-regional malls are usually shopping centers with over 1 million square feet of retailspace and serves as the dominant shopping venue for the region that it serves.

Strip mall

"Pitt Street Mall" of Sydney is Australia's busiestshopping precinct. This strip mall has eight retail

centres and more than 600 specialty stores, withintwo city blocks.

A strip mall is a shopping center where the storesare arranged in a row, with a sidewalk in front.Strip malls are typically developed as a unit andhave large parking lots in front. They face major traffic arterials and tend to be self-contained with few pedestrian connections to surroundingneighborhoods.

In the U.S., strip malls usually come in two sizes. The smaller variety is more common, and

often located at the intersection of major streets in residential areas; they cater to a smallresidential area. This type of strip mall is found in nearly every city or town in the U.S.They are service-oriented and will often contain a grocery store, video rental store, drycleaner, small restaurant, and other similar stores. In the past, pharmacies were often locatednext to the grocery stores, but, now, the drug store is often free-standing in the parking lot.Sometimes, gas stations, banks, and other businesses will also have their own free-standing

buildings in the parking lot of the strip center.

The other variety of strip mall in the U.S. has large, big box retailers as the anchors, such asWal-Mart or Target. They are sometimes referred to as power centers , in the real estatedevelopment industry, because they attract and cater to residents of an entire population

area. The type of retailers may vary widely--from electronics to bookstores to homeimprovement stores. There are typically only a few of these type of strip malls in a city,compared to the grocery store-anchored strip mall.

Some of these strip centers may only have three of four of these large retailers in them,while others may have a dozen or more major retailers.

Some strip malls are a hybrid of both of these types.



Strip malls vary widely in architecture. Older strip malls tend to have plain architecture withthe stores arranged in a straight row; in some cases there are vacant stores. Newer stripmalls are often built with elaborate architecture to blend in with the neighborhood or bemore attractive. In some cases, strips malls are broken up into smaller buildings toencourage walking. Sometimes the buildings will wrap around the parking lot to hide the

parking from the road or residential areas.

Due to land use issues, strip malls in the United Kingdom are typically found on the edgesof cities on greenfield sites, and are known as out of town shopping centres . Ones in moreurban areas (often brownfield redeveloped sites) are more typically known as retail parks .

Mall Mania

Concept: Shopping Mall





Review of literature

Shopping Mall in India

The fast growing middle-class population and the risein women workforce and consumerism over thedecade are the major force in driving demand in theretail sector. To the present generation shoppingmeans much more than a mere necessity and malls arenow fast becoming image benchmarks for communities. The future of Indian malls is in the



Hybrid format, the Discount malls and Gen X malls that have emerged as the hottestconcepts in 2005.

Malls in India under operations

Chesterton Meghra findings

a. Middle-class forms 20-25% of the total population (200-250 million), and is drivingdemand in the retail sector.

b. Increased spending by India’s middle class is estimated to be over US$ 300 million.

Operational Malls/Shopping Centres as on 31 August 2005

Built-up Area in sq.ft No of Malls

Delhi - NCR 6,533,374 29

Mumbai, Navi Mumbai & Thane 6,575,000 27

Kolkotta 741,660 3

Chennai 1,350,000 2

Bangalore 1,260,000 5

Pune 1,230,000 5

Hyderabad 695,000 5

Others 3,179,830 20

Total All India 21,564,864 96



c. Lifestyle orientation of people is changing: The super rich class of 17 million willincrease to 35 million in 5 years.

d. Over 40 million in India have same purchasing power as Americans.

e. Overall consumer spending grew at a pace of 6% pa in last 10 yrs.

f. Around 75% of population in India is under 40 years of age.

g. Among factors that spurred the mall mania on: Dearth of organised retail for one and thedemand to replicate the mall experience of shopping in foreign countries was the other reason.

h. Age of Gen X malls: Greater than 500,000 sq. ft with large entertainment area, ample parking spaces.

i. Enter Discount malls: At least 5 outlets in each of the major cities this fiscal - to providegoods that are at least 25-50 per cent cheaper than the retail price, manufacturers candirectly sell to the end-users.

Hotel shopping plazas gaining popularity

Traditionally hotel retail was restricted to jewellery and handicraft items but post 2003 thisis changing with various international retailers entering the market preferring the hotelenvironment more suitable to get a feel of the market. Assessing this demand, newupcoming hotels are incorporating distinct retail areas in their plans on the lines of GrandHyatt in Mumbai and Leela Galleria in Bangalore.

Jones Lang Lasalle findings

a. Hotel shopping plazas with sizes varying from 10,000- 220,000 sqft coming up.

b. Existing hotels are making efforts to revamp and expand their existing retail spaces.

c. In 2004-2005 Oberoi Hotel Delhi, Taj Mahal, Mumbai, Imperial Hotel Delhi, MauryaHotel, Delhi have seen prime retail space being increasingly leased to high end retailers.

d. Apparel consumes more than 50% of this hotel retail space.

Acute shortage of anchor retailers

One of the key challenges for a developer in India today is the lack of choice with respect toanchor retailers that is limited to a total of less than 15 as of now and clearly presents ademand-supply imbalance, especially with more than 300 shopping mall projects coming.For the developer, this means inability to create a distinctive positioning and character for



the mall and also inability to replace a “not so well performing” retailer with a better performing one.

Pricewaterhouse Cooper’s findings

a. Majority of upcoming mall developments remain fragmented and sub-optimally planned.

b. In near future there is likelihood of a shake-out within shopping mall business.

c. Emergence of few large, dominant and relatively more professionally managednational/regional and a host of specialty/niche local players likely.

d. With globalisation of the real estate sector, shopping malls of international scale andquality would soon emerge.

With FDI, India can replicate the Chinese experience in retail growth: Food and apparel

most happening sectors India is the most compelling opportunity for retailers in 2005though “timing” is one of the most crucial decisions in retail, which if not tackled properly,can cause retailers to exit the market. Fierce domestic competitors and shaky infrastructureare among the major obstacles for international retailers, says A T Kearney report. Thesuccess story of China is a glaring example where the domestic retail industry is stillthriving despite FDI. Food and apparel present the greatest opportunities for global retailersin the Indian retail market, the study says.

A T Kearney findings

a. In 2005, India offers most compelling opportunity for retailers.

b. India’s retail industry (food and non-food) is the second largest employer after agriculture.

c. India’s retail industry is world’s second largest untapped market (after China).

d. Department of commerce has recently proposed that 100% FDI be allowed in retailing.

e. Benefits from FDI: A multiplier effect on the economy as a whole, manufacturing, food processing, packaging & logistic services to gain.

f. FDI to bring significant increase in employment in front-end and supply chain streams.

g. FDI to lead to greater export opportunities for Indian suppliers due to increased sourcing by major players.

h. Strong retailing sector will boost tourism as seen from the experience of Singapore andDubai.



i. In China: FDI permitted in 1992; retail sales have grown at the rate of 15% CAGR year on year; initially FDI was restricted to 49% equity shareholding, restrictions have gradually

been phased out.

j. Since 1992, foreign retailers have pumped USD 3 billion into China; have set up more

than 2,200 branch stores, yet sales of foreign retailers make up less than 3.5% of all retailsales in China, indicating that the domestic retail industry is thriving.

k. Food and apparel present the greatest opportunities for global retailers in India - most of the growth over the next few years is expected to be in these two sectors.

REITs can provide better finance solutions for retail estate

Financial structuring is among the most crucial aspects in mall development as the cost of aretail development is generally 40 per cent higher than any residential or commercialdevelopment and the mall takes 4 to 12 months post construction period operations to get

fully occupied. REIT (Real Estate Investment Trusts) can provide a good alternate financingsolution to retail real estate development as they bring in the flexibility to rope in retailinvestors and still maintain the overall control on the tenant mix and other aspects of themall management, says the study by Cushman & Wakefield.

Cushman & Wakefield findings

a. Cost of a retail development is generally 40% higher than residential or commercialdevelopments and malls take 4-12 months post construction period to get fully occupied.

b. REITs can provide a good alternate financing solution to retail real estate development

c. Ongoing mall projects estimated to require construction cost funding of approx INR 128 billion

d. In the next stage of large scale stabilisation, more sophisticated funding mechanisms willemerge

e. The Indian retail real estate market is poised for an even greater revolution in the yearsahead.

Concept based positioning more important than design/looks

During the last 10 years, four clear shopping center models have emerged: the FamilyCenter, the Fashion Center, the Themed Mall experience as a leisure enhancement for tourists, and the Community based center - each suggesting quite different approaches to the



interiors. Colour and materials are still important, but they’re no longer the whole story,says Mr Stan Laegreid, AIA, principal, Callison.

Modern retail practices and mall management call for expertise in various specialised fieldsand for sure the country is deficient in terms of trained professionals for these tasks, in retail

as well as retail real estate - this is one major challenge that the industry will need to addressin right earnest.

The Delhi deal

This, the second in a series of excerpts from the Knight Frank India Retail Review, looks atthe real estate scene in the Capital, already a hotspot for retailers

Delhi is ranked as the second largest market in the country in terms of size and socio-economic profile. The population of Delhi is 13.7 million with a per capita income of Rs28,885 per annum (pa). Being the capital city, it has an affluent population comprising a

cosmopolitan mix from across the country. Delhi has the highest share of all India urbanhouseholds and 38 per cent of the total households in the city have an annual spending power in the range of Rs 50,000-1,00,000. The total average expenditure per household inDelhi is the highest in the country, Rs 11,597 pa, compared to an all India average of Rs4,577 pa.

What constitute a Mall??

What with the malls sprawling up on the roadsides in the city of Gurgaon, the mallconstitution has to be done up in order to keep up with the ever increasing competition. First



of all there is nothing to be left from the hygiene factors' list . If these are not taken care of,the customers will just not enter your mall. Some of these factors are as following: -

A Good Anchor: Almost always and at least for the generation of initial footfalls,the anchor store comes in handy. Take Sahara Mall for example, the biggest crowd

puller there being the Big Bazaar. The anchor store also communicates the positioning of the mall. So if you believe in "value for money" and would pack upyour shopping spree with a good healthy Indian meal at Haldiram's, then Sahara isthe right choice.

A Kids' Center: Young mothers who have just stepped into the bandwagon of "Indian Consumerism" wouldn't like to divide their attention between the variousflashy brands, stores on one hand and her kid on the other. Preferably it should be aset up where caretakers are present. Mothers won't trust mattresses and soft swingswithout a human face available. They are ready to pay for it.

Food Courts: People are spending larger chunks of time in the malls. So they arelikely to get hungry as well. Families who come for a real shopping experiencenecessarily look for wholesome eating experience as well. This can be provided bynot one particular kind of cuisine but one which can satisfy many a taste bug. Agood example is the food court in the Metro City mall on MG Road in Gurgaon.

Multiplex: Not because everybody who enters comes for a movie but for the factthat your prospective customers might be shopping in a mall with a multiplexhoused in it, right after watching a show.

Disciplined Parking: It goes without saying that majority of the footfalls in any

shopping mall belongs to the "own vehicle" category. Visitors expect guidanceinside the parking and speedy acceptance of payment and verification.

The above were factors which are a necessary evil for all the malls now. Over and abovethese factors the following might help get the malls score an edge above the clutter. Themotivators are as the following: -

Valet Parking: Nothing at all should lead to exit of a prospective footfall. So better still give him comfort from the moment he/she enters the premises. Given theconditions of Delhi-Gurgaon traffic, they would love someone to spare them themisery of parking the car, taking the slip and paying for it.

Centralised Mall Administration: Such a move should provide for an office insidethe mall premises where the customers can avail the following services: -



o Lost and Foundo Announcements for lost children or relativeso Baby Cartso Common Shopping Cartso Complaintso Lockers for the visitors

Sticky Tools: These are facilities which encourage the customers to sit and whileaway time inside the mall and leads to greater conversions of footfalls into sales.The malls should provide for free sitting area so that each time the visitor is tiredafter shopping he/she doesn't necessary spend money to sit inside a food parlour andtake rest. Make sure the visitor doesn't leave the mall too soon.

The malls are surely housing the new and more stylish incarnations of the kapdewala, TVwala, chat wala and the works. Nonetheless, it has to be done in style, which meets theneeds of the modern consumer. Otherwise even before the mall mania reaches a saturation

point, the footfalls might be shying away for the most convenient form of shopping which is"FREE HOME DELIVERY" .

Current Situation

Shopping malls are a relatively new phenomenon in India. A decade ago, there was not asingle shopping mall in the country. Currently, in seven cities there is a total of approximately 42 million sq ft of malls in various stages of completion. It is expected thatwithin two years there will be over 300 malls, shopping centres and multiplexes in India.

Shopping Malls under Execution

Location Projects Cost (Rs Crore)Bangalore 10 545Chennai 3 N.A.Delhi 44 1,302Faridabad 9 383Gautam Budh Nagar 10 712Gaziabad 9 45Gurgaon 17 1,690Hyderabad 8 300Kolkata 6 189Mumbai suburbs 14 420Thane 7 2,207Source: www.projectstoday.com



India's property market is a vibrant and growing sector with new initiatives being taken bygovernment, the construction industry, architects and developers to transform the urbanlandscapes. A new emergent middle class, a steady and growing market size, abundantavailability of natural resources for manufacturing, cost attractiveness, a reliable business

community, high levels of intellectual manpower, engineering expertise and a reform process that has brought about impressive economic liberalization, have resulted inunprecedented growth in many areas of commerce and industry.

The mall phenomenon is changing the way people shop and entertain. As single-pointdestinations for food, shopping and entertainment, the malls have revolutionised retailingand have led to a significant increase in consumption spending. Along with this growth hascome an increasing need for world-class retail facilities.

Growing stage

Shopping malls are still in a nascent stage in India when compared to those abroad. Retailspecialty stores in India have mainly originated and developed in the southern cities of Chennai, Bangalore and Hyderabad. Also in some of the smaller metros, real estate isrelatively cheaper and large spaces are easily available. However, it seems certain that thereis much happening on this front during this year and the next couple of years to come. Mostretail chain stores cater to a particular product segment such as garments, groceries, musicetc. Some of the major players include the RPG Group (FoodWorld, MusicWorld andHealth n Glow) Tata’s Westside, C Raheja Group’s Shoppers’ Stop, LifeStyle, Pantaloon’s(Big Bazaar and Food Bazaar) Crossword (now acquired by Shoppers Stop), Globus andValdel Corporation’s Family Mart.

New lifestyles

Another reason attributed to this success story is that the target audience is a segment withrising disposable incomes, changing lifestyles and most importantly a paradigm shiftin mindset of consumers to not only accept this concept but also make it a hugesuccess. According to Mr V Muralidharan, Head-Mall Business, Pantaloon India Retail Ltd,“significant portions of the Indian population mix are young and aspiration people. Theeducational and awareness levels are increasing. With increasing job opportunities and

better pay packages, the disposable incomes are certainly on the rise. The demand for products and services in line with International standards are also fast changing with thechanges in lifestyle of an average Indian consumer. This change has influenced the retailersto change their formats, service levels and product offerings.”

With the accent on “consumer delight” , value adds like car parks and maintenance will play an important role determining the future success of malls and giving customers valuefor their money and a standard quality ambience.” The practice of annual and biannualdiscounts also is fast becoming popular. “Discounts have generally proved to improve sales.



However the quantum and frequency of discounts are a function of the format, the businessmodel and the value proposition of the retail adapts.

New concepts

Experts opine that India will also witness malls catering to specific customer incomegroups. Also there is talk of specialty malls like auto malls, malls dedicated to homeimprovement, designer fashion labels, and gold. This also does seem to indicate that

positioning therefore would be the key differentiator. Take for instance Globus that startedin 1999 as a departmental store chain but today it has positioned itself as a fashion venturefor the youth.

Also, Pantaloon’s new concept of the “show-case” mall that proposes to offer the customer the complete experience of “shopping-eating-and celebration”. “A show case mall is a

seamless mall, well designed with categories in accordance with the customers’ preferenceoffering the best of national and international brands. In terms of business, we are able tooffer the brands a complete mall where they can “show-case” their products and managetheir business themselves to the customer, this format offers the best of choice in everycategory of shopping, food and entertainment,” says Mr Muralidharan.The organised retail industry is presently pegged at Rs 18,000 crore out of a total of Rs. 9lakh crore. With industry experts hinting at a consistent growth of 25 per cent per annumover the next decade, retailing is surely here to stay.

Shopping Malls advertising spends grew 24% during Jan-Nov '05compared to that of 2004 on Television

Key Findings:

• 24 per cent rise in Shopping Malls advertising spends during Jan-Nov 2005compared to the same period of 2004 on Television

• More than 50 per cent growth in TV advertising spends in 2004 compared to 2003• Q4 gets the maximum spends by Shopping Malls• 'Big Bazaar' tops advertising during Jan-Nov 2005 on TV• Maximum advertising on National Channels



• 2004 observed a growth of more than 50 per cent in Shopping Malls advertisingcompared to 2003

• Maximum growth (96 per cent) observed in 2003•

• Maximum advertising spends in the last quarter



• Compared to Jan-Nov '04, there has been a rise of 24 per cent in their advertisingspends during Jan-Nov 2005

Which are the Top Shopping Malls advertised on TV in Jan-Nov 2005?

• Big Bazaar leads Shopping Malls advertising on Television• P P Design Estate at second position



Do the Shopping Malls shows any tilt towards Regional states?

• More than 50 per cent of Shopping Malls advertising on National channels• Tamil Nadu, the second choice

Future

51 today, 100 tomorrow: Will this be the future?

So, FDI in retail is here! Albeit through the back-door. Nevertheless, it’s here. In some wayor the other.

The news is still nebulous in its clarity, but we have some top-line information from the policy decision announced last week. Single-brand retailing will have all of 51 per cent FDI.There is of course the need for a FIPB approval. All the same, as the guidelines get framedand laid out, you and I can look forward to some quantum of foreign investment happeningin the retail end of our lives.

Indian retail has been in the limelight for the last five years for sure. There has been a lot of debate, a lot of due-diligence and indeed a lot of speculation on this bubbling end of our economy. After IT, ITES and Biotech in line in that order, the retail industry has been onethat has seen the most prognosis of prosperity.

I welcome this bit of sunshine news that peeks at the Indian retail industry. Hats off to theUnion Commerce Minister responsible for all of this, Mr Kamal Nath! What’s this debateall about? Let me trace a bit of history on this one.



Sensitive issue

The big issue really is the issue of allowing FDI into the retail trade end of the business of this country. The issue is particularly sensitive as the debate is one polarised at two ends of the spectrum of political possibilities. At one end is the Left Front and at another is the end

that co-incidentally Man Mohan Singh, the current Prime Minister of the country helpedcascade more than a decade ago. The mantra of LPG at hand. Liberalisation, Privatisationand Globalisation.

The Left Front seemingly has no issue with FDI at all. It understands that it is good for thecountry. The prime issue at hand however is the issue that keeps getting raised by theleaders of the Front. The issue of jobs. The Indian retail enterprise employs a total of 40million people who work across a retail universe of 12 million!

Some more facts

The retail industry in India is a subset of the US$ 6.3 trillion business world-wide. The retailsector further employs the largest number of people in the world. India is no different aswell.

The Indian retail industry was last estimated to contribute a turnover of Rs 930,000 crore.Organised retail contributing a very small Rs 16,000 crore out of this and the rest being inthe hands of small retail.

The key worry then that is forever articulated is the fecund thought as to what would happento small retail and all those people who depend on it for their livelihood if organised retailspurred on by foreign money was allowed to happen. The debate on FDI is forever stalled

on this one big issue. The issue, needless to add, is political.Has the horse already bolted on that point though? The feeling is it has. Indian businesshouses have already grabbed the opportunity that is offered by a bubbling economy, andhave started laying out their mega plans. The Shoppers’ Stops of our life and the PantaloonGroup have made forays which are a part of urban buy-lore today.

The Reliance group is further putting together its mega plans in place. As all this happens,small retail is in any case an endangered species in a large number of the metro-points thatcomprise our country.



Perspectives

The current policy that allows for 51 per cent FDI in single brand retail is but a small cog inthe really big wheel of FDI in the retail trade across board altogether. If you view it fromthat angle, the perspectives are many. Five perspectives then:

1) Firstly there is the perspective of the salivating business houses from overseas, looking atthe large numbers of bellies and bladders that comprise this country of ours, not to speak of other body parts that seek satiation of need, want and desire.

We are the second largest in the space of human beings bound in one political territory. Theguys out there want 100 per cent FDI to be allowed to capitalise on the opportunity that thiscountry represents.

2) And then there is the perspective of Big Indian retail. The business houses that havealready attempted opening up the sector are all keen to expand and set up their foot-prints

before the biggest from overseas come in. They really need and demand time, in their owncovert manner, to ramp up numbers, attract the traffic, build a brand name and then possiblywait for the best of mergers and acquisitions that may or may not happen. This is a valuationgame for many.

3) Talk then of the perspective of small Indian retail. This guy is not an organised entity. Heis watching everything with awe. The guy in the small towns and villages of the country is

blissfully unaware of any threat. The guy in the bigger cities is already facing the pinch. He,however understands this game of big fish eating small, and is sprucing up to staycompetitive.

4) There is the political perspective then. Out here, the politician is truly standing up to becounted as a friend of the masses who comprise the retail universe of this country. Many areconfused even. Remember, there are 12 million retail outlets and 40 million people workingin it, supporting all of 200 million people. The long term perspective can be a confusing onefor the politician, as he has to remember that he either puts his weight behind a 200 million

base or a 900 million base of consumers out there.

5) And finally, there is the consumer perspective. There are a total of 1.1 billion people outhere. The perspective is that organised retail will bring in the best of efficiencies in terms of sourcing of products for the mass market, scale that will push prices down and quality

besottedness that will improve the lot of the consumer on the whole.

Shopping malls: Myths & realities



With new shopping-malls having become operational in many cities across India, it isinteresting to observe how the shopping-behaviour of consumers in the vicinity of thesemalls has changed and thereby draw some lessons that could be of some use to thedevelopers of hundreds of new malls that are currently under planning or constructionacross India.

It is still not too long ago that the operators of a particular new shopping-mall at Mumbaihad to contemplate restricting entries of visitors by imposing conditions that such entry waslimited to those having mobile phones or credit cards a.k.a., the income tax department'sone in six criterion for filing a tax return.

Delhi and Gurgaon saw some of the initial mall developers become parking lot operators aswell by charging exorbitant parking fees from all visitors.Rentals, rather than going downwith more malls coming up, started moving up even as the quality of services within themalls started deteriorating.

In this context, therefore, it is somewhat surprising that questions are already being asked,albeit in whispers, whether shopping-malls can survive and operate profitably in India.

Many tenants lament about the low percentage of conversions from those who walk throughthe portals of these malls, and casual observers routinely find shopping-bags missing in thehands of the supposed shoppers visiting these malls as an indicator that the initial euphoriaabout shopping in the malls is already on the wane and that consumers are reverting to their traditional shopping-destinations.

There are some myths and some realities about these observations. It is, indeed, true thatmany Indian retailer tenants in the shopping-malls have now become familiar with terms

such as footfalls, conversions, average transaction value, and repeat customers.However, it is also true that for many of these tenants, it has been their first expansion

beyond their traditional high street locations and hence, they have expectations born moreout of hype than by any real experience.

For instance, I would like to speculate that daily or weekend footfalls in traditional shoppinghigh streets of India such as South Extension and Karol Bagh in Delhi, Linking Road inMumbai, Commercial Street or Brigade Road in Bangalore, or for that matter, T Nagar or Anna Nagar in Chennai would easily exceed the more carefully estimated (or measured)footfalls in any of the malls in the country.

Similarly, if one were to carefully observe the ratio of visitors having "shopping-bags" intheir hands in these high streets versus those in the new malls, it is not going to be verydifferent.

As far as individual retailers' performance is concerned, even in the traditional marketssome established retailers do extraordinarily well while many other shops see a change of "shop boards" very frequently.



There is no reason to believe that it should be any different in a shopping-mall, which, inany case, is fundamentally no different from a traditional shopping-high street, except that amall has a more modern and compact structure, in most cases a single roof.

Local retailer tenants who move into a new mall for the first time should not expect any

customer loyalty being built up overnight.

For example, in Delhi's case, it is possible for a retailer to be very successful in Karol Baghor Lajpat Nagar shopping-districts but he would have to start from scratch in terms of

building up brand recognition as well as generating customer conversions in a new locationsuch as Gurgaon or Noida.

In contrast, national retailers such as Shoppers Stop, or national exclusive brand outlets suchas those operated by Madura Garments, Arvind Brands, Raymond, and Zodiac, havenational brand recognition and hence the performance of their outlets in shopping-malls isusually comparable (or even better) with their outlets in traditional shopping-markets.

Secondly , with most mall developers having blindly opted for a questionable winningformula of shopping, entertainment (read Multiplex) and food (read MacDonald's/Pizza Hutas the main draws), it is no surprise to find many mall visitors having no shopping-bagssince they have been enticed to visit only for watching a movie and/or having a burger or a

pizza or even a cup of coffee.

The situation pertaining to shopping, for instance, would be no different in locations such asSaket or Vasant Vihar in Delhi, which are better known for their movie theatres and eatingoptions.

What is the lesson for mall developers and for the prospective tenants? For the developers,the critical lesson is to invest some quality effort in understanding the shopping-needs of customers in their targeted "catchment" areas and then build a carefully planned portfolio of retail options that can meet the needs of these targeted customers.

In many instances, customers would only need shopping and eating options rather than amultiplex as well. The developers also have to understand that their retailer tenants have toearn a profit and hence the rentals have to be aligned to what the retail business can bear (usually 5-8 per cent of gross revenues).Mall developers also have to create distinctiveidentities for their specific malls, much like the identities that have developed over time for major shopping-high streets in various cities in the country.

Their work is not done just when the mall has been commissioned! As for the would-beretailer tenants, it is important to realise that merely moving into a mall does not guarantee

business for them.They have to work as hard to draw consumers to their own stores once the



latter have entered the mall, and then have the right value proposition for them to getconverted into customers, and then become repeat customers.

The final, obvious, conclusion is that mall developers have to invest in getting a better understanding about the retail business, while retailers have to get a better understanding

about the dynamics of operating at a new location.

Stimulus for Mall Fever

Why have so many projects been launched almost at the same time and why are they almostexcessively dependent on bank credit?

It is partly due to the developers' tactics of using mall projects to obtain money from banks.Meanwhile, local governments' stimulation of the sector also cannot be ignored.

"We can attribute the local governments' enthusiasm for mall development to their desire to

speed up construction and cultivate commerce, but, to some extent, the pursuit of politicalachievements by officials plays an important to the local authorities' short-sighted attitudereflects some fundamental problems with China's perennial official assessment systemwhich is almost solely concerned with economic indicators in officials' short terms in office.

It’s all in the place!

As in building any other structure the first thing is the choice of the venue. To speak in layman terms, it decides what will be the type of the mall, whether it will be a shoppingcomplex or a multiplex. The choice is based on two aspects, first is the catchment area andsecond is the types of malls and market places in the vicinity.

An intensive market survey reveals what the area lacks and the basic psychology of the people in the neighborhood as far as their purchasing power, their status and likes and dislikes are concerned.

Abdul Rab talks about the reason behind coming up with Vasant Square Mall at VasantKunj in New Delhi, “Vasant Kunj and the nearby areas had a lot of markets, but therewasn’t a single mall in the vicinity where people could find everything at the same place.Moreover, the spending power of the people in the area is also high.”

Sunil Anand, Senior Marketing Manager, Shipra Mall gives his reasons for opening a mall

in Gaziabad, “We came up with the Shipra Mall in Gaziabad as it falls amidst the cities of Gaziabad, Delhi and Noida, moreover it’s on a national highway, which will bring manyfootfalls and will give great visibility to our brands.”

What can be learnt through Malls?



Centralized Retail Management (CRM) Techniques

One of the primary problems with downtown revitalization efforts is the independence of downtown merchants. Often, merchants have operated on their own for decades, if notgenerations, and have developed a perspective that other downtown retailers are their

primary competitors. Yet, in the last generation the competitors to downtown merchants hasshifted and primary competition comes from outside of the downtown, from the many businesses associated with suburban shopping centers and malls. The only effective way for downtown merchants and business owners to compete with these management monoliths isto cooperate with each other, rather than trying to put each other out of business.

A downtown commercial district is not a mall, and it would be an exercise in futility to tryto be one. But there are aspects of mall management procedures that could be used tostrengthen the environment of the downtown commercial district as well. As shown in astudy by the International Downtown Association, "...the key difference betweendowntowns and their suburban competition is not the physical amenities, but management." 1

One method for downtown businesses to work cooperatively is through "centralized retailmanagement" techniques. Similar to the techniques of management used by malls, theseinclude strategies for optimizing the downtown as a retail environment. Some of theelements include:

Management

Downtown stores are managed by individual business owners who make decisions onmanagement based primarily on their individual concerns. They see other downtown

businesses as competitors; there is little or no cooperation one with another regarding

common concerns such as hours, promotions, parking or general planning.In contrast, businesses located in shopping centers/malls are subject to very tight control bya centralized management. Many policy decisions are left up not to the discretion of theindividual storeowners, but are decided by management. Management establishes commonhours, promotions and many other aspects of operations to which the individual businessesmust comply. This distinctly different approach to overall management issues is probablythe most significant difference between downtowns and shopping centers/malls. Downtown

businesses would benefit greatly by adopting a similar Centralized Retail Management(CRM) approach.

Market Analysis and Merchandising Plans



In a significant departure from traditional downtown revitalization efforts, CRM attempts tointervene directly with and support downtown merchants. One of the most importantundertakings in improving and enhancing the operations of downtown merchants is ananalysis of the market. Usually involving an experienced professional consultant, such amarket study identifies current and potential customers for downtown businesses.

A market study also allows the development of a tenant mix target or merchandising plan.While it builds on an analysis of likely economic viability, the final target list may bemodified to reflect local objectives. The merchandising plan informs all involved of thedowntown retail revitalization effort's overall objectives. It also helps establish priorities for developing retail business recruitment programs.

Coordination of retail promotions

Shopping malls are easily identified by potential customers because of their coordinated promotions. The name of a mall (e.g., "Northwood Mall") conjures up for shoppers an

image of an environment with many shops, even though someone may not think of any particular shop by name. Each store may be more or less nondescript on their own, but as part of the "Mall" they all benefit from a common image.

Similarly, downtowns need new, strong images to present to the public representing it as a place with many businesses. Typically, a downtown consists of a relatively large number of businesses each trying to draw customers through individual name recognition. These businesses could benefit greatly from a joint promotional program, especially if it was tiedto an effort to enhance business compatibility and retail image.

Visual improvements

Shopping malls are carefully designed both in common areas and for individual businesses.Downtowns could also benefit from better design. Common area improvements couldinclude a number of things, including a coordinated "streetscape" (benches, trees, paving)and better designed signage. Individual visual improvements could include a programgiving incentives for storefront improvements. These strategies do not mean that adowntown should try to look like a mall. Indeed, such an appearance would be completelyinappropriate. The strength of a downtown's commercial area is its own integral character.

Business type compatibility

The concept of business complementarily is well understood by shopping center and mallmanagement. Typically, they will have a formula defining the number and types of businesses that should be together to optimize this carefully managed shoppingenvironment. For example, they may insist that three shoe stores and one ladies accessorystore be in proximity with an anchor store. As a result, each business will reinforce theothers, and this programmed competition will help all.

Business Recruitment and Retention



Retail business recruitment is key to a successful CRM program. By building on a formallyagreed-upon tenant mix strategy, public and private efforts can focus on an aggressive,sophisticated, and ongoing recruitment and retention program.

Equally important, but often overlooked, is a formalized retention program. The closing or

relocation of a high-quality downtown business should not catch a city off guard. Ongoingcommunication with proprietors should alert downtown leaders to businesses considering amove out of the downtown, and such information should trigger a set of strategies designedto encourage such businesses to stay.

Business Support Services

A CRM program can offer a series of services designed to improve or reduce the operationcosts of individual merchants. Many CRM organizations routinely offer merchantscounseling and consulting services on topics such as small business bookkeeping, taxes,employee training, window displays, advertising layout, or facade of signage design.

Emphasis on such services not only improves the economic viability of merchants but alsohelps gain their cooperation.

Common Covenants

A major asset enjoyed by shopping centers is their degree of control in enforcing at least aminimal level of quality. Downtowns could also benefit through the use of such covenants.Cooperating property owners incorporate these covenants into new or renewed retail leasesand pledge to make a "best effort" to incorporate them into existing leases as well.

Covenants are similar to those used in shopping centers and place controls on items such as

cleanliness of display windows, sidewalk or entryway obstructions, external noise or light,handmade signs, certain chronic sales (going-out-of-business of fire sales), the maintenanceof exterior frontages, and the approval of remodeling programs. In addition, tenants arerequired to become dues-paying members of the CRM organization.

Review of Proposed Retail Uses

Another type of control that lies at the heart of CRM relates to a management organization'sauthority to approve or reject retail operations based on their conformity to overallobjectives. One of the most important assets of shopping center management is theopportunity it provides to exclude businesses it deems incompatible and to approve those

that complement other establishments. As practiced within the downtown setting, decisionmaking on compatible uses is problematic. With sometimes high retail vacancy rates, aCRM approach means a community must summon its courage and patience if it is to beselective when filling an empty storefront.

Security



An enhanced security program could be an important tool of CRM. Such a program must besensitive to the hours of store operations, which should include evening and weekendshopping hours. It also should recognize that downtown shoppers are less familiar with their surroundings than downtown workers, and therefore may need special assistance andcourtesies shown them when visiting the downtown.

Maintenance

Common area maintenance is a program that has been applied succcessfully in downtownsettings. In practice, merchants also contribute to cleanup and maintenance of downtownspaces in addition to the city's normal responsibilities.

Special Events

Festivals, parades, outdoor concerts, and other special public events have long been popular techniques used to create a greater public awareness of downtown. Retailers, however, are

not always pleased with the results. Particularly when held during the popular weekdaynoon hour, such events compete with stores for the attention of downtown workers, cuttinginto one of the few remaining stable market sources. To counteract retailer opposition,communities should take care to include retailers in planning such events. 2

The most important element in making a CRM effort successful is to have enough retailspace, and enough businesses, under management so it is possible to alter the business mixas needed based on ever-changing consumer patterns. To be able to expediently make thesechanges, stores must operate under common agreements, usually based on some type of master lease. These organizational forms may include limited joint partnerships, propertyowners associations, or for-profit or not-for-profit development corporations.

The centralized retail management approach does have some potential pitfalls, however, andit is important to realize concerns and challenges about which people may be concerned.

Business Hours: Common business hours are a highly volatile issue. Potential customersand civic leaders often point to the failure of retailers to establish common hours as anexample of their unwillingness to help themselves. Yet, extending hours can place severefinancial hardships on small business owners, at least in the short run.

Tenant Mix: Owners are likely to balk at the CRM organization's potential veto of a prospective tenant for a long-vacant space. They are likely even to resist sharing

information on upcoming lease expirations, out of concern for loss of confidentiality or fear of a raid by competitors.

Encumbrances: For lease covenants to be meaningful, they must remain in force even withsubsequent ownership changes. Ideally, though, property owners prefer that their titlesremain as clear as possible, and as a result, typically they resist encumbrances.



Holdouts: Regardless of the degree of owner or tenant participation achieved, a few prominent parties are likely to go their own way. That these holdouts will benefit from anoverall improvement in downtown business conditions can be a source of resentment andfrustration.

Organizational Control: The balance of control and influence over activities, especiallyexpenditures, is delicate. In the case of an assessment district, the property owners usually provide most of the direct funding. Yet a lack of real influence by retailers can lead to earlyfailure.

Retail Representation: Downtown retailers are hardly monolithic. They include departmentstores and small shops, owners and managers, independent stores and chains, with vastlydifferent trade areas and operational requirements. It is nearly impossible to maintain anaccurate sense of the overall picture by dealing with only a handful of merchants or their elected representatives.

Will shopping malls deliver?LIKE the classic Whirlpool washing machine tagline `Mummy ka magic chalega kya?'

property consultants are putting a question mark on the ability of the mall magic to deliver.

India Retail Summit 2004 has said that only 77 malls out of the estimated 300 to bedeveloped by 2007 are in any serious stage of execution. "Around 283 malls of approximately 19 million square feet area are in various stages of development, out of which 150 of them were still in papers," said Mr Anuj Puri, Managing Director, ChestertonMeghraj.

Against the current rate of development of malls in India, he cited the example of Wal-Mart,which opens a new store every three days. Mr Yogesh Samat, Managing Director, InOrbitMalls, said that malls have been around in the country for a while but have not reallyevolved. The per capita of mall access in India is as low as 100 square inches of organisedretail. Gestation in the industry and capital cost are fairly high, he said.

However, Mr K. Iyer, CEO, Crossroads, had another take on malls. "If you cater to the basicneeds, you cannot go wrong. If you understand the customer well, there is no question of the

bubble getting burst."

On the one hand, there were property developers who followed the `loot and scoot' model.

This comprised developing a mall, selling the property to some retail player and prematurely washing his hands off the project, Mr Iyer said. On the other hand, there werethe `work and earn' players, wherein the developer stays with the buyer, thus adding valueto the mall.

"It is more about mall management. Such `work and earn' models succeed. Retail pays morethan real estate business," he said, adding that presence of malls in mixed use of propertydevelopment also increased its net worth value.



However, all is not hunky-dory with malls. Returns take their own time to fructify in this business. As Mr Samat of InOrbits summed up, "Real estate rents are too inflated, and willtake us around 7-8 years to break even."

Crunch time for retailers and mall owners

It is crunch time for retailers and mall owners. Booming sales growth has masked excessive property costs, but with occupancy costs at an all time high and a softening retail outlook,sick times are ahead for ill prepared retailers. Retail expert Stephen Spring looks at the

background and offers these tips.

Every working day, I interact with numerous retailers in differing locations andcircumstances. They are independents, franchisees, chain store owners, directors andfranchisors. In my speaking engagements, I’m privileged to talk with retailers in manydiverse retail sectors; normally enthusiastic, passionate and energetic about their colleagues,their industry, their food or merchandise and peak selling seasons.

Sadly, in recent months I’ve noticed a quiet uneasiness in many retailers that seems more pervasive than previous years. Many share the problem that just about whatever they do tomake their business better above-the-line, the question of below-the-line occupancy costsremains their greatest challenge. All their efforts sourcing best buys to improve sales andmargins, all the hard work merchandising, improving recipes, training staff andcommunicating with customers – in other words, being better retailers – is eventually passedto the landlords. They love their work, yet many small retailers with meagre resources andfacing dwindling profits seem helpless as cash and credit lines dry up and they cannot waitto escape the clutches of their onerous lease.

For a huge chunk of retailers, the thing keeping them awake at night is how to meet the nextmonth’s shop rent – often their single biggest overhead and risk. And it seems cries for rentrelief often fall on deaf ears, singling out the likes of Westfield, Lend Lease, QIC and other listed property giants who are in the business of making money for their stakeholders, notassisting struggling retailers.

With overall annual rates of retail sales growth plunging from nine percent in mid 2004 to2.5 percent currently, joining them have been WC Penfold, Lindcraft, Lawrence Mansours,Can Can, Kernels, Juice Station, NrGize, Collins Bookstores, Danoz, Wayne Copper, TheMuses and Gaslight, all striking difficulties recently. Lately, JB Hi-Fi, Just Group,Strathfield, Rebel Sport and Millers Retail have indicated their earnings will be affected andsome have announced store closures. Not all the problems are specifically rent related, butare these early warning signals, perhaps a bellwether of things to come? Is there anythingthat retailers can do now?

On the other hand, many retailers are expanding. Nespresso, Kookai, Zarraffa,Shakespeare’s Pies, Husk and Fellas to name just a few are reported to be hunting for sites.When one store closes, another one opens.



“Landlord’s brace for lower rents” headlined Carolyn Cummins in the Sydney MorningHerald’s property section mid July, explaining that lower sales throughout the economy andsqueezed margins mean a smaller piece of the pie for retail landlords. She predicts “a year of flat to negative rent increases from tenants who are feeling the pressure of fallingconsumer sales”. She goes on to say that, “if income at the cash register is lower then the

landlord will have to keep occupancy costs flat or face retailers leaving”.

“Danger signs emerge” says Jacqui Walker in a recent issue of BRW, writing aboutvulnerable franchise operations that have ridden high on upbeat consumer demand, quotingCassandra Michie from PricewaterhouseCoopers who says, “The economy has been verygood and there has been a natural growth that may have covered inefficiencies in the

business” but, she warns, “…a huge number of franchise systems are operating in marginalterritory – about 60 percent hold fewer than 30 franchise units. To survive we estimate thatfranchise systems will have to achieve critical mass of at least 20-30 stores to generateenough revenue to sustain marketing campaigns and system overheads”. Are these franchisesystems facing the same battles as the small guys? My guess is yes.

As I go about my business of consulting to retailers at grass roots level, it is obviousseasoned retailers saw danger long ago and implemented a program to protect them. Andthey didn’t have secret formulae or employ overseas retail gurus. The astute retailerswatched mall occupancy costs slowly creep from an average of 10 percent of turnover in the1980s to 14 percent in the 1990s and with it now edging 20 percent, many realized that tosurvive they needed to do things differently. Other retailers just watched.

In the last edition of Franchising, Deacons Consulting managing director, Rod Young, said:“Many specialty retailers have developed an unhealthy dependence on shopping centres to

provide traffic.” He went on to say that, “It is not unusual for retail franchise networks to

have three percent of their turnover or less committed to advertising and marketing programs, and in many circumstances expenditure below one percent of sales, especially infood service franchises is seen as the norm. This has created a dependence on the location tocreate traffic rather than the brand and marketing program and as a result retailers withoutmarketing skills will be ‘trapped’ in shopping centres.” Young is exactly right. So to startwith, smart retailers developed a unique offer and most lifted their brand recognition

programs long ago.

But what Young doesn’t say when he writes “…Subway, Bakers Delight, Boost Juice, Nando’s and Hairhouse Warehouse. These companies have spent considerable time andeffort in their branding and marketing program to create a model that survives in strip andCBD locations” is that those retailers are also best in their breed and have developed a

product offer with a range of width and depth customers go out of their way to buy. In other words, they have become destinations in their own right. And that’s the second so-called‘secret’. If retailers want to be beholden to often insatiable landlords, they just need a ‘me-too’ offer, a ‘ho-hum’ range and keep quiet about their shops.



First, it seems obvious that choosing the best location and completing a proper retailanalysis and other homework before committing to any retail lease is the foundation of anysound retail decision, right? Think again. In my experience, too few retailers take enoughtime and effort in pre-lease enquiries and negotiations. And for franchisors, recent courtactions make this process a legal ‘must do’. Many neophytes over estimate store revenue

potential and ignore demographics, competition and other location characteristics, seduced by industry averages and landlord incentives. As a consequence, those retailers loadthemselves with high rents relative to sales and as one retailer put it, “when the rent train

pulls out of the station, the hill ahead can be long, slow and very arduous”. Equallyimportant is the capital and running costs of the enterprise. All costs must be factored in and

be complete before being committing to a lease. If retailers haven’t done the retailhomework to produce a robust business model, they should keep their pens in their pockets.

Second, small retailers often misunderstand the nature of a lease and fail to be proactive intheir lease portfolio management. Too often a lease is signed and shoved in the bottomdrawer. A lease is a contract setting out rights and obligations of landlords and tenants for a

fixed period of time, but most specialty shop leases are governed by state-based retaillegislation and also common law – a set of complex rules overriding retail leases regardless.Because it is almost impossible for most retailers to fully understand all aspects of leasemanagement without a dedicated legal and property team, if the governing law anddocumentation is hard going, retailers must engage specialists in the area. To avoid leasing

blues, it is vital retailers consistently inform themselves of changes to legislation and theretail property market operating in their local environment.

In fact, lease management is too important to ignore, delegate to an in-house junior or evena law firm without the necessary commercial and retail negotiation experience. Further,lease management software programs can impart a false sense of security. In the average

NSW shopping centre lease, there are at least 20 critical notices that can impact retailersheavily. Ignoring them can have disastrous consequences. Many of these operate in complexareas of law, and clearly if a small retailer with, say, three shops is busy running the day-to-day and not across lease issues, potential for damage to the fledgling chain is high.Moreover, most landlords will not hesitate to use lawyers to protect their interests, so the

potential for unnecessary costs are compounded. In a one-off operation or single franchise,mistakes can wipe out owner operators and create a private financial hell.

Third, and to the most contentious issue in retail leasing today. What to do at lease end?Every few years, sitting retailers face the same agonizing challenge and ask themselves:“How much is the landlord going to slug me this time?” and it’s a difficult time for many. Inall states and territories, a landlord’s or tenant’s notice normally triggers renewalnegotiations or generates a ‘bye-bye’ letter. Renewals should seem straight forward enough

but one could be excused for thinking some retailers and mall managers live in fairyland. Ingeneral terms and unless compelled by legislation, the landlord is under no obligation torenew a lease. Normally it’s their freehold; they can do what they want with it. Equally,tenants have every right to walk away at the end of a lease. Things can get hairy if alandlord elects to deal with a tenant under a renewal, the tenant relies upon that conduct andthe landlord changes its mind (lawyers, please note), but correct renewal decisions are vital.



Mall managers know many tenants are in weak positions at lease end and with livelihoods atstake, negotiations can be emotive. With assets on the line, mall management can easily killa retailer’s business that may have taken many years of hard work to build up. They alsoknow that a lease non-renewal may leave a crippling debt or bankrupt a retailer. Cavalier

conduct may well attract a lawsuit.

A retailer with a five-year rent escalated five percent compound pays $63,814 going into thesixth year compared to a commencing rent of $50,000. At 50 percent gross margin, tomaintain a 14 percent occupancy cost ratio, sales must rise 21.5 percent to keep up with rentincreases. In many locations, sales are stagnant or falling due to macro-economic factors,competition, cannibalisation or mall lifecycle constraints. Any increase on renewal willobviously gouge the retailer’s profit or add to its loss. One retailer’s story is typical: “Therent was $117,064, but they [the landlord] demanded $208,366. We spend over $200,000

per year advertising. After 10 months of discussions they said they would settle at $153,000.The centre is in Sydney’s top five, but its overall sales were down three percent and down

about 20 percent in our category. We relocated to another centre with annual rent at$105,000 all up with better exposure, higher traffic and a longer lease.”

From mall management’s viewpoint, lease renewals are the one chance to raise revenue, somost do their homework. After analysing trends in tenancy mix and profitability of individual retailers, weighing up the retailer’s relevance, rental values and hot retailersseeking space, many managers will risk a few vacancies squeezing tenants.

Mall management has noted the best and worst traders and their occupancy costs. Theyknow the doomed retailers, the ones to be retained and those to be booted out and replaced.They know hot brands, the building, the footfall patterns, shops needing re-fit and the future

of major draw cards such as supermarkets or department stores. In an over-shopped world,the constant impact of malls nearby would have been evaluated, even using sophisticatedcomputer models to maximise potential rental income.

With so much at stake, its little wonder the anxiety levels are as high as the expectations.But put simply, mall managers know the overall target rent comprising of individualtenant’s lease rental income and in short, they have planned ahead.



Unfortunately, many retailers have not even thought about the end of their lease.Remember the famous saying: “You don’t get what you deserve, you get what younegotiate.” Here are my tips to avoid end of lease blues:

1. Research local property and retail rents at least a year prior to lease end. This is key to

knowing how to respond to any renewal offer. Prime yourself with information and costswell before any lease renewal negotiation. Rents go down as well as up, so bargain hard or walk away and relocate if the deal on offer isn’t in your best interests.

2. Take the view that if landlords can take commercial advantage, they will. This meansretailers should consult experienced industry professionals or an industry association if leasetransactions are new to them.

3. If the business isn’t profitable enough over the term to clear all outstanding debts andsettle ‘make good’ clauses at lease end, retailers should carefully rethink the deal. Amortiseall capital investment over the term and never rely on a further renewal. Therefore, when it

comes to negotiating a new lease, a neutral and dispassionate position can be taken becausethere’s no remaining liability.

4. Identify industry trends, any emerging competitive threats and all micro and macro forcesaffecting the region and the location. These forces operate regardless of whether retailerstake notice of them, but a savvy landlord will surely know them – and perhaps use themagainst the retailer in lease renewals.

5. Never be fooled into re-signing up to a bad deal to protect perceived goodwill in thelocation or the franchise. If the business is barely profitable on the passing rent, goodwill isminimal or non-existent and the future risk may well outweigh any future benefits or ability

to sell.Consumers Point to 'Must Haves' in the Ideal Shopping Experience in New Indiana

University/KPMG Study

How Profitable Is The Mall Business In Reality?

First appearances can be deceptive. Emerging from the Mehrauli-Gurgaon road at the Delhi border, hundreds of twinkling neon and sky-kissing glass and steel facades welcome you toGurgaon—the poster boy township of the India of tomorrow, the land to shop till you drop.Dozens of huge structures, nearing completion or gleaming with lights and banners, greet

your eyes as you drive past. Or crawl past: with less than five malls operational on the ‘MallMile’, as it has been christened, this area of Gurgaon is a picture of urban chaos. Vehicleshonk, swerve and look desperately for parking space, as hundreds of people dodge trafficthrough non-existent zebra lines. At the last estimate, Gurgaon had around 15 malls whilethe national index is 245 (most have come up within the last two years). However, thebright lights conceal an ominous truth. The weekend crowds do not exactly translate intothe kind of booming revenue that has investors laughing all the way to the bank.



Many outlets, including restaurants at malls in Gurgaon and Delhi, have closed down andmany retailers who bought space at Fifth Avenue, one of Bangalore’s earliest malls, havesold and run . "It is so expensive, it is OK to hang out but it’s not worth shoppingthere," says Vinoj, a techie, about Forum, his neighborhood mall in Bangalore’sKoramangala. "There will be an over-supply and some of the not-so-good ones may not

survive," admits Ajay Khanna, CEO of DLF Retail, which runs DLF City Centre &DT Cinemas in Gurgaon. But he believes "there is definitely space for a well-runmall". Real estate developers and retailers are betting their shirts (literally, as garmentstores take up more than 30 per cent space in most malls) on the mall revolution. There will

be about 26.2 million sq. ft of malls across India by 2005, says the International Council of Shopping Centres-India. The National Capital Region (NCR)—Delhi, Gurgaon and Noida

—will account for 40 per cent of mall space.

The trend is booming in the rest of the country, too. Mills in Mumbai suburbs are beingturned into malls. Mumbai has 10 malls, in addition to two dozen shoppingcentres and department stores. Space constraints and the high cost of real estate

are inhibiting factors for a mall boom but the malls make up for the lack of numbers in quality experience. "A good ambience is important to inspire a desirefor shopping," says Sunil Chander, vice-president (marketing) of Crossroads, thefirst mall in the city. The Benzer group chose Vashi in Navi Mumbai for launching its first mall, Centre One. Assistant manager Ruchi Sihare says themall has notched up a weekend visitors’ tally of 70,000 in 15 months of settingup shop. While southern metros like Chennai and Bangalore have always had bigshopping complexes (Spencer Plaza in Chennai, for instance), newer ones arecoming up.

The trend is spreading to smaller cities like Jaipur, Ludhiana, Pune and Indore. Shoppingmalls were the highlight of Diwali for Kinnari Shah, 17, mother Rannaben, 42,and grandmother, Shantaben, 65. They were among the many shoppers throngingthe half-a-dozen malls in Ahmedabad. "There was no elbow room," says Kinnari."But there were lots of freebies, discounts and lucky draws. And we could nothelp but shop like there was no tomorrow." Hasmukh Gadecha, who ownsSupermall in the city, says people love the outing at shopping malls just like theAmericans and Europeans. But the danger signals are flashing overtime. "There isgoing to be a boom, but [like with other sunrise industries] in India, everybody

jumps in," says Ravi Melwani, CEO of Bangalore’s Kids Kemp and Kemp Fort, pioneers in ‘big shopping experience’ in the south. The core of the problem liesin the origin of malls in India. With the opening up of the economy, came a

bigger range of goodies and more media exposure. There was a need for a world-class shopping experience. As the economy upped northwards and conspicuousconsumption became a habit, department stores, shopping complexes and mallsmade their entry.

Urban Indians, particularly the youth, found malls—with their stylised interiors, brandedshops and fast-food outlets—the ideal place to hang out. A classic example isAnsal Plaza, near Delhi’s South Extension, which opened in 1999. The hugecrowds (footfalls, in retail-speak) got property developers and retailers thinking



that they had stumbled on to the next big thing. There was never any evaluationwhether there were customers for the typical upmarket products that would beretailed in malls.

Says Navin Mehta, who works at Supermall: "Most of the shoppers are simply taking in the

new experience—gawking at luxury goods, cooling off in air-conditionedcomfort and enjoying the music." "A mall is a planned aggregation of shops,"says Suresh Shingaravelu, CEO of Bangalore’s Forum. "In a shopping centre,success is an accident, while in a mall, [it is] a planned effort. Positioning iseverything." It is hardly surprising that moviegoers who visit the PVR multiplexat Forum exit into the shopping area. "Shopping is about placing temptation inyour path," says Suresh. All food outlets at Forum are on the upper floor because"the moment you put popcorn in a shopper’s hands, he turns into a windowshopper", he says.

Having a USP could be a mall’s ticket to survival in the tough days ahead, but manydo not seem to care. The mall mania is based on the assumption that peoplewill desert the neighbourhood kirana stores and buy into the promise of abetter shopping experience. This has not happened though there is opportunity,as the success of outlets like Food World in the south and Big Bazaar in the northshows. An analysis by Hyderabad’s Indian School of Business shows thatneighborhood stores will remain in place. Many malls have nothing todifferentiate them from one another as they stick to the general mix of clothing,consumer appliances and lifestyle products. For specific purchases, shoppers stillhave to go to markets specializing in those goods. Upcoming specialty malls arenot only an answer to the dilemma, but companies claim they could well be thesolution to the over-do. "When we did a study, we realized a general mall wouldnot work," says Rohtas Goel, CMD of Omaxe group. "Customers have specificneeds." Omaxe is building a wedding mall in Gurgaon, which will houseeverything from trousseau to event managers and jewellery.

The Aerens Gold Souk nearby is a one-stop shop for jewellery, gems and luxury watchmanufacturers. "In India, jewellery buying is a special occasion," says G.S. Pillaiof Gold Souk. "So we felt a secure environment where all jewellery brands areunder one roof, with child-care and food facilities thrown in, would work." Hedoes not think customers would still prefer traditional gold markets. "There wasno option, so customers used to go to Karol Bagh [Delhi] or T-Nagar [Chennai].

Now even those shops are taking up space in gold souks." More gold souks are being planned in other metros, as well as in cities with high gold sales like Pune,Kochi and Nashik. Specialty malls are coming up all over the country. Kolkatawill soon see a furnishing mall on Elgin road, like Arcus Plaza in Gurgaon andthe upcoming Urban Spaces in Pune. Expect an auto mall near the 32ndMilestone complex in Gurgaon; the 10-storey complex will even feature a rooftoptesting track. Another mall in Gurgaon aims to re-create the old bazaars of KarolBagh.



"A mall must have proper ingredients to be rated good and exclusive," says Raj SinghGehlot, president of Ambience Infrastructure, which is building Ambi Mall inVasant Kunj. From a negligible under-5 per cent, organised retail will go up to 20

per cent by end-2005. Bright prospects that can only get bigger, once foreigninvestment curbs are relaxed. But, says global retail-estate consulting group

Knight Frank, it will eventually boil down to what value addition a mall can provide. The mall jungle is a big bad world where only one maxim will rule:survival of the fittest.

Consumers are Interested in Technology but Say Retailers Still Need to Deliver on the Basic Elements of the Shopping Experience

November 20, 2000 -- A study from Indiana University's Kelley School of Business andKPMG LLP, the professional services firm, finds that consumers have definite views onwhat they are looking for in the ideal shopping experience -- both online and in-store -- andmore complex technologies are not at the top of the wish list.

The findings are revealed in the IU/KPMG study, "Creating the Ideal Shopping Experience: What Consumers Want in the Physical and Virtual Store," conducted among2,120 people nationwide in June, 2000. The research measures consumers' acceptance of technology and offers insights on how consumers want to shop.

The IU/KPMG shopping study found that when shopping online consumers must haveaccurate product and pricing information, convenient and secure ordering, order tracking,reliable delivery and accessible customer service. In retail stores, shoppers wantknowledgeable and courteous sales help, competitive prices, fast checkout and convenient

payment options.

The study also reveals several shopping features that some consumers would prefer not tohave. Consumers have the strongest negative reactions to personalization options that make

product recommendations based on a customer's preference profile. For example 21 percentof shoppers dislike having a handheld scanner tells them which products match their

personal profile. As well, 36 percent of respondents prefer not to have in-store prices thatchange daily based on stock levels and competition.

"Consumers tell us they are not interested in technology for its own sake," says Dr.Raymond Burke, the E.W. Kelley Professor of Business Administration at IndianaUniversity. "People want the basics in their ideal shopping experience and they are onlyinterested in technology to the extent that it makes shopping faster, easier, and moreeconomical."

Mark Larson, national partner-in-charge of KPMG's retail practice adds, "Today'sconsumers have more choice than ever before-in stores, brands, and channels. That's whyretailers need to consistently deliver the right value proposition to their customers -- across



all shopping channels. Technology can be a very helpful tool in that process but to createvalue successful retailers will know how and when to use it in the shopping process."

Present Study



Rationale:

In much of the world, the local marketplace has evolved over centuries from open-air stallsin the town square, to stand-alone shops, organized high streets, and then the huge shoppingcenters and malls that erupted across the American landscape in the 1950s and spread toEurope, East Asia and Latin America.

In India , however, the development of shopping malls has literally been a revolution. Theopening of the Indian economy in the early 1990s brought a wide range of new householdappliances, stylish apparel, and other consumer goodies, along with plenty of mediaexposure. But what the Indian consumer still lacked was a world-class shoppingexperience : a pleasant, open, relaxing, air-conditioned place to compare prices, quality andstyles without other customers trying to squeeze through the shop doorway or shout over one’s head to the proprietor.

From eyeballs to footfalls - the human psyche has taken a complete downward journey inthe last five years. If it was eyeballs (number of visits to websites) during the dotcom boomof 2000, now it is footfalls (number of visitors to malls). The current mall mania that hasgripped a shopping-frenzy nation can only be compared to the dotcom madness five yearsago. Today, some 250 malls are already in business and a similar number is going to comeup in the next two years. By 2006, a whopping 19.6 million sq. ft of retail space will bemade available in six major cities alone.

And with the boom in this field and the acceptance from the people, it brought about achange in the way the people use to shop. So this revolutionized concept needs to be

understood from the customers and shop owner’s point of view. Knowing their expectationsfrom this new revolutionized format will help every retailer to give a new direction to thefield of shopping, movies, party time or in one a “full new experience” , way to makecustomer delight.



Objective:

The objectives of my study are as follows:

•

To understand the Scenario of retail industry prevailing globally andvarious players into it.

• To know in details about the retail scenario in India and the major players into it.

• To learn and understand more about Foreign Direct Investment andother initiatives taken by Government in the retail Sector.

• To understand the retail boom and the new format called ShoppingMall-concept.

• To study the impact of “Shopping Malls” on the customers and theshop owners through a set of questionnaires.



Methods



The study used both qualitative and quantitative aspects. Both primary and secondary data

was used in the research study.

The major source of primary data came from set of structured questionnaires, observations.

The secondary data came from related journals, websites and various newspapers giving aninsight about the current scenario of the retail sector and the huge number of Malls comingin.

Two sets of Questionnaires were used during the study. The first set was specifically meantfor the outlets in the Malls who have been seeing the sector boom and tough time with theentry of new MNC’s in the country and is very much confused with the customer’s reactionto the new concept of Shopping Malls. This will in turn help these outlets to know moreabout the customers understanding and acceptance of the Mall concept.

A sample size was 25 retail outlets.

The second questionnaire was meant for understanding the impact of Shopping Mall fromthe customer point of view. With the set of questionnaire developed, the survey wasconducted within the Noida and few malls from the adjoining areas covering every agegroup.

The sample size used for this questionnaire was one hundred (100) respondents.



Results



Analysis of the Questionnaire of impact of shopping Malls on Shop Owners:

1. Acceptance of the revolutionized concept- Shopping Mall:

Acceptance of Malls

Frequenc

y PercentValid

PercentCumulative

PercentValid Yes 25 100.0 100.0 100.0

100

Yes

Acceptance of Malls

When asked with the respondent’s i.e; Manager Head of the various outlets it was found thatevery one has accepted the revolutionized concept of Shopping Mall and are happy with the

format. Every one believes that this is one concept that will change the entire style of shopping experience.



2. How good is the format compared to others:

How good is the Format

Frequency Percent Valid Percent CumulativePercentValid Very

Good 12 48.0 48.0 48.0

Good 13 52.0 52.0 100.0Total 25 100.0 100.0

Very Good GoodHow Good is the Format

0

10

20

30

40

50

60

P e r c e n t 4852

How Good is the Format

48% of the respondents has said that the format is very good compared to the different other format available to the retail sector and 52% of the respondents said that the format is goodcompared to other formats. This format provides every needs of the consumer under oneroof.



3. Customer acceptance to Shopping Mall form the shop owner’s point of view:

i. Customer acceptance to Shopping

Frequency Percent Valid Percent CumulativePercentValid Yes 11 44.0 44.0 44.0

No 14 56.0 56.0 100.0Total 25 100.0 100.0

Yes NoCustomer acceptance to Shopping

0

10

20

30

40

50

60

P e r c e n t

44

56

Customer acceptance to Shopping

According to the survey it was found that 44 % of the consumers who come to the shoppingMall do shopping but a major chunk of the consumers who does come to the Mall for various other reasons doesn’t shop for the reason that sometimes they hear of consumer saying it’s too expensive.



ii. Customer acceptance to Party

Frequency Percent Valid PercentCumulativePercent

Valid Yes 14 56.0 56.0 56.0 No 11 44.0 44.0 100.0Total 25 100.0 100.0

Yes NoCustomer acceptance to Party

0

10

20

30

40

50

60

P e r c e n t56

44

Customer acceptance to Party

From the manager point of view it was found that consumers generally come for partyreasons to the Mall more than actually spending more on the shopping purpose. It was foundthat 56 % of the respondents come to the shopping Mall for the party .



iii. Customer acceptance to Hangout



Yes NoCustomer acceptance to Hangout

0

20

40

60

80

100

P e r c e n t 84

16

Customer acceptance to Hangout

What has been seen and heard from various consumers even is that they generally prefer tohang out in the Shopping Mall and the same response is given by the outlet people who saidthat they maximum of the consumers come to the mall for hangout.



iv. Customer acceptance to Lunch/Dining


Valid Yes 16 64.0 64.0 64.0

No 9 36.0 36.0 100.0Total 25 100.0 100.0

Yes NoCustomer acceptance to Lunch/Dining

0

10

20

30

40

50

60

70

P e r c e n t64

36

Customer acceptance to Lunch/Dining

According to the survey conducted, it was found that consumers generally come for dining/lunching, movies and hanout purposes. There happens to be lot of footfalls in themall but the conversion doesn’t take place in that ratio. It was found that consumer do comefor the dinner or lunch in the Malls.



v. Customer acceptance to Movies



Yes NoCustomer acceptance to Movies

0

10

20

30

40

50

60

70

P e r c e n t

68

32

Customer acceptance to Movies

There has a wide acceptance of malls for the movies. According to the survey it was foundthat the 68% of the consumers come here to watch the movies and with price differentiation

played by these outlets have even made them go a long way in their favour.



4. Are consumers ready to pay the price:

Consumers ready to pay



Yes NoConsumers ready to pay

0

10

20

30

40

50

60

P e r c e n t 5644

Consumers ready to pay

According to the survey it was found that with their knowledge the consumers are ready to a price for the service and are quite happy with the services and the product offered by theoutlets and Malls as such.



5. Able to cover up the expenses:

Sales able to cover expenses



Yes NoSales able to cover expenses

0

10

20

30

40

50

60

P e r c e n t

40

60

Sales able to cover expenses

It was found that since the malls in few of the places are newly built and are into operationfor less than a year so they are not able to cover up the expenses by now but are assured thatthe near future year will help in recovering the cost incurred.



6. Events/Shows helps in generating Sales:

Events help in generating additional sales

Frequency Percent Valid Percent

Cumulative

PercentValid Yes 16 64.0 64.0 64.0 No 9 36.0 36.0 100.0Total 25 100.0 100.0

Yes NoEvents helps in generating additional

sales

0

10

20

30

40

50

60

70

P e r c e n t64

36

Events helps in generating additional sales

64% of the respondents when surveyed said that various events like promos or food day or some kind of exhibitions help the outlets in the Shopping Mall to generate some kind of extra sales. They help them a lot in attracting new customer who may or may not be willingto visit the outlet.



7. Do outlets in the mall helps in increasing sales:

Outlet of other company helps in sales

Frequency Percent Valid Percent

Cumulative

PercentValid Seldom 5 20.0 20.0 20.0Occasionally 10 40.0 40.0 60.0

usually 6 24.0 24.0 84.0Every time 4 16.0 16.0 100.0Total 25 100.0 100.0

Seldom Occasionally usually Every timeoutlet of other company helps in sales

0

10

20

30

40

P e r c e n t

20

40

24

16

outlet of other company helps in sales

According to the survey conducted it was found that the other outlet in the Shopping Mallhelps occasionally to the other outlets for generating some kind of extra sales which is not aregular fashion in the shopping Mall. However, 16% of the outlets head said that it do helpin generating extra footfalls in the outlets which we do try to turn into sales.



1. Visit to Shopping Malls

Frequenc

y PercentValid

PercentCumulative

PercentValid yes 100 100.0 100.0 100.0

100

yes

Visit to Shopping Malls

According to the survey conducted of 100 consumers it was found that every one has visited

the Shopping Mall which also shows that the very new revolutionized concept or format is being preferred by the consumers for one reason or the other.



2. Purpose of your visit- Shopping

Frequenc

y PercentValid

PercentCumulative

Percent

Valid yes 38 38.0 38.0 38.0no 62 62.0 62.0 100.0Total 100 100.0 100.0

yes no

Purpose of your visit- Shopping

0

10

20

30

40

50

60

70

F r e q u e n c y

38

62

Purpose of your visit- Shopping

ii. Purpose of your visit- Movies

Frequenc

y PercentValid

PercentCumulative

Percent

Valid yes 71 71.0 71.0 71.0no 29 29.0 29.0 100.0Total 100 100.0 100.0



yes noPurpose of your visit- Movies

0

20

40

60

80

F r e q u e n c y

71

29

Purpose of your visit- Movies

iii. Purpose of your visit- Hangout

Frequenc

y PercentValid

PercentCumulative


no 33 33.0 33.0 100.0Total 100 100.0 100.0

yes noPurpose of your visit- Hangout

0

10

20

30

40

50

60

70

F r e q u e n c y

67

33

Purpose of your visit- Hangout



iv. Purpose of your visit- Lunch dining

Frequency Percent Valid PercentCumulative


no 37 37.0 37.0 100.0Total 100 100.0 100.0

yes noPurposeof your visit- Lunchdining

0

10

20

30

40

50

60

70

F r e q u e n c y63

37

Purpose of your visit- Lunchdining

According to the survey conducted it was found that the consumers has accepted theshopping Mall concept more for the movies, hangout and lunch and dining purpose rather for a new shopping experience.

2. Time of visit

Frequenc

y PercentValid

PercentCumulative

PercentValid Morning 20 20.0 20.0 20.0

Afternoon 15 15.0 15.0 35.0

Evening 33 33.0 33.0 68.0LateEvening 32 32.0 32.0 100.0Total 100 100.0 100.0



Morning Afternoon Evening Late EveningTime of visit

0

10

20

30

40

F r e q u e n c y

2015

33 32

Time of visit

According to the survey conducted it was found that mostly people visit the Malls during

the evening and Late evening time and there are few footfalls in the morning hours.However for the purpose nowadays the pricing strategy is being followed to increase thefootfalls in the morning hours.

3. How often do you visit

Frequenc

y PercentValid

PercentCumulative

Percent

Valid Once 40 40.0 40.0 40.02-4times 30 30.0 30.0 70.0

4-6times 21 21.0 21.0 91.0

Daily 9 9.0 9.0 100.0Total 100 100.0 100.0



Once 2-4 times 4-6 times DailyHow often do you visit

0

10

20

30

40

F r e q u e n c y

40

30

21

9

How often do you visit

According to the survey conducted it was found that the visit to shopping Malls is once in aweek. But if we look at the chunk of the consumers response it was found that 51% of therespondents either visit the Malls twice or four times in a week.

4. Where do you go first while entering?

Frequenc

y PercentValid

PercentCumulative

PercentValid Shoppi

ng 17 17.0 17.0 17.0

Movies 31 31.0 31.0 48.0

Hangout 52 52.0 52.0 100.0

Total 100 100.0 100.0



Shopping Movies HangoutWhere do you go first while entering

0

10

20

30

40

50

60

F r e q u e n c y

17

31

52

Where do you go first while entering

According to the survey conducted of 100 respondents it was found that whenever therespondents visits the Shopping Mall they generally prefer to hangout or go directly to themovies area. This is major area where the outlet heads have to look in order to use thehangout percentage of the footfalls in the outlet.

5. Visit to Shopping Malls

Frequenc

y PercentValid

PercentCumulative

Percent

Valid Planned 46 46.0 46.0 46.0Unplanned 54 54.0 54.0 100.0

Total 100 100.0 100.0



Planned UnplannedVisit to Shopping Malls

0

10

20

30

40

50

60

F r e q u e n c y 4654

Visit to Shopping Malls

According to the survey conducted it was found that most of visits to the Shopping Malldone by the resposedents are unplanned. However if you look carefully there is hardly muchof the difference in the percentage as because we took some of the responses who visitsMalls in planned way.

6. With whom do you visit?

Frequenc

y PercentValid

PercentCumulative

PercentValid Family 25 25.0 25.0 25.0

Friends 41 41.0 41.0 66.0Colleagues 13 13.0 13.0 79.0

Spouse 21 21.0 21.0 100.0Total 100 100.0 100.0



FamilyFriends

Colleagues

Spouse

With whom do you visit

The respondents said that they generally prefer to visit the Mall along with their friends andwith family. And if you take cross tab along with the age group, the respondents in the age

bracket of 12-30 generally prefer going with friends in the Malls.

7. Has it changed the Shopping experience

Frequenc

y PercentValid

PercentCumulative


no 47 47.0 47.0 100.0Total 100 100.0 100.0



yes noHas it changed the Shopping

experience

0

10

20

30

40

50

60

F r e q u e n c y

5347

Has it changed the Shopping experience

The responses received from the respondent’s shows that the major chunk of them nearly53% are happy with the shopping experience given by the new format called ShoppingMalls. But there are also respondents who are not happy with the services provided as theyare being charged higher.

8. if yes, how much satisfied are you

Frequenc

y PercentValid

PercentCumulative

PercentValid Highly

Satisfied23 23.0 37.7 37.7

Satisfied 29 29.0 47.5 85.2 Neither/Nor 9 9.0 14.8 100.0

Total 61 61.0 100.0Missing System 39 39.0Total 100 100.0



Highly Sati sfied Satisfied Ne ither/Nor If yes, How much satisfied are you

0

5

10

15

20

25

30

F r e q u e n c y 23

29

9

If yes, How much satisfied are you

According to the respondents who said yes in the earlier questions, this question will let us

know the degree of satisfaction achieved by them. When answered by the respondents itwas found that they are satisfied with the new experience provided by the outlets in theMalls.

9. Selecting a particular Visit-proximity



no 36 36.0 36.0 100.0Total 100 100.0 100.0



yes noSelecting a particular Visit-proximity

0

10

20

30

40

50

60

70

F r e q u e n c y

64

36

Selecting a particular Visit-proximity

Selecting a particular Visit-parking Space



no 31 31.0 31.0 100.0Total 100 100.0 100.0

yes noSelecting a particular Visit-parking

Space

0

10

20

30

40

50

60

70

F r e q u e n c y

69

31

Selecting a particular Visit-parking Space

Selecting a particular Visit-variety of offers





no 28 28.0 28.0 100.0Total 100 100.0 100.0

yes noSelecting a particular Visit-variety of

offers

0

20

40

60

80

F r e q u e n c y

72

28

Selecting a particular Visit-variety of offers

Selecting a particular Visit- Anchor Store



no 50 50.0 50.0 100.0Total 100 100.0 100.0



yes noSelecting a particular Visit- Anchor

Store

0

10

20

30

40

50

F r e q u e n c y

50 50

Selecting a particular Visit- Anchor Store

Selecting a particular Visit-Ambience

Frequency PercentValid

PercentCumulative


no 27 27.0 27.0 100.0Total 100 100.0 100.0



yes noSelecting a particular Visit-Ambience

0

20

40

60

80

F r e q u e n c y

73

27

Selecting a particular Visit-Ambience

According to the survey conducted it was found that consumers are looking for all these basic services and looks that the particular services should be provided by any Mall. Theychoose a particular mall on the basis of ambience, proximity, parking service, Variety of offers and the existence of an anchor store.

10. Shows and events attract

Frequenc

y PercentValid

PercentCumulative


no 31 31.0 31.0 100.0Total 100 100.0 100.0



yes noShows and events attract

0

10

20

30

40

50

60

70

F r e q u e n c y

69

31

Shows and events attract

According to the survey conducted it was found that shows and events do enthuse them to

go the Mall specially some first day show of movies, exhibitions and other such kind of activities. The footfalls during these days generally increases compared to normal weekdays

11. Find the price Charged Higher

Frequenc

y PercentValid

PercentCumulative


no 47 47.0 47.0 100.0Total 100 100.0 100.0



yes noFind the price Charged Higher

0

10

20

30

40

50

60

F r e q u e n c y

5347

Find the price Charged Higher

According to the survey it was found that consumers feel that these outlets are charginghigher that what services they are being provided. 53% of the respondents has responded

that the prices are higher if looked from their perspective.

12. Age bracket you fall in

Frequenc

y PercentValid

PercentCumulative

PercentValid 12-22 25 25.0 25.0 25.0

22-30 36 36.0 36.0 61.030-40 26 26.0 26.0 87.040-50 13 13.0 13.0 100.0Total 100 100.0 100.0



12-22 22-30 30-40 40-50Age bracket you fall in

0

10

20

30

40

F r e q u e n c y

25

36

26

13

Age bracket you fall in

The survey included respondents from the entire age bracket in order to have a fair understanding of the reactions of the customers towards the concept-Shopping Mall.







Source: Ernst & Young, The Great Indian Retail Story, 2006.

Indian consumer is also witnessing some changes in its demographics with a largeworking population being under the age group of 24-35, there has been an increasingnumber of nuclear families, increase in working women population and emergingopportunities in the service sector during the past few years which has been the keygrowth driver of the organized retail sector in India. The emergence of a larger middleand upper middle classes and the substantial increase in their disposable income haschanged the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstreammarket, thus resulting in an increasing consumption of productivity goods, especiallymobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxuryand an increased willingness to experiment with the mainstream fashion, reuslting inan increased willingness towards disposability and casting out from apparels to cars tomobile phones to consumer durables. Indians spend over USD 30,000 a year (in PPPterms) on conspicuous consumption that represents 2.8% of the entire population(which is approx 30 million people) making it the 4 th largest economy in PPP terms nextonly to USA, Japan and China 1.

With reference to the map of India's income class, it can be noticed that the real driverof the Indian retail sector is the bottom 80% of the first layer and the upper half of thesecond layer of the income map. This segment of about 40 million households earnsUSD 4,000-10,000 per household and comprises salaried employees and self-employedprofessionals and is expected to grow to 65 million households by 2010 1. In addition tothis, facilities like credit friendliness, availability of cheap finance and a drop in interestrates have changed consumer markets. Capital expenditure (jewelry, homes, and cars)has shifted to becoming redefined as consumer revenue expenditure, in addition toconsumer durables and loan credit purchases.



3. FDI in retail:

Global retailers have already been sourcing from India; the opening up of the retailsector to the FDI has been fraught with political challenges. With politicians arguingthat the global retailers will put thousands of small local players and fledging domesticchains out of business.

The only opening in the retail sector so far has been to allow 51% foreign stakes insingle brand consumer stores, private labels, high tech items/ items requiringspecialized after sales service, medical and diagnostic items and items sourced fromIndian small sector (manufactured with technology provided by the foreigncollaborations). Parties supporting the FDI suggest that the FDI in retail should beopened in a gradual/ phased manner, such that it can promote competition andcontribute to the growth of the Indian economy. The impact of the FDI would benefitthe end user of the consumer to a great extent and will help to generate a decentamount of employment as more and more entrepreneurs would be coming forward toinvest and taste the new generation in retail marketing. The opening of FDI should bedesigned in such a way that many sectors - including agriculture, food processing,

manufacturing, packaging and logistics would reap benefits. The table below lists thepros and cons of allowing FDI into retail.

Benefits of FDI in retail Drawbacks of FDI in retail

Inflow of investment and funds.

Improvement in the quality of employment.

Generating more employment.

Increased local sourcing.

Provide better value to end consumers.

Investments and improvement in the supply chainsand warehousing.

Franchising opportunities for local entrepreneurs.

Growth of infrastructure.

Increased efficiency.

Cost reduction.

Implementation of IT in retail.

Stimulate infant industries and other supportingindustries.

Would give rise to cut-throat competition rather thanpromoting incremental business.

Promoting cartels and creating monopoly.

Increase in the real estate prices.

Marginalize domestic entrepreneurs.

The financial strength of foreign players would displacethe unorganized players.

Absence of proper regulatory guidelines would induceunfair trade practices like Predatory pricing.

Thus it can be said that this investment boom could change the face of Indian retail byoffering quality goods at lower prices to the consumers.



4. Segment analysis:

The structure of Indian retail is developing rapidly with shopping malls becomingincreasingly common in the large cities and development plans being projected at 150new shopping malls by 2008. However, the traditional formats like hawkers, grocersand tobacconist shops continue to co-exist with the modern formats of retailing.Modern retailing has helped the companies to increase the consumption of theirproducts for example: Indian consumers would normally consume the rice sold at thenearby kiranas viz. Kolam for daily use. With the introduction of organized retail, it hasbeen noticed that the sale of Basmati rice has gone up by four times than it was a fewyears back; as a superior quality rice (Basmati) is now available at almost the sameprice as the normal rice at a local kirana. Thus, the way a product is displayed andpromoted influences its sales. If the consumption continues to grow this way it can besaid that the local market would go through a metamorphoses of a change and thelocal stores would soon become the things of the past or restricted to last minuteunplanned buying.

4.1 Food and grocery retail:

The food business in India is largely unorganized adding up to barely Rs. 40,000 crore,with other large players adding another 50% to that. The All India food consumption isclose to Rs. 900,000 crore, with the total urban consumption being around Rs.330,000crore. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Mostfood is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kiranastores. According to McKinsey report, the share of an Indian household's spending onfood is one of the highest in the world, with 48% of income being spent on food andbeverages.

4.2 Apparel retail:

The ready-mades and western outfits are growing at 40-45% annually, as the marketteems up with international brands and new entrants entering this segment creating anRs.500 crore market for the premium grooming segment. The past few years has seenthe sector aligning itself with global trends with retailing companies like Shoppers' stopand Crossroads entering the fray to entice the middle class. However, it is estimatedthat this segment would grow to Rs. 300 crore in the next three years.

4.3 Gems and Jewellery retail:

The gems and jewellery market is the key emerging area, accounting for a highproportion of retail spends. India is the largest consumer of gold in the world with anestimated annual consumption of 1000 tonnes, considering actual imports and recycledgold. The market for jewellery is estimated as upwards of Rs. 65,000 crores 9.





Source: E&Y, The Great Indian Retail Story, 2006.

As noticed in the figure above, the organized retail penetration (ORP) is the highest infootwear with 22% followed by clothing. Though food and grocery account for largestshare of retail spend by the consumer at about 76%, only 1% of this market is in theorganized sector. However, it has been estimated that this segment would multiply fivetimes taking the share of the organized market to 30 percent in the coming years 1.

5. Industry analysis of the Indian retail sector:

Modern retailing has entered India in form of sprawling malls and huge complexesoffering shopping, entertainment, leisure to the consumer as the retailers experimentwith a variety of formats, from discount stores to supermarkets to hypermarkets tospecialty chains. However, kiranas still continue to score over modern formats primarilydue to the convenience factor.



Source: IT Retailing: Are You In The Loop?, July 16, 2006.

The organized segment typically comprises of a large number of retailers, greaterenforcement of taxation mechanisms and better labour law monitoring system. It's nolonger about just stocking and selling but about efficient supply chain management,developing vendor relationship quality customer service, efficient merchandising andtimely promotional campaigns. The modern retail formats are encouraging developmentof well-established and efficient supply chains in each segment ensuring efficientmovement of goods from farms to kitchens, which will result in huge savings for thefarmers as well as for the nation. The government also stands to gain through moreefficient collection of tax revenues. Along with the modern retail formats, the non-storeretailing channels are also witnessing action with HLL initiating Sangam Direct, a directto home service. Network marketing has been growing quite fast and has a few largeplayers today. Gas stations are seeing action in the form of convenience stores, ATMs,food courts and pharmacies appearing in many outlets.

In the coming years it can be said that the hypermarket route will emerge as the mostpreferred format for international retailers stepping into the country. At present, thereare 50 hypermarkets operated by four to five large retailers spread across 67 citiescatering to a population of half-a-million or more. Estimates indicate that this sectorwill have the potential to absorb many more hypermarkets in the next four to five years1.



List of retailers that have come with new formats:

Retailer Current Format New Formats. Experimenting With

Shoppers' Stop Department Store Quasi-mall

Ebony Department Store Quasi-mall, smaller outlets, adding food retail

Crossword Large bookstore Corner shops

Piramyd Department Store Quasi-mall, food retail

Pantaloon Own brand store Hypermarket

Subhiksha Supermarket Considering moving to self service

Vitan Supermarket Suburban discount store

Foodworld Food supermarket Hypermarket, Foodworld express

Globus Department Store Small fashion stores

Bombay Bazaar Aggregation of Kiranas

Efoodmart Aggregation of Kiranas

Metro Cash and carry

S Kumar's Discount store

Traditionally, the small store (kirana) retailing has been one of the easiest ways togenerate self-employment, as it requires minimum investments in terms of land, labourand capital. These stores are not affected by the modern retailing as it is stillconsidered very convenient to shop. In order to keep pace with the modern formats,kiranas have now started providing more value-added services like stocking ready tocook vegetables and other fresh produce. They also provide services like credit, phoneservice, home delivery etc.

The organized retailing has helped in promoting several niche categories such aspackaged fruit juices, hair creams, fabric bleaches, shower gels, depilatory productsand convenience and health foods, which are generally not found in the local kiranastores. Looking at the vast opportunity in this sector, big players like Reliance and KRahejas has announced its plans to become the country's largest modern retainers byestablishing a chain of stores across all major cities.

Apart from metro cities, several small towns like Nagpur, Nasik, Ahmedabad,Aurangabad, Sholapur, Kolhapur and Amravati as witnessing the expansion of modernretails. Small towns in Maharashtra are emerging as retail hubs for large chain storeslike Pantaloon Retail because many small cities like Nagpur have a student population,lower real estate costs, fewer power cuts and lower levels of attrition. However,retailers need to adjust their product mix for smaller cities, as they tend to be moreconservative than the metros.



In order for the market to grow in modern retail, it is necessary that steps are taken forrewriting laws, restructuring the tax regime, accessing and developing new skills andinvesting significantly in India.

6. Business analysis of the Indian retail sector:

The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in lastfive years. 14 (KSA Technopak, June 2006). In modern retailing, a key strategic choiceis the format; retailers are coming up with various innovative formats to provide anedge to retailers.

Most attractive developing markets for retail by region according to AT Kearney Study:

Percentage of markets that are `on the radar' and `to consider':

Source: AT Kearney, GRDI 2006.

A look at the graph above shows that the Asian markets are considered attractive forretail as per the AT Kearney's report; India is being placed on the radar by the USA andUK. Global giants like Tesco and Walmart are experimenting with various options toenter India. One possibility for Walmart would be to open Sam's club wholesalebusiness through a joint venture and sell strictly to other retailers. This strategy skirtsthe issue of not being able to sell directly to customers and establish a strong presencein the local market. On the other hand, Tesco is planning to get into a partnership with

Home Care Retail Mart Pvt. Ltd expecting to open 50 stores by 20104

. The governmentis taking gradual steps in allowing the FDI into Indian retail, when it takes the finalsteps the peak time will quickly pass giving the existing players a distinct edge.



6.1 Merger and acquisition activity:

India witnessed a record number of M&A deals in the first half of 2006, which werecollectively worth USD 25.6 billion. A significant number of deals have being carried outin the Indian retail sector in the past few months in order to acquire a larger share inthe growing domestic market and to compete against the prospective global anddomestic players. 13 The table below shows some recent deals that have taken place inthe Indian retail sector:

Year Acquired/ JV Company/Target Acquirer Nature of Business Stake

Consideration

(US$ million)

2005 Liberty Shoes Future group Retail (Footwear) 51% 3

2005 Indus - League Clothing Future group Retail clothing 68% 5

2005 Odyssey India Deccan ChronicleHoldings

Leisure retail chain(books, music, toys) 100% 14

2005 Landmark Tata Trent Books, music,accessories 74% 24

2006 Bistro Hospital ity

TGI Friday's (asubsidiary of CarlsonRestaurant World-wide)

Restaurant (Foodretail) 25% N/A

2006Indus League clothing

(Future group company)Etam group, France

Lingerie andwomen's wearretailing

50%

(JV)8

Source: PricewaterhouseCoppers, Asia-Pacific M&A bulletin, Mid year 2006.

6.2 Business models for entry in Indian markets:

Due to the FDI restrictions the international players are looking for alternative avenuesto enter the Indian markets. The chart below shows the current formats permitted bythe Government of India for the international players.



Source: Ernst & Young, The great Indian Retail Story, 2006.

7. Employment opportunities in this sector:

The Indian retail sector offers an economic opportunity on a massive scale both as aglobal base and a domestic market. This sector yields many positive results likegenerating more jobs and bringing numerous goods to the consumers at reasonableprices. According to Ernst &Young's report `The Great Indian Retail Story' this sector isexpected to create 2 million jobs by 2010.

About 4 crore people are employed in retail trade, assuming each person supports afamily of 5, this, implies that about 20 crore people are dependent on this sector. For avast majority of the households, retailing is a euphemism for a marginal existence.Modern retail formats have generated huge employment for the young and even seniorcitizens and women wanting to work part-time (even in small towns). People havegreater exposure to the technical aspects, training and also earn higher salaries alongwith bonuses and incentives.



With foreign companies opening expanding in India, employees are being re-trainedaccording to international standards and practices that are being bought in. There isalso an increase in the number of retail management programmes and institutes. Thiswill bridge the gap in availability of talented professionals at the middle and lowerlevels. Successful Indian retailers are creating a robust second and third level of management by hiring aggressively for these key roles. Talented professionals will put

increased pressure on wage costs. Therefore operating margins, especially for mid-sized retailers, are becoming a poaching ground for international retailers once theyenter India.

With private companies getting into retail, there are people employed from diversecultures (no room for reservations unlike government owned stores) where there is asense of unity in diversity. The companies are also employing people who are physicallyhandicapped. The next few years are expected will see the sector offering new jobs to50,000 young graduates and diploma holders.

8. What makes foreign firms come to India?

A host of traditional `brick and mortar' companies such a Tatas have entered the retailbusiness. With demographic changes like rising disposable incomes and rapidlyexpanding middle class, the Indian retail sector is at an inflexion point where thegrowth in consumption and growth of organized retailing are taking it towards highergrowth. Market liberalization and an increasingly assertive consumer population haveattracted bigger Indian and multinational operations to make investments, but are yetto achieve success or reach break even.

The Indian consumption pattern and preference have undergone vast changes over theyears allowing the foreign retailers to play with the psyche of the brand consciousmodern Indian, who has no qualms spending a fortune on overhauling his wardrobe.This led to the entry of up-market brands like Nautica and New Balance into the

country to cash in on this opportunity.India has the youngest population in the world, with large population between 20-34age groups in the urban regions boosting the demand. All these factors have temptedthe foreign firms such as Walmart, Tesco and Carrefour to enter India. India is nowfirmly placed on the US and UK radars as US retailers are gradually realizing thepotential of the retail and consumer goods sector. The timing is the most importantsource of competitive advantage for global and regional retailers in the globalizationrace. Knowing when to enter emerging retail markets is the key to success.

AT Kearney's study on global retailing trends found that India is the least competitiveas well as least saturated of all major global markets. This implies that there aresignificantly low entry barriers for players trying to setup base here, in terms of thecompetitive landscape. The report further stated that global retailers such as Walmart,Carrefour, Tesco and Casino would take advantage of the more favourable FDI rulesthat are likely in India and enter the country through partnerships with local retailers.Other retailers such as Marks & Spencer and the Benetton Group, who operate througha franchisee model, would most likely switch to a hybrid ownership structure.



9. IT and latest development:

Technology has played a key role in retailers' efforts to compete in this volatile market.With e-tailing channels making its presence felt in India companies are using eithertheir own web portal or are tying up with horizontal players like Rediff.com andIndiatimes.com to offer their products on the web 15 (www.alexa.com). IT has beenused by retailers ranging from Amazon.com to eBay, in order to radically change thebuying behavior across the globe 16 .

Retailers worldwide are looking forward to increase their IT spending by almost 15% in2006, allocating almost half of this increase to application software with a particularfocus on tools that facilitate multi-channel customer relationships, point of salesystems, strategic merchandising and supply chain management 17 . The last 2-3 yearshave seen several retailers ranging from F&B operations to discount clothingimplementing supply chain management (SCM) solutions to improve core businessprocesses such as global sourcing, distribution, logistics, innovations, transparency andvisibility in financials and inventory, compliance and management of point of sale (POS)data. However, organized retailers have not taken well to the concept of 3PL (third

party logistics) due to their apprehensions of losing control over the supply chain.Currently, the transportation is carried out partly by organized service providers andpartly by truckers and local transporters.

In conclusion, it can be said that in order to deliver the levels of quality and servicethat consumers are demanding; the organized retailers are in a pressing need for asingle enterprise wide IT platform to manage operations, which will becomeincreasingly complex once the market expands.

10. A look at the rural retailing:

More than half of retail market in India is in the rural areas (55%); although share of

urban market is increasing by almost 5% every 8-10 years14

. Accommodating almosttwo-third of the country's consumers and generating almost half of the nationalincome, the rural India offers tremendous opportunities for organized retailers whichmany companies have failed to access. According to the study conducted by NCEAR,the number of `lower middle income' group in rural areas is almost double ascompared to the urban areas, having a large consuming class with 41% of the Indianmiddle class and 58% of the total disposable income.

Source: Census; National Council of Applied Economic Research (NCAER).



A look at the demographics reveals that the highest income levels households in therural areas are 1.6 million as compared to 2.3 million in urban areas. It has also beenforecasted that the middle and the higher income households are expected to grow to111 million by 2007 from the current levels of 80 million. Thus, it can be said that with128 million households, the rural population is nearly three times the urban. This vastdemand base and size offers a huge opportunity that MNCs cannot afford to ignore.

In order to meet with this rapid growth in demand the government has shown itsconcern by providing an induction of Rs.140 billion and Rs. 300 billion in the ruralsector through its development schemes in the Seventh and the Eight planrespectively. The large players like ITC, HLL, BPCL are realizing the potential of thissector and are seen experimenting with new ways to tap this segment.

ITC spent 3 years and Rs. 80 crore on r&d to come up with the concept of E-choupaland Choupal Sagar-rural hypermarkets 18 . Through this, the farmers can access latestlocal and global information on weather and market prices, scientific farmingtechniques at the village itself through a web-portal - all in Hindi. E-Choupal also

facilitates supply of high quality inputs as well as purchase of commodities at theirdoorstep. The hypermarket (Choupal Sagar) provides them with another platform tosell their produce and purchase necessary farm and household goods under one roof.

Next in line, HLL came up with Project Shakti in late 2000 to sell its products throughwomen self-help groups who operate like a direct-to-home team of sales women ininaccessible areas where HLL's conventional sales system does not reach. Another stepto tap the rural market was `Operation Bharat' wherein low-priced sample packets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to 20mnhouseholds.

As a part of their rural strategy, BPCL introduced Rural Marketing Vehicles (RMVs) that

move from village and village and filling cylinders on the spot for rural consumerskeeping in mind the low-income of the rural population. The Company also introduced asmaller size cylinder to reduce both the initial deposit cost as well as the recurring refillcost.



Future outlook:

Investments in the range of US$ 20+ Billion are expected in the next 5 years in Retail& its Supply Chain alone.

Size of modern retail likely to touch US$ 60+ Billion by 2011:At least 2.5 Million additional direct jobs likely to be created in the next 5 years.

Hyper-competition is expected to set in by 2008-9 as the footprint of the top-5 playersstarts significant overlapping in top 20 - 30 towns.

Significant impact on other retailers and branded good players -creating new opportunities and threats:

According to Assocham, the overall retail market would grow by 36 per cent with theorganised sector expected to register three-fold growth to Rs 15,000 crore by 2008.The total size of the market is also expected to increase to Rs 14,79,000 crore from thecurrent level of Rs 5,88,000 crore.

Challenges faced by this sector:

The industry is facing a severe shortage of talented professionals, especially at themiddle-management level.

Most Indian retail players are under serious pressure to make their supply chains moreefficient in order to deliver the levels of quality and service that consumers aredemanding. Long intermediation chains would increase the costs by 15%.

Lack of adequate infrastructure with respect to roads, electricity, cold chains and portshas further led to the impediment of a pan-India network of suppliers. Due to theseconstraints, retail chains have to resort to multiple vendors for their requirements,thereby, raising costs and prices.

The available talent pool does not back retail sector as the sector has only recentlyemerged from its nascent phase. Further, retailing is yet to become a preferred careeroption for most of India's educated class that has chosen sectors like IT, BPO andfinancial services.

Even though the government is attempting to implement a uniform value-added taxacross states, the system is currently plagued with differential tax rates for various

states leading to increased costs and complexities in establishing an effectivedistribution network.

Stringent labor laws govern the number of hours worked and minimum wages to bepaid leading to limited flexibility of operations and employment of part-time employees.Further, multiple clearances are required by the same company for opening new outletsadding to the costs incurred and time taken to expand presence in the country.



The retail sector does not have 'industry' status yet making it difficult for retailers toraise finance from banks to fund their expansion plans.

Government restrictions on the FDI are leading to an absence of foreign playersresulting into limited exposure to best practices.

Non- availability of government land and zonal restrictions has made it difficult to find agood real estate in terms of location and size. Also lack of clear ownership titles andhigh stamp duty has resulted in disorganized nature of transactions.

13. Performance of the players in the retail industry:

Note: Market Price as at 11/10/2006.

Source: bseindia.com, economictimes.com, myiris.com.

Revenues Growth% Growth% NetProfit

Growth% Growth% OPM% OPM% EPS CMP P/E

(Rs mn) QoQ

(compared tocorrespondingquarter)

YoY (Rs mn) QoQ

(compared tocorrespondingquarter)

YoY Q1FY06 Q1FY05 Q1FY06

Trent 3464.41 15.94 47.75 243.78 (1.35) 27.91 6.25 7.07 4.55 875.00 53.88

Shoppers'Stop 6455.74 4.75 57.07 271.05 (4.94) 42.43 4.38 3.00 2.03 604.60 76.73

Pantaloon(Retail)IndiaLimited

18677.71 26.28 72.30 641.58 (2.50) 66.427.00

(Q3FY06)

6.82

(Q3FY06)

5.89

(Q3FY06)1844.85 120

PyramidRetailLimited

991.99 (9.67) 0.00 (74.76) 3.20 0.00 (16.62) 0.00 (3.53) 114.85 0.00



List of resources:

1. Ernst & Young, The Great Indian Retail Story, 2006.

2. FICCI - ICICI Property Services Study.

3. Let gradualism guide FDI in retail, Economist, 2006.

4. AT Kearney, GRDI 2006.

5. Retail scenario most developed in Bangalore, DH News service, According to BijouKurien, 6. President & Chief Executive - Life Style, Reliance Retail.

7. CII, Logistics and Freight News, March 2006.

8. KPMG analysis, Consumer markets in India - the next big thing, September 2005.

9. India's changing household, Deutche Bank, November 2004.

10. CII, Manufacturing Bulletin, June 2006.

11. Pharma's retail push, Business Line, 2006.

12. Northbridge Journal, Industry Outlook - Retail, 2006.

13. Express Press release, Consumer durables sector sees pick-up sales in India, 2006.

14. Price Water Coppers, Asia-Pacific M&A bulletin, Mid year 2006.

15. KSA Technopak, June 2006.

www alexa com

http://www.alexa.com/

http://www.alexa.com/

Documents

Dissertation, Gaurav Goyal, A1210208A17, A 1210204020