Mall Management in India & Revival Strategy of Sick Malls

Punya Trivedi, PGDM Exec 2012-2013

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Under Guidance of

Prof. Vilasini Jadhav

Asst. Professor Marketing

K.J.Somaiya Inst. Of Mgmt Studies & Research, Mumbai


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DECLARATION

I, Punya Trivedi hereby declare that this project report is the record of authentic work carried out by me during the period from Sept 2013 to Oct 2013 and has not been submitted to any other University or institute for the award of any degree/diploma etc.

Punya Trivedi PGDM Exec – 2012-13 Date: 25th Oct, 2013

VOTE OF THANKS!

I would like to take this opportunity to thank my guide, Prof. Vilasini Jadhav, for helping me

with my study about Mall Management in India & Revival Strategies, without her support and

guidance this study wouldn’t have been complete!

Punya Trivedi PGDM Exec – 2012-13 Date: 25th Oct, 2013


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Executive Summary

As per Jones Lang LaSalle, a global real estate consulting baron, only a quarter of India’s 500+ malls are making

profits, rest all are bleeding, through this study, we try to find the reasons, issues and challenges faced by real

estate developers today.

The main reason found is malls are not differentiating themselves amongst themselves, everyone is trying to

imitate the successful strategies and ultimately resulting into a blood bath.

We also through this study, try and suggest few revival methodologies, through which a mall which is bleeding

can survive.


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Contents Mall Industry in General ............................................................................................................................................ 6

Mall Industry in India vis-à-vis West .......................................................................................................................... 9

Challenges faced by Mall’s ....................................................................................................................................... 10

Considerations while setting up a mall .................................................................................................................... 11

Capital Sources for Mall ....................................................................................................................................... 11

Private Funds ................................................................................................................................................... 12

Public Funds ..................................................................................................................................................... 13

Revenue Sources .................................................................................................................................................. 14

Tenant Mix ........................................................................................................................................................... 15

Zoning .............................................................................................................................................................. 15

Importance of Tenant Mix ............................................................................................................................... 15

Benefits of Tenant Mix ..................................................................................................................................... 16

Types of tenants ............................................................................................................................................... 16

Common Area .................................................................................................................................................. 17

Leasing Administration ........................................................................................................................................ 17

Marketing and Promotion Activities .................................................................................................................... 18

Facilities Management ......................................................................................................................................... 19

Regulatory framework for Malls .......................................................................................................................... 20

Compliance during planning stage ................................................................................................................... 20

Compliance during development stage ........................................................................................................... 20

Insurance of Mall & Construction Labour ........................................................................................................ 20

Compliance during the launch ......................................................................................................................... 20

Compliances during Operational Life ............................................................................................................... 20

Certain Relevant Acts for Malls ........................................................................................................................ 20

Indian Mall Customer ............................................................................................................................................... 21

How to differentiate a mall? .................................................................................................................................... 22

Raghuleela ............................................................................................................................................................ 22

Center One ........................................................................................................................................................... 23

Inorbit Vashi ......................................................................................................................................................... 24

Symptoms of Sickness .............................................................................................................................................. 25

Precautions & Revival strategies .............................................................................................................................. 26


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Future of Shopping Malls ......................................................................................................................................... 29

Survey ....................................................................................................................................................................... 30

Conclusion ................................................................................................................................................................ 32

Appendix .................................................................................................................................................................. 33

Case Study: Phoenix Marketcity, Kurla ................................................................................................................ 33

Photos .................................................................................................................................................................. 37

Questionnaire ...................................................................................................................................................... 38


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Mall Industry in General

“Build & They Shalt Come”

Origins

Malls in its original meaning refers to the tracts for strolling. Now most of the malls are shopping malls, tracts to stroll

while you shop and to shop in while you stroll. The merchandisers sniffed out the attraction and seductive power of

strollers' habits and set about moulding them into life.

History

Undoubtedly, shopping malls, which are planned retail facilities, have been playing important roles in the retail

industry. In fact, the history of shopping mall development is long. Before cars, air-conditioning, or even electricity

came the first shopping mall. This was the Galleria Vittorio Emanuele, which was built in Milan, Italy in 1878. After

that, more malls were developed around the world. After decades of evolution, the world's first modem mall,

designed by Victor Gruen, was built in Southdale, Minneapolis in the USA in 1956. Since then, there has been vigorous

development of new shopping malls and their value to the retail industry has been commonly recognised.

Indian Retail Industry

Indian retail Industry accounts for around 14-15 per cent of the gross domestic product (GDP), i.e. estimated to be

worth around US$ 500 billion currently. India is a home to one of the top five retail markets in the world, offering

immense scope of growth and opportunities in this arena.

As of now, almost 90 per cent of the Indian retail sector is controlled by tiny family-run shops i.e. the unorganised

segment. Making retail sector the second largest employer after agriculture in India,

Thus, organised retailers have a lot of room for further penetration in this flourishing economy. In 2010, larger format

convenience stores and supermarkets accounted for about 4 per cent of the industry, and these were present only in

large urban centres. Now the trend is changing, and such concepts are mushrooming in smaller cities and towns as

well.

Organised retail segment is expanding at 20 per cent a year, driven by the emergence of shopping centers and malls

and growing middle class.

India Mall Story

The recent slowdown in the GDP rate, also followed with a slowdown in the Indian realty sector has surprisingly not

hampered the development of new malls across the country. India has 570 operational malls (as of May 2013) with a

total area of 180 million sq ft compared to just 225 malls that were up and running five years ago.1

However, the growth in mall’s has been uneven, maximum number of newer sites are coming up in 9 most populous

cities in India in order of rankings by population i.e. (Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad,

Ahmedabad, Pune & Surat)

1 Times of India article titled “Malls more than double in five years” dated 8th August, 2013.


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The above mentioned 9 most populous cities account for more than 40% of mall site’s, however other cities are also

gradually picking up in terms of newer sites.

Developers such as the Rahejas (Inorbit), Phoenix Mills (Market City), DLF and Prestige ( Forum) are now building

larger malls as these have a better chance of succeeding in an overcrowded marketplace (Asipac Consulting Report).

Industry experts say consumers prefer bigger malls which offer more brands under one roof rather than visiting

multiple malls, mirroring what happened in the mature retail markets years ago.

Are they making money?

With so many newer mall’s coming up, are they making ample of money, data from various sources say’s otherwise,

as reported by global real estate consulting giant Jones Lang LaSalle Property Consultants (India) Pvt. Ltd. only about a

quarter of malls in India are making money, said Santhosh Kumar, chief executive of operations at real estate advisory

Ltd. While 35% are just about making ends meet, the rest are losing money.2

Additionally, a recent Business Standard Article dated 26th August, 2013, asserts, the above fact, stating that India's

love affair with shopping malls over? If 120 new malls have come up in the last two years, 40 have downed shutters.

As per a study by Mirae Asset Management Company, it cites 7 main reasons for shutting down of malls;

1. Bad Location

2. Bad Architecture

3. No Multiplex

4. Poorly Designed Food Court

5. Bad Shopping Mix

6. Scale Problem (i.e. too small compared to a gigantic mall in same vicinity)

7. Bad Anchor Tenants

Each of the above point’s would be elaborately explained in the later part of the report!

Gone are the days of “Build and they shall come” even the conception that, larger mall’s helps in drawing crowd’s

isn’t proving out to be a viable solution, the below image from a recent (Asipac report) explains the same!

2 HT Mint article titled “Recipe for a successful mall” dated 25th April, 2011.


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Today, the business model is eventually changing for developer’s, who no longer prefer fixed rent’s, Phoenix Mill’s at

Phoenix Market City, Kurla, prefers to charge a variable rent i.e. as percentage of total sales from Anchor Tenants like

Reliance Fresh, Pantaloon’s etc, wherein from small independent outlet’s & Kiosk’s they prefer fixed rent’s.

Phoenix Market City, Kurla is a unique mix of Retail, Commercial, Fine Dining & Entertainment (Movieplex’s &

Playzones) i.e. trying to diversify their risk!

Certain mall’s are purely surviving based on rental’s received from Anchor Tenant’s i.e. Mall’s like Palm Beach Galleria

& City Center Mall of Navi Mumbai, former is surviving based on rentals received from Anchor tenant’s like

McDonald’s, More (Aditya Birla Retail) & Big Cinema’s, wherein the latter is surviving on rental’s received from

Cinemax India Pvt Ltd, and one private spa outlet.

The challenge today faced by each of the mall’s is in terms of getting not just footfall’s but attracting high percentage

of buyer’s, i.e. who are going to shop from the mall, rather than just window shop the brands!

However, to get high percentage of buyer’s one needs to get higher footfall’s also, hence mall’s these day’s arrange

lot of inhouse event’s like Musical Evening’s, Children’s competition’s, Dance Show’s, DJ Show’s, Exhibition’s & Other

forms of talent shows.3

Increasingly, few region’s have too many mall’s ultimately resulting into immense bleeding of each of the, mall’s,

however, there are certain exceptions, whereby a mall tries to differentiate itself from the other, and succeeds i.e.

through a win-win situation though accidental (Malls in Vashi, Navi Mumbai is a classic case, where 3 mall’s though

being extremely close to each other are doing extremely well, how we shall see it later)

3 Based on observation at Center One Mall, Vashi & Phoenix Market City, Kurla


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Mall Industry in India vis-à-vis West

“The farther west he went the more he was convinced that the wise men came from the east”

Horace Russel (Jamaican Revolutionist)

Indian Mall’s and Mall’s in other parts of the world especially the West, are similar in terms of architecture and

feature’s, however in terms of location and other facet’s they are quite distinctive!

Location

Mall’s in US and Europe, are away from the cacophony i.e. mostly in outskirts of the city, Mall of America i.e.

America’s largest mall is more than 11 miles away from Minneapolis & about 19 miles away from Saint Paul.4

People prefer to drive such long distances, due to majority of population owns a Car, however when we compare this

with East, i.e. Asian countries, the malls are located in the heart of the city, or preferably, close to a locality i.e.

Catchment area.

Size of Catchment Area?

As per Shubhranshu Pani, managing director, retail services, Jones Lang LaSalle (JLL) India "Any location that has a

residential catchment with a population of 4 lakh or more in the vicinity will work,"

However, the above rule of catchment area, doesn’t apply to the West

Clearances

Malls in India, require lot of clearances say environmental, labour, land, municipal, safety, commercial, tax i.e.

through different authorities, however in West, they have single window clearance system, allowing users to obtain

various licenses through one authorities.

Malls in both India & West have to undergo various Audits at regular intervals to ensure safety of the visitors.

Entertainment

West has tried to position their malls not just as Shopping hubs but also as entertainment hubs i.e. Movieplex,

Entertainment Parks, Play zones, regular activities i.e. College Parades, Annual Days, Dance Performances, Concerts

etc.

Wherein in India, current focus is more on Shopping, however, gradually it is more moving towards entertainment,

and Indian malls have started doing similar things as malls in West to pull the crowd.

Dr. Harvinder Singh of IMT Gaziabad feels that “Just looking at a big and successful mall elsewhere in the world and

copy-pasting it in India doesn’t work.”

4 Saint Paul & Minneapolis famously known as Twin Cities are part of Minnesota in United States of America


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Challenges faced by Mall’s

“When somebody challenges you, fight back. Be brutal, be tough.”

Donald Trump (American Real Estate Tycoon)

Managing mall is like riding a tiger, too many dilemma’s faced by the developers or mall managers be it in terms of

tenant mix, business model or perhap’s choosing a location!

Some of the key challenges broadly are as follows:

1. Positioning

2. Zoning (tenant mix and placement within mall)

3. Promotions and marketing

4. Facility management (infrastructure, footfalls, ambience)

5. Finance management

6. Planning the mall around anchor tenants

7. Lack of market research by developers

8. Tendency to lease out on a FCFS basis5

9. Perceive outsourcing as additional cost

10. Lack of accountability for in-house promotional activities

11. Improper planning for space (lack of parking space, single entry/ exit points)

12. Lack of skilled manpower

Choosing a business model

A very crucial challenge is in terms of deciding a business model, below table acts as guidance for the same;6

Business Model Key aspects Benefits for Mall Developer

Benefits for Mall Management

Contract Model Fixed fee Fixed cash outflows.

Risk minimization Higher inflows if mall is a success

Revenue sharing model

Percentage of sales

Risk minimization Share of revenues if mall is a success which leads to higher income

Partial revenue sharing model

Fixed fee + percentage of sales

Risk minimization (fixed fee less than that in the case of contract)

Minimum payment guaranteed and also portion of revenues in case of success

Majority of Mall’s are increasingly going for revenue sharing model for Large Anchor Tenant’s, wherein they possess

large potential to pull the crowd and also help increasing the footfall’s and mall management believes they would

make enough money as part of the revenue share.

5 First Come First Serve Basis may result into a lot of cannibalization of revenues, since stores of similar formats may come up next to each other and ultimately lose out money. 6 Taken from http://www.chillibreeze.com/articles_various/Malls-in-India.asp accessed on 24th Oct, 2013.


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Considerations while setting up a mall

“I knew there was evil in the world. Death and taxes were all necessary evils. So was shopping”

Lisa Shearin, (Author of book “The Trouble with Demons”)

Before a mall is set up, there are two aspects, which need a careful consideration, which are 1) What should be the

sources to fund a mall 2) What should be the sources of revenues to run the mall.

Development of malls is a capital-intensive business. It requires huge investments for buying land, and putting up

world-class infrastructure, at the same time to create an ambience that can attract tenants and customers.

As a shopping mall once built does not start attracting footfalls immediately and automatically, the developer has to

put in a considerable amount of money during the initial period to attract the shoppers. It also adds to the

requirement of finances for a shopping mall.

Capital Sources for Mall

Mainly there are two sources of capital sources as shown in the table below:

Private Funds

Internal accruals

Loan from banks

Loan against property (LAP)

Loan against future receivables

Note and mortgage

Contract for deeds

Private Equity Investors

Public Funds

Commercial mortgage backed securities

Corporate Bonds

Real Estate Invt. Trusts

Initial Public Offers

Real Estate Mutual Funds


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Private Funds

Internal accruals

These include the retained earnings and depreciation charges. Managements of corporate houses use internal

accruals for a number of reasons. Since those are free sources, no fixed commitment i.e. interest is required to be

paid, in other words these are the cheapest source of funding available to any organization.

The problem of internal accruals is it may be misused.

Loans from Banks

Banks offer significant financing solutions to various reputed retail chains. The product offering includes providing an

upfront loan to the landowner and discounting the future receivables every month (or on an another frequency), thus

extending good liquidity in the hands of the landowner.

However, financing real estate development has never been popular, because of perceived opaqueness of pricing in

the market, lack of clarity and standardized practices and perception of real estate as a speculative bubble.

Loan against Property

The loan against property comes under the secured loan category where the borrower gives a guarantee by

presenting his/her property as security. The property loan or loan against property is a type of loan awarded by the

bank against the current assets of the customer.

Loan against Future Rent Receivables

The loan against future rent receivables has been developed keeping in mind the growth potential of real estate in

the metros and various urban centers, where many shopping malls are being developed. The mall owners approach

banks for loans against securitization of future rent receivables from their properties. As these owners lack the

financial resources required to improve the condition of their properties to enhance the prospects of earning higher

rent, they opt for this type of loan.

Note and Mortgage

Another financing instrument is the note and mortgage. A note is a promise to pay, while a mortgage is the pledge of

a specific parcel of real property as collateral to secure this promise. A note, also called promissory note, signed by

the mortgagor is a negotiable instrument that specifies the terms and conditions for the debt repayment.

Contract for Deeds

A contract for deeds is both a sales agreement and a financing instrument between the buyer-borrower-vendee and

the seller-lender-vendor. The full terms of the sale as well as the manner in which the loan will be repaid are

elaborated in this contract financing form. The buyer is granted the permission and control of the property during the

term of payment under the conditions specified in the contract. The seller delivers the deed to the buyer who

transfers full legal title when the terms of the contract are fully satisfied.


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Private Equity Investor

Private equity (PE) investments are derived from high net-worth individuals as an essential source of early-stage

funding for high-risk ventures. Individuals often invest in malls through partnerships or specialist firms. Investments in

malls are typically made via private equity real estate fund, a collective investment scheme, which pools capital from

various investors. These funds have a ten year lifespan consisting of a 2-3 year investment period during which

properties are acquired, and a holding period during which active asset management will be carried out and the

properties will be sold.

Public Funds

Commercial Mortgage-backed Securities

CMBS are secured by the loan on a commercial property. A CMBS provides reasonable liquidity to investors investing

in real estate and shopping malls. The increased use of CMBS, like other types of MBS, is due to rapid rise in real

estate prices over the years.

These instruments however, are not being used in India, however in US they are highly popular, not to be forgotten

the famous Sub Prime Crises started with CMBS only, wherein the value of the underlying securities was rendered

worthless when the mortgage borrowers started defaulting. However CMBS still is a good way to raise money.

Real Estate Mutual Funds

Securities & Exchange Board of India (SEBI) in 2005 approved the formation of real estate funds. At present REFs are

only open to high net-worth individuals, institutional investors and global investors. But the expected entry of REMFs

would herald a new era and open new avenues for commercial retail investors in the real estate sector. Although this

segment has been growing at a decent pace, its huge potential is still untapped, for example, it may attract huge

investments from institutions such as pension funds and insurance agencies. REMFs will offer the real estate

developers another source of funds, as the SEBI guidelines allow these funds to invest in the equity of public-listed or

privately held real estate developer companies as much as as 65% of their fund size.

However, the guidelines say that REMFs will have to invest at least 35% of the assets in those real estate properties

that are already completed and usable.

Real Estate Investment Trusts (REITs)

An REIT is a trust that invests funds in properties on behalf of many investors. It operates just like a mutual fund but

the difference is that it invests only in properties earning rents. Rental income is a major source of income,

additionally REITs are obligated to distribute most of its profit as dividend to its holders.


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Initial public offers (IPOs)

The most generic mode of mobilizing public money is through an IPO. Companies in manufacturing and services

sector have done so successfully in the past and Indian stock markets have been quite responsive to this mode.

Barring a few cyclical fluctuations, Sensex has mostly shown an upward swings during the recent past. A number of

players like DLF, Omaxe, Unitech, Parsvanath, HDIL etc. planned their IPOs in the past.

Revenue Sources The revenues are very important for survival of any organization, they are a reason for its existence, for any

individual, it is very important to know, what are the various sources of revenues. The below diagram shows various

sources of revenues:

As per a study by Mirae Asset Management Company in India, following are the percentage of rental revenues from

various sources.

The above table, dispels the myth that Anchor stores earn maximum money for the mall’s, yes Anchor stores pull

customers, but are not a major source of revenue by themselves per-se.

Revenue Sources

• Lease Rentals • Kiosk Leasing • Renting common area for activation • Retail merchandise unit • Vending Machines • Sponsorship • Event marketing

• Advertising & Promotion • Temporary leasing of empty stores • Parking facilities • Media activity inside mall • Food Courts • Miscellaneous Sources


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Tenant Mix

Zoning

The concept refers to the division of the mall space into tenant-specific zones. The idea is to present each zone as the

hub or one-stop solution for a particular need category for a particular segment of consumers. Thus each zone is

turned into a cluster of stores selling complementary merchandise.

The below layout of Inorbit Vashi, those black boxes, show’s partial zoning i.e. combining casual wear’s stores with a

Puma Footwear Store and with a Titan Shop, plus there is a Woodland Shop also in the opposite wing, depicts a

partial zoning.

Importance of Tenant Mix

The marketing and financial success of a shopping mall is dependent on many factors. The main success factors

include the tenant-mix, the quality of location and accessibility, catchment size and quality, car parking provision,

internal layout and good ambience. Among these success factors, the tenant-mix of a shopping mall widely

recognized as a critical factor for all parties concerned – consumers, retail tenants and the developer/landlord.

Following are the categories of tenants by the goods they sell.

Comparison goods: The comparison goods group is epitomized by fashion and footwear, jewellery and expensive

household equipment. purchased at irregular intervals for long-term use, with suitability, quality, price and style

being important factors in their selection.


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As a retail expert puts it, “Two compatible businesses located in close proximity will show an increase in business

volume directly, then they would have achieved by not being in close proximity”

Convenience goods: Those goods are the ones that are purchased regularly. Therefore in their use the convenience of

the seller location, selection and buying is important. Group includes food, newspapers and drinks – products that are

typically sold from local corner and parade shops, supermarkets and unit shops, some of which are situated in

shopping malls.

Anchor Tenant: An anchor store is always relatively large and well regarded in terms of quality, price or function to be

a destination in its own right. Other outlets will cluster around it and will feed off the shopping traffic it generates.

Benefits of Tenant Mix

1. Attracting customers

2. Holding shoppers for a longer time

3. Encouraging cross-shopping and impulse buying

4. Imparting distinctive image to the mall

5. Ensuring 100% location to all the tenants

Types of tenants

1. Anchor Tenants: Those players which acquire relatively larger space and sell wide variety of products catering

to different consumer needs e.g. Pantaloons, Westside, Shoppers Stop, Central, Big Bazaar, Reliance Fresh,

Hypercity etc.

2. Micro-mini retail space: Smaller independent tenants, that have a single store in the mall e.g. Levis, Bata,

Hush-Puppies, Purple etc.

3. Entrepreneur Tenants: Those tenants are again similar to Micro-mini retail tenants, however those do have

brand of their own, perhaps an unknown brand, however, they sell products in their own accord, the

proportion of such stores is still extremely less.

4. Vanilla Tenants: Those tenants that survive by feeding on the traffic drawn by the Anchor Tenants, those

stores are around the Anchor Tenants e.g. There is a Spa Store next to Shoppers Stop in Inorbit, Vashi.

Tenants are categorized on following basis of lease contracts

1. Long-term

2. Medium-term

3. Short-term

4. Temporary/Seasonal e.g. Inorbit Vashi has lot of temporary Kiosk’s selling products like handmade candles,

lights and other decoratives for the festive season.

Tenant Mix Decisions

It is extremely crucial for a mall to take right steps in terms of allocating space, and also selecting the tenants, a wrong

partner may affect the malls image.


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Common Area

Common areas of the mall are supposed to be an expense head, as the mall needs to spend money in their

maintenance and upkeep. However by placing temporary tenants in common areas, shopping malls can generate

revenues. What makes this proposition more profitable is the fact that tenants pay for the upkeep of common area.

Kiosks also in the common area makes mall a happening place, however while allocating the common area, mall

manager needs to take care of the seasonal trends/needs e.g. Diwali Candles during Diwali time etc.

Leasing Administration Flaws in the leasing administration can be killing, City Center Mall of Vashi, Navi Mumbai, was on the verge of a

closure only due to flaws in the provisions of the lease agreements created, no clarity as to who will bear

maintenance charges, fees, fines and charges, security deposits etc.

The below two images show what City Center Mall was before and what it has become now!

A lease agreement must cover significant clauses and exigencies in the lease agreement.

Basically each parties responsibilities and actions must be clearly defined, along with default actions etc.


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Marketing and Promotion Activities Malls compete with other retail establishments and leisure activities to grab a share of the customer’s free time.

Besides, continuing growth in mall development means that consumers have several alternative malls to choose from

for their leisure or shopping trip.

The competition has forced mall developers to provide more stimulating environments and greater potential for

leisure satisfaction. It is also observed that traditional leisure activities are being emphasized to attract people to the

mall.

Another challenge for the mall developers is to attract the tenants. Prominent high-street locations can ensure huge

footfalls for a mall, enticing retailers to make a beeline for every square feet of retail space available.

Marketing & Promotion of the mall can be categorized as follows:

Certain malls like Inorbit & Phoenix Market City, go in for mass media, i.e. arrange certain events or say blood

donation camps and other such awareness drives, which eventually gets them in news, hence free promotion and this

pulls the crowd.

Planning & Construction

• Targeting Investors: Create a portfolio, project brochure, project/company website, targetting real estate brokers, mass media etc.

Retail Tenants

• Portfolio of retail options, database of target tenants, website of shopping mall, leasing brochure, mass media advertising etc.

Launch & Operations Phase

• Mall Exteriors, Hoardings, Leaflets, Advertisements, Road shows, etc.

• Theme based promotions, e.g. Mall of America, has has almost an yearly theme since 2003, that experts say, helps bring about 40 million plus customers.


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Facilities Management Noise, Crowd & Chaos doesn’t deter shoppers from shopping, in their favourite marketplaces. However, in contrast

ambience and facilities at a mall does deter customers from shopping, hence facilities at management must be

carefully managed.

Facilities management is a continuous process and also an integral part of the mall management. The advent of

technology has made the facilities management even more important as state-of-the-art systems, used in managing a

mall, need to be maintained in a useful operational condition to ensure their optimum and profitable utilization.

Security area is also a key concern, in today’s era of disruptive elements like terrorists, Malls have always been and

will remain a soft target for such elements. Certain malls have very high surveillance systems, e.g. Phoenix Market

City, Kurla has a security camera outside every store, however in contrast Center One of Vashi, has a two camera’s on

each side of the floor.

The below diagram shows the facilities offered in a mall

Mall management is the responsibility of the developer or the mall management company, the services are available

to all the tenants, lack of proper mall management, is one of the symptoms of sickness as some day or the other, the

tenant would get fed up or the customer or perhaps both. Leading to start in the down fall of the mall

Security and Safety comes topmost form majority of the customers based on our limited survey.

Utilities Security &

Safety

Parking Health & Hygeine

Ambience Building

Maintenance Systems


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Regulatory framework for Malls

Mall development is a very tedious business, as it involves getting approvals from a multitude of authorities. Every

state in India has its own set of regulations that govern the planning, development and operations of mall business.

There are over 20 major licences and permissions required even before breaking the ground of the proposed mall

site.

Compliance during planning stage

1. Plot acquisitions

2. Developing business plan/proposal i.e. to be submitted to the municipality

Compliance during development stage

1. Environment Impact Assessment Report

2. Permission from the Fire Brigade

3. Permission from the State Electricity Board

4. Permission from the Municipality

5. Permission for the Multiplex

6. Permission for the Food Court

Insurance of Mall & Construction Labour

Compliance during the launch

1. Occupancy Certificate

2. Assessment of Property Tax

3. Registration of Retailers

Compliances during Operational Life

1. Laws Related to Mall Operations

2. Labour Laws

3. Insurance

4. Renewal & Certification

5. Taxation & Return Filing

6. Environmental Laws

7. Municipal Issues

Certain Relevant Acts for Malls

1. Shops & Establishments Act

2. The Environment (Protection) Act

3. The Water Act (Prevention & Protection) & Other Water related Acts

4. Pollution related Acts i.e. Air & Noise Pollution related.

5. Municipal Solid Waste (Management & Handling) Rules


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Indian Mall Customer

“When I shop, the world gets better, and the world is better, but then it's not, and I need to do it again.”

From movie Confessions of Shopaholic

Broadly an Indian customer can be categorized either as a focused buyer or an impulse buyer, a focused buyer is one,

who is predetermined and knows what he/she wants. However an impulse buyer is one, who doesn’t know what

he/she wants.

Majority buyers turn out to be focused one’s since, when they visit mall’s they know what they want, say visit a food

court, or buy pair of clothes etc.

However, the motives of visiting malls are changing also, lot of youngster’s go to the malls, so that they can sit in Air-

conditioned environment, chat with friends, hang out etc. As per a tenant in Phoenix Market City, of the 100 people

that visit that Mall, only 20% are actual buyers, rest all others are window shoppers, perhaps few may visit food court

and have something there!

Below diagram explains some of the motives of a visitor to a mall

Some of the actions of visitors to Mall based on observations are as follows:

1. Chat with friends

2. Watch movies (PVR)

3. Bird watching (Both boys & girls but proportion of boys is high)

4. Shopping

5. Food Court (McDonald’s & KFC are doing well, based on observation)

6. Reading Books

7. Coffee

8. Engaging Kids i.e. Games/Competitions/Snow World etc.

9. Beauty Treatment

10. Walking i.e. Taking a Stroll in air conditioned environment, this has been seen for large malls like Phoenix

Market City & Inorbit


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How to differentiate a mall?

"Don't forget that it (your product or service) is not differentiated until the customer understands the difference."

Tom Peters.

Differentiation is a key, however it doesn’t become a key unless it is evident to the customers, perhaps, we would

study 3 malls of Vashi Navi Mumbai, they have partly tried to differentiate and made money, over years pursuing

their own way!

The below map shows 3 circles innermost representing 1 mile radius from Vashi Railway Station, 2nd one is for 1.5

mile radius and 3rd one is 2 mile radius.

The one mile radius has 3 malls as identified below

Raghuleela It is one of the unique malls of Navi Mumbai, which has commercial, retail & fine-dining facility, it has big Anchor’s

like Audi, Big Bazaar, Central, The Village & Fame (Multiplex) in its kitty, however the smaller shops are relatively like

small shops selling both branded and unbranded items.

The benefit Raghuleela has is it has a Multiplex, that is a key differentiator for it, since any of the other two malls do

not have it!

Additionally, it houses lot of small entrepreneur shops, which sell both branded and unbranded items, also at a

competitive pricing, hence it draws those people who are interested in fashion, but not the brand. Its drawback is the

food court, which isn’t so attractive.

Center One

Inorbit

Raghuleela


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Games section is not so happening, since not got anything apart from outdated video games and few slot old slot

machines, the most happening section in games section is a bowling alley for adults, apart from that it

The occupancy rate is around 80%, 20% shops are vacant.

Average footfalls are around 8000 on weekdays and 14000+ over weekends. (Based on numbers from Security Guard)

Center One Center One is the first malls of Vashi to come near railway station, currently smallest in terms of the square feet area,

however it has given a run for money to other two malls, its Anchors include Pantaloons, Pop Tates (Recently),

Chroma & a Grocery Store of Food Bazaar format & a Benzer Store (Since the mall belongs to Benzer Group)

Center One has lot of brands, like Nike, Levis, Samsonite, Metro etc. Its food court is one of the best, with limited

varieties though, but mostly covering all delicacies except Pizza (Pizza Hut recently closed their shop, since they

moved to Inorbit with a restaurant)

However, for focused buyers, Center One is a Mecca, though limited shops i.e. in comparison to Inorbit, but good

collection of brands.

My favourite feature, which no other malls possess is the charging points for laptops, especially in evenings, its food

court is full of office people, perhaps also having meetings at times, making full use of laptop charging points. Gaming


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section isn’t so happening, since all it has got is outdated video games and ice hockey, the only benefit being here,

gaming is pretty cheap!

On a weekday it attract around 7000 footfalls, wherein on weekends, it is able to get around 12000 footfalls. (Based

on numbers from Security Guard)

Inorbit Vashi Inorbit, Vashi is the youngest and the largest mall of Navi Mumbai, from house of Raheja’s. Inorbit has been able to

get the best brands in its kitties, with around 7 Anchors like, Shoppers Stop, Hypercity, Westside, Landmark, Max,

Home Stop, Timezone, they have maximum footfalls per day, around 25000 on a weekday and 35000+ on weekends.

Its distinctive advantage is maximum brands under one roof, really big food court with too many options, however its

food court is most expensive. It is one of the best run malls in comparison to other two malls, staff is extremely

customer friendly, additionally, Inorbit is the only mall, that has created a Wifi zone, on each of its floors for visitors.

The store map is also extremely customer friendly, with clear directions to each section, they have also made

shopping guide, which lists the layout and other important sections and how to reach them.

The best website of all mall’s visited is that of Inorbit, highly organized, no cluttered etc.

The above feature definitely makes Inorbit the best mall of Navi Mumbai.


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Symptoms of Sickness

“Health is not valued till sickness comes”

Thomas Fuller (English Writer)

Success is never sticky; it’s a fair weather friend, those malls which were once success stories, have become

nightmares for the developers who run them!

However, we based out of observation and literature has found out few symptoms, that if reviewed timely, the mall

developer can avert the sickness.

1. Delays in rental payments

2. Mall facilities are not properly managed

3. Frequent landlord and tenant conflicts

4. Lower footfalls

5. Too much dependence on few tenants i.e. either Anchor or Independent

6. Poor Food Court

7. Inability to have Promo’s and In-house Events few malls like Center One say though being a small mall has

around 200+ Promos each year.

8. Complacency


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Precautions & Revival strategies7

“Tough times don’t last forever, tough people do”

Robert Sculler (Motivational Speaker & Author)

The economic slowdown has landed especially heavily on the old-line department stores that anchor many malls. As

their sales and profits have tanked, they've been pulling out of malls, much to the distress of the smaller merchants

who depend on the larger stores to feed them traffic. These trends are hitting the market capitalisations of most of

the largest owners of retail real estate. Of course, the slowdown was the catalyst, but competition from online

retailers has been the continued driver.

Cushman and Wakefield estimates only 50 per cent of the scheduled malls came up in the top eight cities of India in

2012. And only 250 new ones are being planned in the next two years, while there is space for at least 2,000 malls. A

clear marker for shopping centre distress.

Certain precautions as recommended by Devangshu Dutta, CEO of Third Insight a retail consulting firm, suggests

following, for new malls:

1. Fail-proof the business plan: Focus on the development of retail brands and not solely on quick returns on

investment. The primary responsibility should be that of catering to the consumer catchment and driving

footfalls for the retail occupants. The other requirements follow from this simple premise

2. Do a thorough re-checking of the catchment: Ask questions like can the catchment support the development

in terms of consumer footfall and spending? Is there a connect between the needs of the immediate

catchment and the occupants of the mall? Are there too many malls in the catchment area?

3. Offer good occupant mix: You cannot have mall occupants who have little relevance for the target consumer.

You cannot have the same type of retailer; this would cannibalise rather than provide a healthy mix

4. Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must;

ensure there is adequate parking space

5. Avoid under sizing: Most malls should be spread over 80,000 sq ft space or more. A small-sized is a straight

handicap because it will lack variety, which is de rigueur in the business, and you run the risk of getting

dwarfed by the next big mall that throws its hat into the ring

6. Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of

entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management.

7 Based on an article in Business Standard dated 26th August, 2013 titled “Is India’s Love Affair with Shopping Malls Over?”


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A brief note by Mr. Anuj Puri then Chairman & MD of Jones Lang LaSalle India, is as follows:

Why are malls fading away?

The initial euphoria of developing shopping centres has faded from the time retailers started insisting on

revenue share and minimum guarantee rather than the pure rent model. With the new scenario, retailers’

ability to pay is limited by their sales. As a result, they offer rentals that they can afford, and mall developer

often begin to evaluate other asset categories like offices and residential, since offices provide fixed rentals

and residential comes with the inbuilt advantage of up-front cash — neither of which are available in the

mall format.

Such a scenario can lead to a mall closing down as a retail establishment and reinventing itself into another

format.

In the case of older centres — many of them were created without adequate planning or preparation, were

not in the right location, or did not have the right size or tenant mix. Following are the lessons worth

learning:

1. Ensure that you have the right size, format and tenant mix for a particular catchment

2. Provide adequate parking

3. Do not strata sell spaces

4. Provide professional mall management

5. Malls must, over a period of time, evolve their tenant mix and offerings so that sales — and

therefore rentals — continue to grow. In the event that a catchment does not sustain the

development or there is too much completion, retailers will choose the dominant mall.

6. When a shopping centre is not the preferred one for retailers, value retailers come in – when even

value retailers cannot sustain, it is usually because of a combination of reasons. These could be:

bad location, bad design, lack of adequate parking, lack of professional mall management (often

the result of strata selling spaces) and a mall’s inability to find alternate usages of space.

Certain Revival Strategies are as follows:

1. Convert malls into commercial & retail partly – Though this approach has disadvantage of being expensive,

since it may require an alteration in the architecture of the mall. But never-the less works! Some malls in

Ghatkopar which are not doing so well, have used this approach and worked for them. In short to identify the

alternative uses of malls i.e. to conduct classes, exhibitions or to host social gatherings and ceremonies.

2. Move from fixed rentals to variable i.e. commission based rentals, store owners will also come to your rescue

to save your mall. (This is not being practiced, since the quantum of investments required in real estate, mall

developers are overoptimistic, and hence they lose out. One must always remember, some money is better

than no money)

3. Focus on the basics to revive a mall, such as keeping things clean. If a tile is broken, fix it immediately. (CEO of

PROPCARE)

4. Create a good Food Court, since food court has the ability to drive malls, the worst thing to have happened at

each of the failed malls is, the Food Courts weren’t so great.

5. Get rid of Bad Stores – As they say, “One rotten fruit, has the potential to rot the entire container”


28 | P a g e

6. Business model must be relooked, those giving higher rentals need not be given preference (CEO of DLF

Promenade)

7. Fix bad ambience, bad design, bad tenant mix and, finally, bad business models can prove costly for malls

8. Be innovative i.e. arrange as many promotions, events, as possible.

9. Do not run after brand’s as they may not run after you, create your own niche, though lot of people prefer

brands, but there are also lot of people, who prefer good products, if the products are good & unique, profits

will follow.

10. Don’t copy your neighbors, as consumers are smart enough to figure out, it was whose idea, instead be

creative and innovative in doing events, involve the local community i.e. people from the catchment area,

engage them.

11. Focus on service, even most successful malls have poor service quality i.e. either Security guards are too

arrogant, or cleaning staff in the food court are non-courteous i.e. picking up waste while you are eating,

train them well.

12. Increasingly malls are having free WIFI zones and laptop charging Points those must be part of the mall.

13. Cosmetic face-lifting: Change the makeover of the mall.

14. Redevelopment: If desires of costumers are not met, a mall may need redesign and redevelopment e.g.

adding a multiplex in the mall.

15. Repositioning of the mall: For those malls where earlier a mall was positioned for specific buyers, now that

positioning is changed and the mall now caters to a newer segment, however this is not much prevalent in

India, since in India, malls do not go for specific positioning.

16. De-malling: The term de-malling originated in the US shopping mall industry. Under the mostly vacant mall

interior is being de-malled - demolished and turned inside out, putting the pedestrian flow outside the

building on the street. The old boutique stores that once filled the mall will be replaced with big-box retailers.

Another 50,000 square feet of smaller retail shops and restaurants will be built along a tree-lined Main

Streetin front of the mall.


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Future of Shopping Malls

"The empires of the future are the empires of the mind."

Winston Churchill (British Prime Minister)

“Shopping malls have a bright future in India, atleast for the next decade or so. It is because India is still in the growth

phase of mall development, whereas the market for malls in countries like the USA is already declining” states Prof.

Harvindar Singh

However, it would be imprudent to think that the Indian shopping malls would continue to flourish in their natural

course. As they climb up along their life-cucle curve, there will be more competition. There would be other forces in

the environment as well, like customers and regulators. Internally, the mall development companies will have their

strengths and weaknesses. In the coming decades, the Indian shopping malls are likely to face the following

challenges:

1. Cloning of shopping malls: Copying one another rather than differentiating, this has already started

happening, for those malls which are opposite or close to each other.

2. Clustering of malls: Malls often come up in certain area’s e.g. near Vashi Railway Station, 3 malls have come

up in its proximity, however large the catchment area, there would be some hit, that each one would take,

differentiation is the key!

3. Consolidation of Industry: This is something that is couple of years away, currently consolidation is

happening in amongst multiplex companies e.g. Fame is acquired by Inox, Cinemax is acquired by PVR etc.

4. Demalling: This concept is yet to come in India, as those parts of the malls which are vacant or not

functioning, are turned inside out.

5. No-click cloud checkout: Apple’s iTunes, Amazon and PayPal built their business on simplifying checkout:

making sure that the act of buying does not get in the way of intent to buy. Although “social” and

“commerce” seem natural allies, Facebook has not been able to deliver on its promise to leverage its millions

of customers to shop cross-channel. The company launched Facebook Credits in 2009 and phased them out

last year.

6. Virtual Shopping: Since Tesco opened its virtual grocery store on the subway in Seoul, South Korea, two

years ago, scan-and-shop-on-the-go signage has become more common. While it is still a media gimmick, it

has the potential of becoming a way of luring the shopper online.

7. Integration of Brick & Click: Like something online, go to the store, try and if you like, pick it!


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Survey

“Consumers don’t know what they want”

Steve Jobs (Ex. CEO Apple & Visionary)

The sample size has been 15 visitors, below are the charts, explaining the demographics:

2

6

7

Respondants by mall Center

One

Raghuleela

Inorbit

4

5

5

1

Mode of Transport

Walking

Auto

Train


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Following are findings from the survey done on 15 people

Findings

Frequency of students visiting malls is high in the afternoon time

Food court is a very important section, choice & mix of it affects the footfalls directly, not location as

evident from the findings.

People recollect brands, i.e. recallibility is high, hence a mall should have good brands (however there

could be exceptions)

People really don’t know what they want…

Those who live nearby visit mall almost on a daily bais, however, those living far are less frequent.

Auto is a preferred mode of transport, only one mall i.e. Inorbit has an autostand, wherein other malls

don’t have, visitor would have to walk some distance to reach the auto stand.

Maximum visitors who are willing to spend in range of Rs. 0 – 500


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Conclusion

“A conclusion is simply the place where you got tired of thinking.”

Dan Chaon (American writer)

It is very crucial to differentiate for a mall to succeed, direct advertisements don’t seem to be working as much

as word of mouth, the key is in engaging the customers, if they have good experience in the mall, have good

time, they are highly likely to become loyal customers.

Challenge today is in terms of actual buyer, visitors you may be able to attract however, need of hour is how

many are actual buyers, majority of the people visit malls to visit food court, however, yet food courts get

lowest proportion of the space i.e. less than 5% of the total space. This is a paradox.

To revive malls one needs to use innovative means like right tenant mix, use a mix of commercial & retail, go for

proper zoning, over and above prefer variable rentals over fixed, as the times are changing.

Newer forms of financing would also have to be explored e.g. Commercial Mortgage Backed Securities, REIT’s

etc. must be preferred, since the mall business is no longer with hefty margins, margins are becoming razor thin,

hence newer means are required.


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Appendix

Case Study: Phoenix Marketcity, Kurla

The Phoenix Mills Ltd. began operations as a textile manufacturing company. Gradually the company entered the growing

real estate market in Mumbai with High Street Phoenix emerging as the most frequented destination in the city. Having set

a benchmark, the ideology and success story is being replicated as Market Cities across India.8

Eventually in year 2011, three of its four present Phoenix Marketcities were launched -in Mumbai, Pune and Bangalore.

Phoenix Marketcity Concept:

Designed as a ‘city within a city’, Phoenix Marketcities are architecturally path-breaking and iconic destination assets in the

heart of Tier-I cities, each project a mixed use development lead by retail component. ‘Phoenix Marketcity” designs are

path breaking in the Indian context and have evolved out of a vision for India & driven with an obsession with quality.

Typically the largest mall in the city with a footprint well above 2½ million sq. ft. of area and positioned in a prime location

with the city, each of the Phoenix Marketcity is designed and built on an unprecedented scale and quality. By including a

large and extensive mall with hypermarkets, high-end office spaces, hospitality and entertainment avenues, each’ Phoenix

Marketcity’ is an integrated mixed-use developments that are truly ‘one-stop-destination’ for consumers, travelers and

businesses alike.9

Phoenix Marketcity, Kurla

Phoenix Market City Mumbai, Kurla (PMC) is located in Mumbai's eastern suburb of Kurla with approximately 4.05 million

square foot (including 1.35 million square foot of parking) of developable area. Following is the detailed breakup of its

area10:

Total Land Area 1080000 sft

Total MALL + Other retail area Area 1660000 sft

Total Commercial Area 1000000 sft

Total Hotel Area 115000 sft

Entertainment Area(mall) 20000 sft

F & B Area(mall) 70000 sft

Multiplex(mall) 90000 sft

Health & Spa(Mall) 7000 sft

Parking(approx 2000 cars), Services and BOH Areas

(Mall+Hotel+Commercial) 2000 cars 1400000 sft

8 http://www.thephoenixmills.com/company-history.asp, accessed on 18th Oct, 2013. 9 http://www.phoenixmarketcity.in/about.aspx, accessed on 18th Oct, 2013 10http://thephoenixmills.com/retail-market-city-mumbai-snap-shots.asp accessed on 18th Oct, 2013


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Catchment Area:

Kurla is a city-centric location, with easy access to the airport. The catchment areas for this development are BKC, Andheri,

Santacruz, Bandra, Dadar, Wadala, Sion, Chembur, Ghatkopar and Saki Naka.

The below Map shows the Catchment area (Circle depicts 2 mile radius from Phoenix Market City):

Pull Strategy:

By hosting inhouse event’s (in October 2013)

1. Snow Dandiya @ Snow World – 4th Oct, 2013

2. Flashmobs for Breast Cancer Awareness – 19th Oct, 2013

3. Mahatma Gandhiji’s Birthday Celebration- 2nd Oct, 2013

4. Disney Sponsored bangle making competition for Kids – 19th Oct, 2013

5. Live band – 19th Oct, 2013

Apparently PMC is trying to stay in media through various awareness or engagement drives and in-house customer

engagement, through live bands and competitions.

As part of their digital marketing strategy, their website is very much updated, with forthcoming events and offers.

Strengths:

1. Houses more than 350 Indian and international brands

2. Shopping spot for central suburb’s population

3. Attracts lot of focused buyers (based on conversation with a mall tenant.)

4. Good mix of retail and commercial (offices)

Phoenix Market

City

Kohinoor


35 | P a g e

Weakness:

1. Surrounded by slum’s hence, almost 70 to 80% people visiting are low income groups, visiting it for either taking a

walk, window shopping, or perhap’s to experience Air Conditioner.11

2. Getting to Phoenix Market City from Kurla station involves an auto ride through bumpy, intestinal roads crammed

with slums, industrial workshops and decrepit factories lots.12

3. Long queues can be frustrating, since lot of localite’s are eager to get into the mall.

4. Signage’s are not clear, plus the map is too small and not so direction friendly.

Observations:

Only foreign and famous brands are doing extremely well, not so known brands struggle to survive as actual buyer’s turn

out to be extremely less, when compared with the total footfalls.

Visitors to PMC perform following activities:

11. Chat with friends

12. Watch movies (PVR)

13. Bird watching (Both boys & girls but proportion of boys is high)

14. Shopping

15. Food Court (McDonald’s & KFC are doing well, based on observation)

16. Reading Books

17. Coffee

18. Engaging Kids i.e. Games/Competitions/Snow World etc.

19. Beauty Treatment

Fixed versus Variable Rent

For anchor tenants like Reliance, Lifestyle, Pantaloons etc, they give PMC a profit share, instead of a fixed payment of rent,

however for individual outlets PMC, charges a fixed rent.

Recommendations:

1. For loyal customers, PMC could introduce a loyalty card i.e. allowing users to express check-in the mall, from any

of the entrance’s, skipping the long queues, those cards can be issued by any of the mall tenant’s to its customers,

after taking their basic details. (Mall tenant’s excluding those serving food & beverages)

2. PMC through above is building database of its buyer’s and with permission of customer’s, it can update them

regularly for new event’s i.e. either through an email or a text message.

3. Have better signage’s along with which brands are present where? E.g. Gloria Jean’s Coffee house is in the last

section; surely it is not to be seen, unless customer venture’s in that alley out of curiosity. Floorings could be used

by mall to guide people i.e. with Arrow’s etc. Also on entrance they could have a board showing that on Ground

floor which are brand’s i.e. Grouping them in categories say Food & Beverages, the way name plates are there in

apartments.

11 Based on conversation with a mall tenant. 12 http://mumbaiboss.com/2012/12/17/a-tale-of-two-suburbs/ accessed on 18th Oct, 2013.


36 | P a g e

4. Have product launches, play’s and more innovative shows like science exhibitions, where kids conduct scientific

experiments and they can experience science and learn at the same time.

5. Must have a kids care center, i.e. when parents are shopping child can play under supervision and be safe.

6. Food court is too small, hence expand it, since there is no ample place to sit.


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Photos


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Questionnaire

Customer Questionnaire:

1. What is the gender of respondent: Male / Female

2. Age of the respondent:

3. Annual family income: Less than Rs. 2 lacs/ Rs. 2-5 lacs / Rs. 5-10 lacs / Above Rs. 10 lacs

4. What is your profession: Student / Professional / Businessman / Housewife / Other (Specify)

5. Which area do you live in (incl. Sector):

6. How do you visit this mall: Car / Bike / Auto / Taxi / Bus / Train / Walking

7. What is the frequency of your visit’s to this mall? i.e. Daily, Weekly ____, Monthly____, Yearly_____

8. Why are you visiting this mall? Entertainment / Shopping / Food Court / Window Shopping / Chat with

Friends / Others (Specify) _________________

9. How much are you willing to spend in the mall? 0-500 / 501-1000 / 1001-1500 / 1501-2000 / 2001 &

Above

10. What is the most important feature of this mall in your opinion? Location / Ambience / Design / Deals /

Experience / Food Court / Brands / Others (Specify) _____________________

11. What do you like about this mall?

12. Which other mall do you prefer and why?

13. Any improvements or suggestions would you like to give for this mall?

14. Is there something that you would like to see in this mall, which is not there currently, something

unique, special etc

15. What do you dislike about this mall?

16. (Out coming customers) What do you recall about the mall?