Choosing Retail Locations for Shopping Malls in India
EXECUTIVE SUMMARY Background Store location and real estate markets are two most important areas of concern for a retailer by the virtue of the fact that real estate is the largest fixed investment for a retailer. For a retailer, being at the right place at the right time facilitates the development of sustainable competitive advantage. The decline in real estate prices in last 4-5 years has boosted the morale of the retailers. Because of this there has also been an increase in the supply of property for retail locations.
For every kind of a retailing format there is a series of tradeoffs to be evaluated, in terms of costs and value of site while selecting the location. The location of the mall has become one of the decisive aspects of the retailing business. The location of the shopping mall spells its success or failure. A mall in a remote area would suffer from weak sales, poor cash flow and increased marketing and advertising expenses. Whereas, put the mall in a good location and the business will thrive with all the expectations of the retailer surpassed
The aim of this paper is to discuss in detail various aspects of real estate in the retailing industry with a specific objective of discussing all the aspects that are taken into consideration while selecting a location for shopping malls in India. In order to prioritize the factors responsible for the selection of a location for a shopping mall, a small market survey will soon be carried out at Ahmedabad wherein the following shopping malls/retailers will be taken as the sample: 1. Fun Republic 2. Pantaloons 3.
Jade Blue 4. Bodyline 5. Twinkle Paper Outline The paper would start with a brief introduction to the retail industry in India and the role/importance of real estate in it. Following this would be a discussion on the state of Indian shopping malls. In the series of topics to be covered, next would be a discussion on three forms of retail locations, i. e. High Street, the Destination Location and Convenience Location. Next to it would be an overview of the retail property selection and property markets in India.
Following this would be a detailed discussion on the above-mentioned market research soon to be carried out at Ahmedabad for gauging the importance of major factors responsible for the selection of a location for a shopping mall. The findings of the survey would form the discussion on current site selection trends in the Indian retailing industry. The paper would end with a discussion on the future of the real estate requirements of the Indian retailing industry. REAL ESTATE IN THE INDIAN RETAILING INDUSTRY Retailing is all about being at the right place at the right time. Basically, it is all about three Ps – Property, Property and Property.
While deciding on a business proposition, real estate issues are the most crucial ones by the virtue of the fact that real estate is the largest fixed investment for a retailer. Location related decisions in retailing are said to be the most fundamental decisions because it facilitates getting the merchandise to the ultimate consumer at the right place, at the right time, in the right quantities, and at the right price. Choosing the location is the most important decision made by a retailer for a number of reasons. First of all, location is one of the key considerations for the customer.
For different requirements a customer’s location preferences may differ. Second, location decisions are strategically important for the retailer because they help in developing sustainable competitive advantage over the competitors that cannot be copied at any cost. Traditionally most of the retail locations were located on the High Streets. High Streets have been the favorites of retailers because they provide easy accessibility to the consumers. But, the exorbitant prices of properties on the High Streets and lack of availability large space have compelled retailers to opt for smaller properties.
As a result of consumers demand for better and more quality and shopping ambience, retailers have started moving to the outskirts of cities in order to provide the entire range of products in large retail formats. This trend is moving at a considerable pace with most new malls – established or in the pipeline – being located away from the High Streets. In India, the real estate market has, for the first time, witnessed a sustained downward trend in the prices of property in major Indian cities, in past seven years. There has been a decline by 40 per cent to 50 per cent during this period.
This has led to a dearth of prime properties at prices that please. Demand of property from retailers has been one bright spark in the property markets in this period of softening real estate markets. In the following paper an attempt has been made to study and highlight the current property trends in the Indian retailing industry, including highlighting the key problem areas and making specific recommendations to potential retailers, investors and real estate agencies. CHOICES AVAILABLE TO THE RETAILER IN INDIA Different retailing formats have different requirements of the kinds of locations they look for.
While choosing the site the retailer is required to evaluate a number of trade-offs in terms of the costs and value of the site in question. More importantly, the convenience-for-the-customer is the most important factor for the retailer In terms of the location, a retailer has three basic options at his disposal, namely: 1. High Streets 2. Destination Locations 3. Convenience Locations Besides these, the other forms of retail locations include carts, kiosks, RMUs (Retail Merchandising Units) and tall wall units etc. The following discussion would take into account all the three types of locations in the Indian context.
High Streets Initially, the retailing outlets in India were mostly concentrated in the busiest parts of the cities. Known as the High Streets or Downtown, these locations are the hub of city’s majority of commercial activities and witness heavy traffic flow. In the Indian context, most outlets are located on the high streets. The earlier high streets now mainly comprise of offices and centers of commercial activities. Residential areas have a miniscule presence on the high streets. Mumbai’s Bandra has come up to be as the hottest high street in the metro.
The biggest advantage of high streets is the easy access that they provide to the shopper. Destination Location Better known as the One-Stop Shop, a Destination Location is a store that provides the entire gamut of merchandise to the shoppers. Shopping malls are the best examples of a destination location. This concept is very common in India and has existed for a long time now. But, the way its developers and the concerned agencies have perceived it has been entirely wrong. In India, selling the property has been the primary aim of the real estate developers and the government bodies concerned with it.
Basic facilities like parking, security and maintenance etc. were overlooked in the process. But, the things have been changing in the recent times. With the organized retailing coming up as a booming industry, the attitude of the developers, government bodies and corporates, towards shopping centers, has witnessed a drastic change. With retailing industry taking a proper shape in India, a number of projects of opening up modern malls are either on the verge of completion or are in the pipeline. Best examples of modern Indian malls are the Crossroads in Mumbai, Ansal’s Plaza in New Delhi and Fun Republic in Ahmedabad.
Convenience Location Internationally referred to as the Mom-N-Pop stores, these are typical neighborhood stores. Catering to the daily needs of the customers, they are generally located in residential areas. In India, the Kirana shops are the best example of convenience locations. METHODOLOGY Problem Definition The purpose of this paper is to study and highlight the current property trends in the Indian retailing industry and making specific recommendations to potential retailers, investors and real estate agencies.
Research Questions & Hypotheses The problem definition given above was further fragmented in the form of research questions in order to develop a clear approach. Hypotheses were formed based on the research questions developed. RQ#1: Do retailers, besides other aspects, take the customers perspective into account while selecting a retail location? HYPOTHSIS: Retailers take customers perspective into account while opting for a retail location. RQ#2: Do the current trends in the supply of real estate properties to the Indian retailing industry decide its fortune?
HYPOTHSIS: The current trends in the supply of real estate properties to the retailing industry work as decisive factors in the success of the business. RQ#3: Do customers take the location related aspects into consideration while choosing their shopping locations? HYPOTHSIS: Customers choose their shopping locations because of their easy accessibility. RQ#4: Does the brand image of the retailer play a substantial role in attracting the target customers to a particular location, especially to distant locations? HYPOTHSIS: Brand image plays a major role in attracting customers to a particular retail location.
Specific Research Objectives In the light of the research questions framed and the hypotheses developed, following were some of the specific objectives kept in mind while carrying out the study and compiling the paper: 1. To prioritize various factors associated with real estate decisions in choosing a location for shopping malls in the Indian context. 2. To study the relevance of the shopper’s perspective in the decision making process of choosing a retail property, by a retailer. 3. To study the role and importance of a retailer’s brand image in attracting customers to a particular location.
Type Of Research Both Descriptive and exploratory research was used in compiling this study. While exploratory research helped in developing the hypotheses through the analysis of secondary data, descriptive research was used in order to study the current property trends in the Indian retailing industry. Type Of Data For collecting Primary Data questionnaires were administered on the samples in order to gauge their views on real estate issues in the industry. Whereas, for Secondary Data use of various publications, journals, articles and the Internet was made. Sampling Design I.
Population: The target population for this market survey included all the managers from the retailing industry and the real estate agents living in Ahmedabad. II. Sampling Frame: The sampling frame for this study was the list of the store managers/operations managers of the retailing outlets covered during the survey. III. Sample Size: As the population was limited in this case, a small sample of five retailers in Ahmedabad was taken. IV. Sampling Technique: For the purpose of this survey, Non-probability sampling technique of Quota Sampling was employed as the sample size was small and fixed and the sampling unit was clearly defined.
Research Method Employed Survey Research was employed to carry out this survey, wherein managers (samples) were interviewed personally, on the phone, over the Internet and through printed questionnaires. Secondary Data was collected by making use of various magazines, journals and web sites. CURRENT TRENDS (FACTS & FINDINGS) Be it any retail organization, the conventional technique of choosing a retail location remains the same. There bound to exist certain differences in terms of the level of integration with the site selection process.
Site decisions have to very quick and they cannot wait for any sort of study or tying up with a merchandise plan, as any delay in execution could mean loosing out a golden opportunity. Following is a discussion on the current and emerging trends in the attitudes of retailers towards site selection for shopping malls, based on a small survey carried out in Ahmedabad. Shopping Malls: The Buzzword Shopping malls are here to stay. Retailers have now realized the importance of One-Stop shopping and entertainment facilities for the consumers.
Almost all the major retail chains, big business houses and corporates are setting up malls of international standards in all major Indian cities. Potential Demand From The Region And Competition Potential demand, from the area under consideration, is a very important factor that is taken into consideration while choosing a location. This is done by making use of the data available on demographics and the demand for various products from different sections of the society within the given region. A number of Indian research agencies like NCAER, ORG-MARG and IMRB supply such data to the retailers.
The retailers also consider the competition in the chosen region in order to ascertain their break-even and ROI. Accessibility, Terms Of Occupancy and Legal Considerations Accessibility, terms of occupancy and legal considerations are three key factors taken into account while choosing a site for a mall. The location of the mall should be easily accessible by the customer. The location of the shopping mall spells its success or failure. A mall in a remote area would suffer from weak sales, poor cash flow and increased marketing and advertising expenses.
Whereas, put the mall in a good location and the business will thrive with all the expectations of the retailer surpassed. Terms of occupancy play a major role in deciding upon a particular property. Whether the property is to be leased on a long-term or a short-term or is it to be purchased, are the fundamental decisions that the retailer has to take right at the first thought of opening up a mall. Legal considerations are also highly important in choosing a location as rules and regulations differ from one place to another.
A retailer may face stringent legal formalities if he wishes to open a mall at the center of the city, whereas the same may be lenient for the outskirts of the city. Use Of Demographic Classification While choosing a location for a shopping mall in India, the retailers classify cities and regions on the basis of Socio-Economic Classes (SECs). They also classify the prospective area in terms of urban population, income level of households, bank deposits in the region, sales of consumer goods and penetration of credit cards. Decline In Real Estate Prices
A sharp decline in the real estate prices in major Indian cities in last 7 years has acted as a stimulant in prompting the retailers to come up with new properties. This has come as a blessing in disguise for the retailers as they can now acquire prime properties at highly discounted prices that were never before. Emergence Of Family Entertainment Centers (FECs) The One-Stop shopping and entertainment concept has given birth to Family Entertainment Centers (FECs). All the upcoming malls are merging shopping with entertainment by adding multiplexes and game parlours to shopping malls.
The purpose is to make the family visit the mall and offer them all that they need ranging from entertainment, food, culture and shopping at one place only. Focus On Providing Add On Facilities Indian retailers, now-a-days, are trying to offer as much of value and experience to their customers as they can. To facilitate this they are pumping money in acquiring larger spaces so that they can make shopping a much better experience by providing facilities like parking space and air-conditioning etc. Long-Term Leasing
Exorbitant prices of prime properties have made retailers discover leasing as a much cost effective option. Still there is some resistance faced by the retailers with regard to leasing. But, with the entry of established retailing chains, corporate houses and international chains, the property owners are now becoming optimistic towards leasing of properties to retailers. Retailers have started considering leasing as the norm for the future. Suburban Shift The key trends in major Indian cities show an increasing population shift to the suburbs.
The market in the suburbs has a high potential for the development of shopping malls that offer shopping-cum-entertainment facilities to their customers. The retailers have already identified this and they are on the move to grab their share. More and more retailers are trying to establish their malls in the suburbs. THE ROAD AHEAD… Also known as the Sunrise Industry, the retailing industry in India holds a bright future in the light of the benefits that it can get from the current and emerging trends in the Indian property markets.
Following is a discussion on what future does the industry holds if it taps the opportunities offered to it by the developments in the Indian property markets. Emergence Of One-Stop Shopping Avenues Retailers are now gradually realizing the need and importance of One-Stop shopping malls for the shopper where, if not all, most of his needs could be fulfilled. This has led to opening up of One-Stop malls, known as the Family Entertainment Centres (FECs). Consumers can now have much better experience in shopping and entertainment. Essel Group’s, Fun Republic at Ahmedabad is one of the best examples of a One-Stop shopping mall.
Expected Large Supply Of New Retail Space With an ever-increasing entry of corporates and big business houses into the retailing industry and emergence of new malls that meet international standards, large supply of new retail space is expected. This would definitely act as a stimulator in prompting existing retailers and prospective retailers to come up with new properties. Plummeting Real Estate Prices As discussed earlier, plummeting real estate prices have come as a blessing in disguise for the retailers as they can now acquire prime properties at ighly discounted prices that were never before. In the last 6-7 years, prices of properties in almost all the major Indian cities have declined by 40 per cent to 50 per cent. This has also stimulated the supply in order to meet the increasing demand for properties at prices that please. Long-Term Leasing Property owners have now become optimistic about the long-term leasing of properties for retailing since the corporates; big business houses and international chains have started entering the Indian retailing industry.
For example, all the malls in Gurgaon are being leased by the retailers from DLF Properties. Opportunity For Global Players With relaxations in the taxes and restrictions applicable to foreign investors in real estate and operations in India and the depreciation of the Indian currency against the US Dollar, global players now find it lucrative to enter Indian retailing market by acquiring prime properties at highly discounted prices. Marks & Spencer’s was the first international chain to come up with a store in India. BIBLIOGRAPHY Levy, Michael; and A. Weitz, Barton.
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