India Experiencing Rapid Economic Growth

14,000 12,000
GDP (US$ bn)

13,245 10.7%

12.00% 10.00%

10,000 8,000 6,000

8.7% 8.00% 6.7% 6.00% 4,367 4.00% 2.0% 2.00% 0.00% China India Russia Brazil UK Japan US

4,000 2,630 2,000 1,161 979

3.7%

2.8% 2,374

2.3%

1,068

8.7% growth rate makes India the second fastest growing economy in the world

Real Growth Rate

High Private Consumption in 2007 - $ 410bn

GDP US$ 1,161 Billion Food Apparel Beverages Footwear Consumer durables Appliances Transport Retail US$ 410 Billion (58%) Non Retail US$ 297 Billion (42%) Communication Recreation Cultural Services Urban (5,100 towns) US$ 186 Billion (45.5%)
Modern retail US$ 15 billion 8% of urban retail spends

Private Consumption US$ 707 Billion (61%)

Public Spending and Capital Formation US$ 454 Billion (39%)

Stationery
Kitchen utensils Furniture Furnishings Sports goods Health & Beauty Personal Care Jewellery Timing Rural (6,27,000 villages) US$ 224 Billion (54.5%)
Modern retail Negligible

Education Rent Utilities Other Services

(All figures at Current Prices)

Source: Economic Survey of India and Technopak Analysis Conversion rate: 1 US$ = 40.4 Rs.

Organized Retail Rapidly Growing

1000 800 600 410 400 200 0 15 2008

Source: Technopak Analysis

Total Retail Organized Retail 568 615 860

445

483

524

215 22 2009 33 2010 50 2011 74 2012 110 2013 2018

Organized Retail share to reach 25% share by 2018

Challenges faced by Retailers

Retail Space despite availability still is a challenge

Quality of space Rental costs Occupancy costs Cross subsidization Management of malls Over-malling v/s no malls

Some issues for Developers

Consider Shopping malls as Retail Business Plan your mall meticulously

Acute need to Differentiate

Provide adequate infrastructure Bring in professional mall management

Have long term perspective and interest in developing, owning and operating the mall

Consider Shopping malls as Retail Business

Mall Developer/Management

Tenants
Anchor Tenant Specialty Retailers Multiplex Food Court Entertainment

End Consumers
Demographic Segmentation Physiographic Segmentation

Like in any other industry, understanding, partnering & servicing customers on a continued basis is key to success for developers

Plan your mall meticulously

Catchment Profiling

Retail Market Assessment

Competition Scanning

Location / Site Analysis

Concept Development

Financial Feasibility

Planning & Design

Leasing & Operations

Let market forces determine the size, concept, positioning and tenant mix in the mall

Differentiate your mall

Like any other consumer facing business, clear positioning and
differentiated value proposition is critical for success of a mall and its tenants

Various ways to differentiate: Right Sizing Positioning - Luxury, Premium, Mass, Discount etc. Themes Structure - Enclosed, Open or Hybrid Tenants - unique / new / local successful formats - diversity

Provide adequate Infrastructure

Concentrate on Design and Architecture

Golden rule is to ensure consumer movement patterns that lead the consumer into the greatest number of stores Adequate loading & unloading bays for tenants Malls have great potential as media opportunity for marketers A section of the mall could be turned into an Exhibition Centre which houses new tenants on a temporary basis, thus increasing average rentals for the developers as well as offering newness to consumers

Provide adequate Parking facilities:

In India the accepted standard is to have one parking slot for every 300 400 square feet of retail space as opposed to international standards of a parking slot for every 200 square feet Approach roads need to be wide enough potential for Public Private partnerships

Bring Professional Mall Management

Hygiene Factors:
Public facilities such as bank ATMs, travel desks, foreign exchange counters
and other such services Cleanliness of restrooms Security

However the role of mall management could be much more than

maintenance:
Marketing & Promotion of the mall in collaboration with tenants Monitoring tenants performance and bringing in new tenants by replacing poor
performing ones Provide business support to smaller tenants recruitment, training & benchmarking services

Mall Pricing to move more towards Revenue Share

SALE MODEL Shops sold to retailers/ investors
Short term investment Lack of discipline, maintenance & control over trade and tenant mix, high vacancy rates

REVENUE SHARE MODEL

Base rent or %age of sales, whichever is higher Business partnerships between retailer & developer Incentive to build a better product Result oriented events and promotions Better equipped to face competition Same risk profile but greatest returns Occupier Outflow : Monthly Minimum Guarantee Or a fixed % of sales, which ever is higher

LEASE/ LICENSE MODEL

Revenue from Rents Lesser Risks Medium term investment (lowrisk/medium returns) Some Control over Mix & therefore the shopper Some Ability/ Flexibility & Incentive to improve

Revenue share Model:

A common practice in developed markets Few early adopters in India As developers have more experience and learning on the business of their tenants, this practice would catch up

Some other Trends.

Malls as Marketing media:

The most important advantage being captive consumers with no
distraction of traditional media while shopping at the mall

Malls as community centers:

An offering through creating a soul for the place and exploit the
opportunity to accomplish several errands in one place While people come to shop, they also come to gather at a place that offers greater meaning and experience As more and more shopping malls start operating, the place will cease as a shopping place alone, rather would take on the role of a third place a public gathering spot This concept would be more relevant in smaller cities

Future is full of potential

Both Retail and Real estate industries are in a nascent stage currently
with formats and business practices are still evolving, hence standards are yet to evolve

Whilst the Indian real estate market is still largely fragmented, lacks
transparency and liquidity as compared to more mature real estate markets, the market structure is changing fast

With increasing consolidation and global players with skills and long
term perspectives participating in the market, we will see shopping centers which can be benchmarked against the very best in the world

There are a few encouraging developments of late which are already

setting benchmarks indicating potential for accelerated progress

Waiting to be captured
In the short term:
Some conflicts would continue between the two stakeholders
(retailers and developers) Some large retailers will try to call the bluff by entering or acquiring development business Smaller format specialty retailers would seriously look into shop-inshops as a more viable format

In the medium term:

There would be a mindset change both stakeholders would learn
and appreciate each others business models There would be grater collaboration between them on all fronts planning, pricing and management of developments, to create world-class shopping destinations

One word answer is Collaboration!