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Are investors ready to get malled?

Mall Mania, Mall Madness – alliterate as you will – it’s a phenomenon that is certainly taking over the newsprint, airtime and, quite possibly, your neighbourhood.

A study published in 2005 estimated that by 2007 over 360 shopping centres would be operational around the country, with approximately 90 million square feet. A meagre increase of 0.08 sq. ft. in per capita shopping space doesn’t seem like much in a country of a billion-plus people.

But most of it is concentrated around the big cities – Delhi and Mumbai account for more than half of the total space projected, with the other metros and mini-metros such as Bangalore, Pune, Hyderabad etc. taking the total up to 90% of the space.

One may argue that money (real estate development) is only following the money (consumers) – after all, there are more consumers and higher incomes in these major urban centres.

But why would mall developers expect Delhi’s consumers to suddenly switch en-masse to shopping in Gurgaon, where 6 malls are already active in a short distance of about a kilometre, 3-4 more under hectic construction in the same area and several more scattered around that suburb? Or why do Mumbai’s developers expect people to drive several kilometres from the suburbs on a regular basis to the centre of town to grace only their shopping centre? It is only such expectations that can explain the gold rush mentality that is overpopulating certain areas with shopping centres and malls.

While per-capita availability of A-grade shopping real estate looks really low, in certain areas we foresaw oversupply, with developers thinking in terms of “property” rather than as retail space managers.

Most shopping centre developers have carried out only cursory studies on the customer catchments that their tenants will be expected to live-off. As a result, conversion of footfall into sales is low for the tenants, except for food-courts, which are benefiting from the window-shoppers rounding off a day or an evening of roaming the malls with a meal. There is a lack of differentiation in product and service offer between the shopping centres and, with nothing distinctive on offer, repeat visits and – more importantly – repeat purchases are a challenge.

Developers in smaller towns seem to be following the same model, scaling up space or scaling it down based on the capital cost vs. expected capital gain and tenancy income. They are pitching for much the same brands as tenants as the developers in the bigger cities.

There is competition for customer traffic between the shopping centres and large stores (such as Mumbai’s newly opened Hypercity, across the street from InOrbit Mall, both developed by the Rahejas), between the shopping centres and the traditional high street, and between large format stores and speciality malls.

For the most part shopping centre development in India in the recent years has been seen as an aspiration to be fulfilled – hence, the most important factors have been the size of the shopping centre, quality of fixtures, marquee tenants who can provide the glamour or the legitimacy). The focus has been more on the “positioning”.

The business will begin maturing and will begin taking developmental leaps forward when centres are seen as commercial infrastructure to be planned with the end-consumer in mind, and to be serviced over a certain lifetime.

Until then, we can look forward to announcements of many hundreds of shopping centres, the launch of a few hundred, and the conversion of many of those into uses other than as shopping centres within a few months or years of their launch. And for investors also it might be a game of Roulette rather than Patience.

McKINSEY TO SHAPE BIRLAS’ RETAIL PLANS

MUMBAI: The Rs 39,000-crore Aditya Birla Group has appointed global consulting firm, McKinsey & Co to chalk out the company’s retail rollout plans. Sources suggest that McKinsey has been given the responsibility to strategise on the entry strategy for the group. McKinsey is to study the opportunities in the sector and advise on plans to launch a chain of fashion-led outlets and hypermarkets.

The Aditya Birla Group recently became the third major business house to announce its foray into organised retail. Mukesh Ambani’s RIL and Sunil Mittal’s Bharti Enterprises have also joined the bandwagon to enter this lucrative and fast-growing sector.

Analysts suggest that new and existing Indian companies are planning to scale up at a fast pace before the imminent entry of foreign players is allowed in the sector.

McKinsey has already built a strong retail practice and is also working with Future Group (formerly Pantaloon Group), while KSA Technopak is working closely with Reliance. Other consultants like, AT Kearney, Ernst & Young, PwC and Third Eyesight are also said to be working with new and incumbent players.

Aditya Birla Group has also formed a senior management team that is exploring these opportunities. Sources suggest that the group plans to invest more than $1bn in the sector and Group CFO, Sumant Sinha has been given the responsibility to raise funds for this foray.

The company is also actively hiring people from sectors like retail and FMCG. Apart from recruiting some key people from ITC and Godrej, the company is said to have roped in Shoppers Stop’s head of HR, Vijay Kashyap and head of operations, Sanjay Badhe. The company spokesperson however declined to comment on anything related to its retail plans.

Sources said that the group’s retail plans will be led through the company’s apparels and textile subsidiary, Madura Garments. The Rs 620-crore Madura Garments owns and markets Louis Philippe, Van Heusen, Allen Solly and Peter England through company franchisees and third-party outlets.

It also runs an exclusive chain of stores selling products of German fashion major Esprit. It is expected that these operations will be further scaled up in the first phase. Madura Garments also supplies to international brands like Marks & Spencer’s, Tommy Hilfiger, Polo and Ralph Lauren.

It has recently passed a shareholder resolution to transfer this export contract business out of the company.

“The group is already present in telecom, IT and IteS and the entry into organised retail is part of the group’s strategy to further expand into sunrise sectors. Historically, the group business portfolio has been loaded in favour of the commodities businesses,” said an industry analyst.

By Shuchi Vyas, The Economic Times – August 29, 2006

Are The Investors Ready to Get Malled?

Sahara Mall

Mall Mania, Mall Madness – alliterate as you will – it’s a phenomenon that is certainly taking over the newsprint, airtime and, quite possibly, your neighbourhood.

A study published in 2005 estimated that by 2007 over 360 shopping centres would be operational around the country, with approximately 90 million square feet. A meagre increase of 0.08 sq. ft. in per capita shopping space doesn’t seem like much in a country of a billion-plus people.

But most of it is concentrated around the big cities – Delhi and Mumbai account for more than half of the total space projected, with the other metros and mini-metros such as Bangalore, Pune, Hyderabad etc. taking the total up to 90% of the space.

One may argue that money (real estate development) is only following the money (consumers) – after all, there are more consumers and higher incomes in these major urban centres.

But why would mall developers expect Delhi’s consumers to suddenly switch en-masse to shopping in Gurgaon, where 6 malls are already active in a short distance of about a kilometre, 3-4 more under hectic construction in the same area and several more scattered around that suburb? Or why do Mumbai’s developers expect people to drive several kilometres from the suburbs on a regular basis to the centre of town to grace only their shopping centre? It is only such expectations that can explain the gold rush mentality that is overpopulating certain areas with shopping centres and malls.

While per-capita availability of A-grade shopping real estate looks really low, in certain areas we foresaw oversupply, with developers thinking in terms of “property” rather than as retail space managers.

Most shopping centre developers have carried out only cursory studies on the customer catchments that their tenants will be expected to live-off. As a result, conversion of footfall into sales is low for the tenants, except for food-courts, which are benefiting from the window-shoppers rounding off a day or an evening of roaming the malls with a meal. There is a lack of differentiation in product and service offer between the shopping centres and, with nothing distinctive on offer, repeat visits and – more importantly – repeat purchases are a challenge.

Developers in smaller towns seem to be following the same model, scaling up space or scaling it down based on the capital cost vs. expected capital gain and tenancy income. They are pitching for much the same brands as tenants as the developers in the bigger cities.

There is competition for customer traffic between the shopping centres and large stores (such as Mumbai’s newly opened Hypercity, across the street from InOrbit Mall, both developed by the Rahejas), between the shopping centres and the traditional high street, and between large format stores and speciality malls.

For the most part shopping centre development in India in the recent years has been seen as an aspiration to be fulfilled – hence, the most important factors have been the size of the shopping centre, quality of fixtures, marquee tenants who can provide the glamour or the legitimacy). The focus has been more on the “positioning”.

The business will begin maturing and will begin taking developmental leaps forward when centres are seen as commercial infrastructure to be planned with the end-consumer in mind, and to be serviced over a certain lifetime.

Until then, we can look forward to announcements of many hundreds of shopping centres, the launch of a few hundred, and the conversion of many of those into uses other than as shopping centres within a few months or years of their launch. And for investors also it might be a game of Roulette rather than Patience.