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The Rush For Space Begins

Businessworld, April 30, 2011

Vishal Krishna

Remember those malls and shopping centres with those “space available” signs? Well, the signs have disappeared. In the first quarter of this year, Reliance Retail leased 78,000 sq. ft for a hypermarket in Kurla in Mumbai; Pantaloons India has just leased 20,000 sq. ft in Bangalore. It is not just the available space that’s disappearing: rentals are going up, too.

“Yes, last year there were places available and rentals were low, but the base effect seems to have caught up,” says Devangshu Dutta, CEO of Third Eyesight in Delhi. After a slow 2009, better salaries and wages have brought shoppers back to the malls; and developers are moving quickly to add retail space.

But not quickly enough, it seems. In cities such as Mumbai, Bangalore and Delhi, rentals are rising due to shortage of available space and the demand for location. That could stretch the economics of retail a little bit, but store owners seem confident that the customers will continue the shopping spree. Rents for anchor stores — which take up a significant chunk in a single mall (Pantaloon, for instance) — would be stable, since they bring large footfalls. The smaller stores may find it a tad difficult, but expect booming sales to take care of that.

According to real estate consultancy Jones Lang LaSalle, rental values in south Mumbai grew marginally during the quarter in line with rising interest in prime retail properties; retail rentals averaged Rs 225 a sq. ft per month, and in north Mumbai, they were Rs 135 a sq. ft.

Compare that to the rentals in the suburbs where rentals are Rs 85 a sq. ft. The prime south and prime north micro-markets recorded average rents of Rs 225 and Rs 135 per sq. ft per month, respectively. Mumbai is expected to witness 4.8 million sq. ft of new mall space being added by end-2011 and 6.9 million sq. ft by 2013: think expansions at Infinity Mall at Malad, Viva City Mall at Thane, R-City Mall Phase II at Ghatkopar, and Magnet Mall at Bhandup.

In Delhi, retailers have restricted their expansion, and rents haven’t stopped climbing. Even after six malls were completed in Delhi’s suburbs, rent per sq. ft went up by about 7 per cent. In prime locations, rent rose 25 per cent.

“With limited future supply in the prime micro-markets, rents are expected to rise in the near term,” says Abhishek Kiran Gupta, head — research & REIS, Jones Lang LaSalle India. “Suburban markets will also see rental values appreciate over the coming quarters, though perhaps limited to certain quality assets.”

How well should stores do? For 1,000 sq. ft, rent, wages and utilities can’t exceed 20 per cent of total charges to break even. Average sales for a store of this size should be Rs 1,500-2,000 per sq. ft. “Malls sign in anchors at good rates and then the anchors are the pitch for the mall owners to bring in other retailers at higher rentals,” says Sanjay Badhe, an independent retail consultant and former CEO of Trexa, the mall management company of Tata Group’s retail arm Trent.

Retailers are looking beyond the metros to Tier-II towns such as Coimbatore, Indore, Siliguri and Raipur. “Consumption is rising in smaller cities,” says Govind Shrikhande, managing director of Shoppers Stop in Mumbai. And guess what? Rents in those cities are not so high.

(This story was published in Businessworld Issue Dated 09-05-2011)

Western chains flock to India as fast-food craving grows

REUTERS
Mumbai April 28, 2011
Nandita Bose and Neha Singh

McDonald’s made its name serving up hamburgers fast, but it took the world’s biggest hamburger chain four years to enter India — without its signature dish.

A number of fast-food and cafe chains — Starbucks and Dunkin Donuts to name just two — that are flocking to India would do well to take away lessons learned by established rivals such as McDonald’s in navigating a market beset with obstacles.

Industry experts say patience and flexibility in a country where dietary traditions rule may well define successful global restaurant brands in India.

The stakes are high, with India’s quick-service restaurant market worth $13 billion and growing roughly 25-30 percent a year, according to Euromonitor and market research firm RNCOS. India’s entire food-service market is estimated at $64 billion.

Adapting menus to cater to local dietary needs may be a winning strategy, analysts say. This is not as easy as it seems – Burger King had looked to enter India in 2007-2008, but hit roadblocks when trying to tweak its menu to suit local tastes, according to analysts and several local media reports.

"If you’re a global food retailer, you need to have an offering for the Indian consumer … you cannot push global products," says Pinakiranjan Mishra, partner and national leader for consumer products and retail at Ernst & Young in Mumbai.

"For a select group of consumers you can, but not if you are looking at building a mass presence."

India is the first country where McDonald’s decided not to offer beef or pork items. Instead it sells chicken and vegetarian variants to cater to a significant portion of the population that is vegetarian.

Some of its newer competitors such as Denny’s Corp, which plans to enter India by mid-2012, are following suit.

"We have had to strip beef and pork out of our menu. We have had to customise it completely," said William Edwards, chief executive of EGS, which is handling the international expansion of Denny’s, well known for its all-day menu featuring eggs, sausages and pancakes.

YOUNG AND TRENDY

Analysts estimate that China’s fast-food market is nearly six times as big as India’s and foreign chains are targeting both markets to take advantage of rapidly growing economies.

Driving the growth in India’s fast-food sector is a generation of young and increasingly wealthy consumers with an appetite for western tastes.

More than 60 percent of India’s population, or 700 million people, are under the age of 30 — a prime target for fast-food.

"It’s a lot easier to grab a burger at McDonald’s than order a vada sambar (savoury doughnut in lentil soup) at an Udipi which is time consuming," said Bidisha Mukerjea, a 24-year-old content writer from Mumbai, referring to Indian local fast-food restaurants. "Udipi food is cheaper but it’s about foreign brand attraction, it’s just fancy to eat at these new places."

It’s no surprise that a host of foreign chains have their sights on India. Starbucks is expected to open its first India store in July or August. Others wanting a foothold include Applebee’s, Pollo Tropical, a unit of Carrols Restaurant Group (TAST.O), and hamburger chain Johnny Rockets.

Existing foreign brands know the competition is heating up and have expansion plans of their own.

Yum! Brands, which owns the KFC, Taco Bell and Pizza Hut chains, plans to invest $100-$120 million in India this fiscal year. It runs about 108 KFC outlets in India, compared with 2,800 KFC outlets in China.

"The market here is competitive. There is competition among the existing foreign chains and the ones who will clearly benefit are the ones who have scale," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.

"This inflow of western chains does not pose a threat to local players such as Udipis because the market is big enough for both sides to grow."

India caps foreign ownership in single brand retail at 51 percent, forcing all foreign chains to seek partnerships to do business in Asia’s third-largest economy.

Denny’s plans to operate through regional licenses in India and Starbucks has signed a pact with Tata Coffee Ltd (TACO.NS). Dunkin Donuts said in February it planned to launch its brand in India, partnering with fast-food operator Jubilant Foodworks Ltd that runs the Dominos Pizza chain in India.

VALUE MEALS?

Analysts say that keeping menus affordable is crucial in a country where incomes remain low by global standards, and lunch from a street stall can cost less than 50 U.S. cents.

By comparison, a McVeggie meal at McDonald’s, which entered India in 1996, costs 94 rupees ($2.1) in Mumbai.

Low unit consumption and high attrition makes targeted turnover that much more difficult to achieve.

"When you train someone to make pizza or coffee, the skills needed are far more than what is needed to sell clothes at a retail shop," said Third Eyesight’s Dutta. "So it is much more difficult for these companies to find people who have the necessary skills."

Foreign chains face other problems such as underdeveloped real estate for the retail market and food inflation, which has been in double digits for the much of the past year.

"Milk leading to cheese is our key ingredient and milk prices are shooting up," said Ajay Kaul, chief executive of Jubilant Foodworks. "Maintaining margins in an inflationary environment is definitely a concern."

Amit Jatia, vice-chairman for McDonald India’s west and south regions says that supply chains are an issue, although they are better then they were 15 years ago.

"India still lacks an effective cold chain network and storage systems are not very efficient," he said.

Roughly 30 percent of produce in India goes to waste due to transportation, warehousing and cold storage bottlenecks.

Still, the vast potential from entering India’s fast-food sector outweigh the risks, analysts say.

"As a consumer market, India has everything going for itself. From strong GDP growth to rising income, increasing urbanisation etc.," Ernst and Young’s’ Mishra said.

"Problems such as inflation and supply chain bottlenecks will be a deterrent, but only in the short term."

($1 = 44.275 Indian Rupees)

(Editing by Tony Munroe and Dhara Ranasinghe)

(This article originally appeared on Reuters on April 28, 2011)

Spanish retail brand Zara favourite among Indian shoppers

Sarah Jacob & Pramugdha Mamgain, The Economic Times

Bangalore/New Delhi, April 27, 2011

The world’s largest clothing retailer Inditex entered India with its flagship brand Zara on a Friday in May last year and that day the South Delhi outlet recorded the largest single-day sale by an international retailer in the country.

Less than a year later, Zara fever has gripped several retailers who are chasing shop space next to the Spanish brand’s outlets to leverage on its ability to pull shoppers in herds.

"Zara has nailed it," Natasha Chopra, who heads personal shopping services at Select Citywalk mall in South Delhi where Zara opened its first shop, said. "It’s a hot favourite among shoppers because it offers trendy styles between 1,500-2,300."

Zara’s ability to chase fashion trends around the world, move a design from a drawing book to shop floor in two weeks and launch new lines sometimes twice a week has helped it ensure steady flow of consumers who now embrace global trends like never before.

It’s fast. It’s fashionable. And it has won the attention of several apparel brands, both Indian and multinational, that now launch more collections in a year and have stylized their shops.

"Zara has been selling very well over the past ten months in India," said the head of a rival international brand. "Its success has proven that there is definitely a market for fast fashion, especially in western women’s wear," the person added, requesting anonymity.

CHASING ZARA

The day Inditex’s Indian joint venture with Tata Group’s retail arm Trent opened the first Zara outlet, it sold apparel worth a record 90 lakh, according to industry estimates. The 18,000 sqft shop at Select Citywalk sells 5-6-crore clothes a month. The average sales at Mumbai’s Palladium Mall outlet is similar, while it’s nearly 4 crore a month at DLF Promenade shop in New Delhi, industry insiders said.

Inditex refused to confirm this. "Please let us leave this in complete confidentialitya¦Let us say that we are really honored by the good reception that our customers are given us in India," its global spokesperson said.

But other brands’ rush to become its neighbour and mall developers’ keenness to host it reveal Zara’s crowd-pulling power. In January, retail planning consultancy Asipac Projects received requests from some international apparel brands, a jewellery major and a cosmetics chain have sought shop space bang opposite Zara outlet at Hyderabad’s City Capital mall, which will be operational by 2013 end, an official at retail planning consultancy Asipac Projects says.

At Select City Walk , two store executives with international brands operating near Zara said customer visits in their stores have increased nearly 20% since Zara became their neighbour.

DLF Promenade in South Delhi, where Zara opened its second store in June, settled for a revenue share of 7% of sales, compared to 8-20% that developers usually charge, to attract the Spanish retailer. The mall developer also deleted the minimum sales guarantee clause for Zara and did the interiors and air conditioning of the store that usually retailers do. Clearly, many brands would rather leverage Zara’s visibility than fight it.

ZARA’S SECRET

Zara’s early success in India reflects its impressive global growth. Amancio Ortega Gaona founded Zara in 1963 as a maker of ladies’ lingerie in the Galician town of La Coruna with just 5,000 pesetas, or $83. Today, the 75-year-old Ortega is the richest man in Spain and owner of the world’s largest apparel retailer ahead of GAP.

Zara owes its success to its control in every part of the business from design to distribution. It controls fabric supply, design, cutting and finishing that goes to company-owned stores. It even owns a large part of production.

It has 200 designers who chase fashion trends and refreshing designs all the time. And it takes just 2-3 weeks for a new fashion idea to reach store racks, while most apparel brands typically take six months to get new merchandise to the store.

From high-waist trousers for women’s corporate wear and casual suits at price points that count to new trends such as animal magnetism-fashion lingo for animal motifs on clothing-and flesh-coloured apparel, Zara has a huge product range that changes almost every week.

If a new style is not a hit within a week, it goes off shelves. Even popular styles don’t stay long. Zara makes small quantities of each style to retain a sense of exclusivity. Thanks to its success, the 12.53-billion euro Inditex will launch Zara’s urbane, more premium counterpart Massimo Dutti in the country in less than a year.

Inditex and Trent have earmarked 4-5 store locations for Massimo Dutti, which straddles men’s, women’s and children’s apparel and accessories, across Mumbai and New Delhi, retail industry executives said.

CHALLENGES AHEAD

But the road ahead is not easy for Zara. The competition is strong. The western fashion market has been growing steadily in the country where more people now travel abroad and are exposed to global trends due to rising incomes and aspirations, improving lifestyles and infrastructure, and India’s rise as an economic power.

More than 20 international brands have been entering the country every year since 2005, according to Third Eyesight, a consumer goods and retail planning consultancy. Zara effect or not, many fashion retailers focus more on design novelty, widening product lines and premiumising stores.

"Retailers here have been evolving very rapidly, learning as they grow and growing as they learn; from each other and from the rest of the world," mall management firm Star Centres MD Pranay Sinha said.

Premium men’s formal wear brand Van Heusen has expanded into sport, club wear and women’s wear and increased store sizes to 5,000-7,000 square feet. "Our competition benchmarks have changed," Madura Fashion & Lifestyle’s Van Heusen brand head Ajay Ramachandran.

ITC’s Wills Lifestyle has doubled the number of new collections it launches in a year to eight for women and six for men, said Atul Chand, divisional chief executive of lifestyle retail business at ITC. Brands like Wills Lifestyle, Raymond and Reid & Taylor owner S Kumar Nationwide have roped in western design houses to modernise their stores and improve displayand have hired executives with international experience.

"Brands have realised that the fashion industry is still young in India and that they have to think global," S Kumar Nationwide Apparel & Retail President Ashesh Amin said.

All this may impact Zara’s prospects. With a model that depends on 100% imports within India’s high duty regime, low penetration of women’s western wear and the need for upscale real estate locations to fit its large-format stores, it could be challenging for Zara.

A person who has invested in fashion brands in the country and follows Zara like a hawk said it is not easy to sustain six fashion cycles in India. Head of an international apparel brand said it is premature to declare Zara a success in India just yet.

"Zara has done exceptionally well in two malls where incidentally all brands have high sales. But in New Delhi, the largest market for premium brands itself, its third store in Rajouri Garden has not performed as well," the person said.

Star Centres’ Sinha, who earlier headed Select City Walk, said it will be difficult for Zara to repeat its first shop’s success in other malls, but the brand is here to stay. "Whether Zara emerges as a market leader or not, it may be too early to tell. That it will not fail is an easier one," said Sinha.

Makeover on the Shop Floor

Raghavendra Kamath, Business Standard

Mumbai, April 18, 2011

While middle-aged women are checking out products at the newly-opened gourmet section on the first floor, twenty somethings are waiting to try the designer pret by Lajjo C, whose collection is exclusively displayed at the revamped store of Tata-run Westside in the Kala Ghoda area in south Mumbai.

"It’s chic and happening", says Parakh Tale, checking out the cereal bar, that allows customers to make their own breakfast cereal mix. For Tale, a regular at the Westside’s store, the store is different in many ways than in the past.

The chain’s flagship store recently got a make-over with better layout and lightings apart from having a gourmet and chocolate section, which marked its entry in premium food retail. The chain is planning to extend the experiment to several other stores.

Winds of change are clearly blowing across Westside, which used to have 95 per cent of its merchandise coming from its own brands. Now its larger stores stock international brands such as womenswear brand GIVe, kidswear brand Chicco, womens footwear brand Aerology apart from designer prêt.

It’s not only Westside where make-overs are taking place, almost all established department store chains are reinventing themselves in a bid to win customers who are spoilt for choice.

Take Raheja-owned Shoppers Stop. The 20-year old department store chain, considered a slow mover among Indian retailers in the past – it took 20 years to open its 30 stores – is bringing in many innovations in its stores, apart from adding 24 stores in the next four years.

Recently, it hired about 150 fashion consultants to help customers make a right purchase and help them up their fashion quotient.

The chain has introduced day and night lighting options in its stores where shoppers can check how a garment looks in day light and night. Women at its stores can also tryout the complete make-up with professional help.

But Shoppers Stop is not new to innovations. After rebranding its logo in 2008, the chain went in for a change in its positioning from premium to ‘bridge to luxury’ in 2009 and brought in a lot of international brands.

And such changes have yielded results. While Shoppers Stop stores are seeing a like-to-like (LTL) growth of 16 to 17 per cent, womenswear category is seeing a growth of 40 per cent, says Govind Shrikhande, managing director of Shoppers Stop. LTL growth refers to sales coming from the store that are in the business for more than one year.

Kishore Biyani’s 15-year department store chain Pantaloons is also not lagging behind. Late last year, Pantaloons launched its 50th store in Delhi with a ‘new avatar’ where interior walls were made up with dark wood and tiles. Since then it has opened five such ‘new age’ stores, where display of merchandise has been spaced out, uniformly giving its customers more room to walk.

The LTL growth in the Lifestyle category of Kishore Biyani’s Pantaloon Retail is at 22 per cent, one of the highest since FY 2007.

Naimish Dave, director at OC&C Strategy Consultants, a global consulting firm, says: "If you look at department stores, most of them offer same brands, same merchandise to buyers. Unless they offer something different to customers, they cannot win more customers."

Westside has roped in Fitch to redesign its existing stores and design new stores, Pantaloons has hired Blocher & Blocher, Shoppers Stop has hired the services of JHP and Portland to design its stores.

The new breed of value department chains such as Reliance Trends and Landmark Group’s Max are also competing aggressively with the established ones. For instance, Reliance Trends has come out with eye-popping freebies and merchandise to woo buyers. When a person shops for over Rs 2,000 at Reliance Trends, the customer is entitled to a gift coupon worth Rs 1,000. If the amount is Rs 3,000, the voucher amount goes up to Rs 2,000.

CEO Arun Sirdeshmukh says the CPH (complaints per hundred) Index in its own brands is lower than some of the national brands.

Landmark group’s Max has launched high throughput range with help from the Max Dubai design studio. The chain is opening 30 more stores where store sizes are 14,000 sq ft as against 12,000 sq ft earlier.

Consultants like Devangshu Dutta, chief executive of Third Eyesight, say department stores have a bright future. "In the US, department stores are a declining trend. Since India is a nascent retail market, we have enough opportunities," he says.

Maximising Footfalls

Businessworld, April 9, 2011

Vishal Krishna

When Noaman and Irfan Razack began developing commercial properties in the early 1980s in Bangalore, they realised that most land owners did not have the skills to run the malls once they were built. Often, a developer only knew the basics — collecting common area maintenance charges and administering the security — without paying any attention to consumer and tenant-retention skills. “We decided to build this skill into our business. Now, every large developer offers this service,” says Noaman Razack, director of the Rs 1,000-crore Prestige Group in Bangalore. Four malls and a decade later, mall management is becoming a profit centre for the real estate company.

Large malls such as Mumbai’s Phoenix Mills and Inorbit and Bangalore’s Mantri Square (500,000-1.5 million sq. ft in size and with average annual revenue of Rs 1,000 crore) are creating the blue print for mall operations in India. The Mantri Group, for example, has set up a subsidiary, PropCare, for precisely this purpose.

In 2011, when the Royal Meenakshi Mall was built in Bangalore, PropCare took over as its sole manager. “The mall was built by someone else, but we won the mandate to run it for the developer,” says Jonathan Yach, CEO of PropCare and Mantri Square. This new business has branched off into branding the mall and building customer relationships, too. Mall managers not only undertake maintenance and security, but also run promotions within the mall to drive traffic into the stores — a boon for retailers.

Though only a few companies see mall management as a separate entity at present, it is only a matter of time before the business booms. The total number of malls across India has gone up to 240 in 2010 from just 20 in 2003, translating into 120 million sq. ft of retail space. Though only 30 of these malls are run by mall management companies, the number is expected to shoot up as organised retail matures.

According to real estate consultancy Jones Lang LaSalle (JLL), it is a Rs 24,000-crore business opportunity, which will double in the next 10 years. Small wonder then that JLL along with other consultant companies such as Knight Frank and CB Richard Ellis are pitching for this business.

Among the bigger players to have recognised the opportunity are Prestige Group, PropCare, Phoenix and Central (see ‘Sharp Aim’). In fact, Future Group’s Central was among the first to explore the concept of keeping the owner of the property and the developer in the background and letting the retailers run the mall. “Our business model works as a shop-in-shop for brands. Central is a seamless retail space,” says Sandeep Mukim, the chief of operations at Central and Brand Factory. Central, which currently manages 16 malls, monitors the operations and tracks conversions for its tenants; security and maintenance are outsourced. “Central as a brand is all about property management,” says Mukim. The Future Group plans to open 24 Central malls in the next two years.

“The scope of mall management services has now been elevated to shopping centre management. But very few companies have upgraded their capabilities,” says Ashutosh Beri, managing director of property and asset management at JLL. He says clients now expect complete shopping centre management — a drastic shift from the past. According to JLL, the Indian psyche is skewed towards self-sufficiency and most mall owners saw mall management as a simple function of managing facilities. But with increase in competition, more developers have started outsourcing the overall management of their malls to professional agencies. And this trend is likely to catch on as the battle for footfalls gets tougher.

An Evolving Field
The business model for a mall management company depends on which state the mall is in. “Scientific models are available by which common area maintenance (CAM) charges can be predicted with a fair degree of accuracy prior to the launch of a mall,” says Beri of JLL. CAM is dependent on energy costs (both state-supplied and captive energy sources) and also on minimum wages, which again vary from one state to the other. Another factor is the architecture of plants and equipment, which should be in consonance with the usage pattern of the mall.

A mall management company makes money on the collections on behalf of the developer. So, say, the mall management company collects 98 per cent of the total cost (including water, electricity, rent and other CAM costs such as security and cleaning), it will be paid 3 per cent on the collections as fee. This may seem high but the job is tough. Mall managers not only spend a considerable amount of time chasing payments from retailers and choosing the right anchor tenants to increase footfalls in the mall, but they also have to spend a lot on promotions.

“Every property that you manage is different because of the catchment and the kind of promotions that you run with it,” says Rajendra Kalkar, the centre director for Phoenix Mills, which plans to open malls in four more cities by the end of the next financial year. A mall manager has to run the business based on what retailers and customers want. Take, for example, luxury malls. The challenge for a mall management company is to provide synergy to competing compatible brands targeting affluent buyers. It must provide a unique gateway to the luxury marketplace. “Achieving this is a fine art, combining the most evolved concepts of human psychology, aesthetics and marketing strategy,” says Shubhranshu Pani, managing director of retail services at JLL.

At present, however, most mall developers in India continue to run the mall themselves because they feel there aren’t sufficient mall management companies. “It is great for developers to hive off this business in the future. At present, there are not many skilled people who can brand and run malls at the same time,” says Kishore Bhatija, CEO of Inorbit Mall in Mumbai. He adds that since people no longer want to travel long distances to shop, for developers it is a business where one has to understand catchment marketing and then build the mall management business.

“In India, developers control the zoning, leasing, finance and marketing in the mall. In developed markets, even these functions are managed by specialist companies and not developers,” says Nirzar Jain, CEO of Oberoi Mall in Mumbai.

Where Is It Heading
With most mall developers spending approximately Rs 200 crore on 500,000 sq. ft of retail space, advice on running the mall successfully can make all the difference. Some Indian malls are turning to malls abroad and taking regular inputs from them. For example, the Mantri Mall in Bangalore works with a South African mall, Cresta Shopping Centre in Johannesburg, on operations and collections. “There is a need for mall management to pick up as developers will need advice on how organised retailing works,” says Pinakiranjan Mishra, national leader for consumer practice at Ernst & Young.

As part of their responsibilities, mall managers are required to determine the correct mix of entertainment, shopping and accommodation that will help diversify the tenant mix and de-risk the developer’s investment. It also allows the developers to better utilise the floor-space index and location.

“Service standards are judged the moment people enter a mall. It is more like hospitality business,” says Yach of PropCare. High service standards help in adding value to retailers and also allows people to shop better, he feels.

The ultimate aim of all such exercises is to generate income for the retailers as well as the developers. Many developers are now giving sharing revenue options to retailers. Several malls that became operational during the slowdown opted for a combination of minimum guarantee and revenue sharing, which ensured floor earnings for the developer. Mall management companies use such data to predict the success of the retailer and collect revenues. With better mall management practices being adopted, steps that will increase transparency in revenue recognition are expected to find more takers. Industry experts add that this will also give developers more confidence to introduce innovative rental sharing arrangements with retailers.

“There are still relatively few developers who are comfortable with the idea of not just developing the building, but also operating and nurturing the mall as a retail environment,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy in Delhi. He adds that those developers who see this as a 25-30 year business income rather than a capital gains income opportunity will survive.

Developers view their role as limited to looking after things like maintenance, utilities, housekeeping and security, whereas successful shopping centre management companies take full charge of managing the tenant mix and the customer footfall. According to Third Eyesight, of the projects being discussed in early-2005, less than 10 per cent would truly succeed as malls — about a third would get converted into offices or alternative uses, and the balance would never take off.

The proof is in the pudding. Indian real estate developers who have built up retail experience will start pitching for malls that are built by developers who have no experience in retailing. The success of this business will entirely depend on whether the customer returns to a mall regularly, or not.

(This article originally appeared in the Businessworld issue dated 18 April 2011.)