Devangshu Dutta
March 13, 2008
Many people I know treat shopping centres or malls as a new phenomenon, a progressive development of recent times or a modern blot on the traditional cityscape (depending on your point of view).
However, Grand Bazaar (Istanbul, Turkey) is the earliest known mall, with the original structures built in 1464, with additions and embellishments later.
In India, if one were to include open arcades, Chandni Chowk in Delhi is reported to have opened around 1650, with its speciality shopping streets. (Of course, more traditional bazaars have been around many thousands of years around the world.)
But even if one were to get more “traditional” about the definition of a mall, possibly India’s first mall was founded in the hottest city in the country then, Kolkata (New Market) in 1874.
In more recent history, Delhi’s municipal pride, the air-conditioned underground Palika Bazar was a novelty in the mid-1980s, while Bangalore’s Brigade Road saw several early pioneers with their shopping arcades in the late 1980s.
Then came the mall-mania beginning with Ansal Plaza in Delhi and Crossroads in Mumbai. Everyone started looking at malls as the new goldmine, being pushed ahead by a “retail boom”.
The early stage of any such gold rush usually has several experiments missing their mark, which is what has happened with the hundreds of mall-experiments that have been launched in the last 7-8 years.
Some of the significant and common issues are starting to be addressed, but many others remain.
Catchment-Based Planning is Needed
The top-most issue in my mind is “oversupply”. While this may sound absurd to many people, given the low figures quoted for modern retail, I am referring to the over-concentration of malls in a small geography. If 8-10 malls open 4-5 million sq. ft. of shopping in a catchment that can only support 1 million sq. ft., everyone knows that some of the malls will fail. But everyone also believes that their mall will succeed (otherwise, they would obviously not have invested in the mall).
What happens to the malls that fail? Depending on the design of the building, many of them can be repurposed into office space – another area where a lot of investment is still needed. So in the end, actually, most people win, one way or the other. Yet, there will be some losers. Does anyone “plan” on being one?
The second key issue in my mind has been that mall developers have been thinking as “property developers” rather than retail space managers. The successful shopping centre operators worldwide (now also in India), are actually as concerned about what and who is occupying that space as a retailer would be. They are concerned about the composition of the catchment, the shopping patterns, the volume of sales, the shopping experience. Therefore, the tenant mixes as well as adjacencies are factored into the earliest stages of planning the shopping centres.
In fact, if I were to identify the most critical operational problem for many of the malls, it is the lack of relevance to catchment and, therefore, the low conversion of footfall into sales for the tenants other than the food-courts. Customer flow planning within the mall is another factor that can make a tremendous impact on the success and failure of the tenant stores.
Once you start looking at these factors during the planning of a mall, another obvious aspect that jumps out is “differentiation”. Currently, there is little to choose from between malls (other than possibly the anchor store). However, with more clarity in terms of the target audience, the potential strategies for differentiation also become clearer. The visitors also become segmented accordingly, and there is a natural benefit to the tenants occupying the mall.
If, as a mall operator, you want to be in business for long, and also develop other properties in the future, the success of your tenants is probably the most critical driving factor for your business.
Integration into the Urbanscape
When we gauge malls from the perspective of integrating within the urban landscape, there are obviously some glaring errors being made. Instead of aesthetic design that reflects the heritage and culture of the location and its surroundings, or some other inspirational source for the architect, most malls that have come up are concrete and glass boxes.
Beyond the looks, some of the malls are a victim of their own success. They attract more crowds during the peak than they have planned for. Not only does the parking prove to be inadequate, there is no holding capacity for cars entering or exiting the mall. The result is a traffic nightmare – not just for general public, but even for the visitors to the mall. Someone who has spent 45 minutes stuck in a jam waiting to get into the parking of a mall will certainly not be in the best frame of mind to buy merchandise at the stores occupying the mall.
Some of the problems lie outside the mall-developer’s control – for instance land costs are a major driver of the cost of the project (and, therefore, the lease costs to the tenants), and land is a commodity which is independent. Real estate is available within the cities as brown-field sites (former industrial locations), but the regulations are convoluted and the strings are in the hands of too many different departments of the government (city, state and central). This needs joint creative thinking on the part of developers, the government and the public, if our cities are to develop in a more sane fashion than they have in the past.
Similarly, land deals are still not clean enough for foreign investors to be comfortable participating in many developments. This obviously is holding back a tremendous source of capital and domain expertise that could contribute to the growth of this sector.
Many other operational issues exist – manpower, systems, health & safety – some of them can be managed or controlled by the mall developers, and it is a question of time (and of their gaining experience). Other issues are more in the domain of the government, and need a visionary push to make “urban renewal” a true mission.
New Life for the Cities
In my opinion, one of the most interesting areas which would be in the joint interest of almost all parties (that I can think of) is the possibility of revitalizing the high streets and community markets, and reinventing them as the true centres of shopping.
Many of our markets are rotting (a strong word, but let me say it anyway). The individual stores are owned by individual owners who are not all equally capable of maintaining the same look and feel throughout. The infrastructure in and around the markets are owned or managed by several different agencies. To make matters worse, there is often no cohesiveness and no synergy in the interests of most of the members of the market association. None of these individually have the power or the mandate to recreate the shopping centre. But what if they could get together and take the help of a re-developer?
If an example is needed, New Delhi’s Connaught Place provides the example of one stage of redevelopment. Connaught Place had lost its pre-eminent position as a shopping centre, due to the spread of Delhi’s population and the new local markets that had come up. Further disruption was caused by the construction by Delhi Metro. But DMRC has reconstructed an “improved” centre, and the Metro connectivity has made the customers come back into CP, as it is affectionately known in Delhi.
There are clearly many such opportunities around India’s cities. These need to be looked at as a commercial opportunity for all concerned (revenue for the redeveloper, better sales for the store owners / tenants, more tax revenue for the government from additional sales and consumption). But it is also a broader social opportunity to breathe a new life into our cities, and to make them proud beacons of a growing India.
It would be a mission that would truly prove the worth of shopping centre developers, urban planners, regulators and the retailers themselves.
Any takers?
Devangshu Dutta
March 4, 2008
Picture an upper-middle class consumer out shopping groceries in a large, air-conditioned hypermarket after catching the new movie at the mall.
Global best-practice is the standard here. The aisles are wide enough to allow two shopping-carts to pass each other comfortably, and are organized according to product categories. The shelves are neatly ticketed, and the products equipped with bar-codes to allow for quick checkout. The emphasis is clearly on convenience. But (surprise!) the store has apparently underestimated the demand for the conveniently pre-cut and packaged vegetables. The loose vegetables are going untouched, while the pre-cut packs are almost sold out. Looks like another win for modern retailers.
This scenario would seem plausible to most people who have observed or been part of the growth of modern retailing in a market like India.
The “organized retail boom” and “growing consuming class” are consuming miles of newsprint and eons of airtime, while the malls are the gleaming new temples at which every devotee of retail must pay respect. This is the picture of modernization or organization of the Indian retail sector that comes to the mind of most people.
On the other hand, the picture that comes to mind when one thinks about the traditional sabziwala (greengrocer) is a total contrast. A messy side-street, with the push-carts overflowing with an indifferent mix of vegetables, other than the occasional yellow bell pepper or some other such “exotic” produce. Or the typical kirana shop owner scrawling an illegible list of items and figures on a scrap of paper and handing it over as the “bill” for the groceries one has just bought. Surely, a business model that is not going anywhere fast.
So, to most people, the line between modern or “organized” retail and traditional or “unorganized” retail is quite clear, and the differences quite stark. “Organized retail” usually means large, “corporate” stores that personify the so-called “retail revolution” which apparently is about 3-5 years old, while traditional retail business usually means “unorganized” and “belonging to the past” (or at least, soon to belong to the past).
However, a revolution is when the majority starts getting impacted. When only a few create a change that mainly benefits them, it is a coup.
To anyone who has been involved in the retail sector for longer, in fact, there has been a far more interesting, widespread and ongoing change in the retail business over the past couple of decades, and possibly further back. This is not restricted to a few corporate groups. It is not even restricted to the front-end (store-end) of the business.
The change is created by the feedback loop between customer expectation and the minimum acceptable standard of service which is constantly being moved up. Of course, the newly-minted corporate retailers have a role to play in this. But, more than that, it involves many small changes accumulating organically over a period of time involving individual kirana owners, farmers, wholesale traders, market associations, the FMCG companies and even the migrant villager who sets up a hand-cart that may be stocked daily with rolling credit from the money-lender.
And that is my point. The modernization of retail is an ongoing process, and it is sustainable because it is widespread.
In recent Indian retail history, as customers we may identify a point where we saw the local shop shift from stocks in a dingy back-room to being displayed openly, setting the example for other shops in the market.
But the changes needed were not just at the retailer’s end – they also required the wholesale vendor’s approach as well as the FMCG principal’s approach to begin changing.
Certainly a shift occurred in service standards, when vegetable vendors started taking home-delivery orders on mobile phones – impossible without the wider telecom price-quality revolution. And when credit card swipe machines started appearing in the kirana, something that could have only happened with the support of the banks and their intermediaries.
And the pre-cut packaged vegetables whose demand the hypermarket had underestimated? Well, the sabziwala has that covered as well – beginning with the packs of cleaned baby-corn, this list has now expanded to include pre-shelled green chick-pea (chholiya), cut jackfruit and chopped sarson saag – vegetables that can be quite inconvenient to clean at home when time is scarce.
The impact of this modernization was brought home to me, when I observed a customer reprimanding the local sabziwala for not keeping adequate stock of shelled peas. The interesting aspect was that this was not one-half of an upwardly-mobile DINK couple. The customer here was a domestic helper, whose complaint was that he had many other jobs to get done around the house, and shelling peas was something that was too time-consuming and best “outsourced”!
So, to all those who have the question, “what is the key to succeeding in the Indian retail market”: the key may lie somewhere entirely different from where you have been looking, or the customer-profile that you have been building.
We are surely underestimating the business potential amongst India’s middle and not-so-middle classes – as we would discover if only we were to re-state business objectives and tweak strategy a little bit, and look at the market without high income-tinted glasses.
Devangshu Dutta
March 4, 2008
Recently there was some discussion online about the so-called “politics of organized retailing” in India (on Retailwire).
I believe these are no different from the politics of anything else. There are interest-groups and pressure-groups with different objectives, who pull-and-push economic and regulatory policy with varying degrees of success. In that, India is no different from any other country, whether the US or China.
After China began opening up its economy in 1979, it took more than a decade for it to begin allowing foreign retailers to enter the market, and it was not before domestic retailers were given time to scale up.
Even in the US of current times, there are places where the community would be up in arms at the slightest whiff of a Wal-Mart store proposal.
Even in the UK, the Competition Commission is preparing a report on how retail consolidation is affecting the sector and the consumer.
So the answer to the question about “the politics of organized retail” is: yes, there is politics involved, and if you are an interested party then there is no option but to be part of the politics.
While on the issue about opportunities in the Indian market, I’m reminded of a couple of conversations, one with a client and another with an associate, who compared the Indian market to the US and the UK, respectively, in the 1970s.
My response to them, and to the question above, is: yes, there is tremendous opportunity in India now, as there was in those markets in the 1970s. Yes, in parts the market, the distribution structure etc. may remind you of the US and the UK in the 1970s. But to assume that it will play out the same way would be dangerous.
There are many other cultural, economic and social factors, apart from the infrastructure, to take into account.
My advice to international brands and retailers is as always: approach India as India in the 2008, don’t approach it as the US in the 1970s. Or as China, Brazil or Mexico.
Some pointers that may be interesting: “Slicing the Market” and other articles available elsewhere on the Third Eyesight website.
Devangshu Dutta
February 18, 2008
Many pundits have passed judgement on the inevitability of ‘organised retail’. Yet, around the world, independents continue to thrive.
One may think that at least in difficult economic phases – such as the one facing economies around the world right now – large retailers are better equipped to survive. Yet, often it is the flexibility of the owner-driven small business that rides out the trough. Service levels and personalisation – that are increasingly critical in an impersonal world – are often far better delivered by a small retailer. [See “Playing with the Big Boys”]
And when it comes to business across borders, I can’t think of any retailer that is truly global. Most retailers that have successfully run international businesses in multiple countries (Carrefour, increasingly Tesco and others) have had to localise significantly – often sacrificing scale to achieve localisation.
A well-written article by Paul Chapman in Mint (February 18, 2007) raises some of these points using India as an illustration. Worth a read: The Rocky Route to Modern Retail.
Devangshu Dutta
February 8, 2008
In several conversations recently, there has been reference to how much contribution comes from small-medium enterprises, the need to protect the small-scale industry (SSI) to provide diversity etc.
After all the conversations, one thought keeps coming to mind. While small businesses need to be enabled, and an ecosystem and environment created for them to thrive, there is no reason to keep them from growing.
Entrepreneurship is organic, a business is a living thing. Basic high-school biology teaches us that living things (as opposed to non-living things) grow. Preventing a living thing from growing is going against its very nature.
But that is exactly what reservation of certain manufacturing sectors for small scale does – it creates a government-regulated ceiling beyond which the business cannot invest (and, therefore, cannot grow).
The apparent objective of the policy is to “protect” the industry sector from competition from large companies. The underlying assumption is that large companies compete unfairly, and that small companies in the reserved sectors effectively cannot compete against larger players.
However, many industries and sectors in India are paying the price for that policy. For instance, even after the clothing sector was allowed a higher cap of investment in plant & machinery, and then finally removed from the list of SSI-reserved list, it struggles with its fragmented structure, against larger-scale and more efficient competitors based in China , neighbouring Bangladesh and other countries.
Obviously, in global trade, restricting the growth of domestic industry does nothing to make the country competitive. It only protects it from itself, and makes it inefficient.
So every time the list of industries reserved for small scale is reduced, in my opinion it improves the potential competitiveness of Indian industry. In that light, the government’s announcement this week of removing some more industries from the list is an occasion to cheer.
The government has identified mechanical equipment, electrical goods and stationery as the categories to be opened to larger scale manufacturing.
Consumers, retailers and consumer products brands have something to look forward to, considering that this may include products such as steel cupboards, doors, windows and ventilators, steel furniture, locks, steel and aluminium utensils, builders’ hardware, sewing machines, kitchen gadgets, and pens.
We await the final list with bated breath. And look forward to other consumer goods also being removed from the SSI-reserved list and being opened to higher investments.
