With the government clearing the way for higher foreign investment in retail, industry is optimistic. But there are concerns about the state of the retail business and the absence of a charted growth path. Retail consultant Sq Ft, which is working with retailers like InOrbit, argues for a revamp of retail strategies instead of constructing more malls in the country, while at the same time paying more attention to the real estate aspect. Rajan Vernekar, director; Shashikala Venkatraman, managing director-India, and Priyanka Purkayastha, research consultant, shared their views with Moneylife.
Moneylife (ML): How would you explain the highs and lows of Indian retail and mall development?
Rajan Vernekar (RV): We must remember that Indian retail is very recent, and hence, most of its problems exist because many people don't know how to handle this new asset class. Modern retail started by aping the West, and it didn't work out. India's consumption demands are very different.
On the real estate side, developers were used to building residential units and were at a loss to provide appropriate designs. What they failed to realise is that a mall is a long-term business, not a one-time deal.
Shashikala Venkatraman (SV): It's like a branded consumer product. Once you have invested in it, you have to stick to it to see the benefits. So developers who are putting money in malls have to have a long-term view. Instead, they viewed malls as buildings and resorted to strata selling, not realising that they have to manage that asset and help in its growth to realise their own capital gains before exiting.
ML: What kind of Government policies can aid or hinder the growth of retail in India
RV: In the metros, land prices are skyrocketing. So once you build a mall, you have to stay with it to recover the cost. And a mall doesn't work unless consumers come in and buy, so you have to promote it, which many people don't understand. That is one of the major drawbacks in many malls, especially those built between 1999 and 2003. The problem is that under Indian Law, there are no norms related to retail spaces and developments. The government doesn't specify where a mall can come up without causing inconvenience to local residents, and what kind of designs will then be viable. Hence, developers just copy designs of public buildings.
SV: For malls, it is best to build just ground plus two levels. It has been seen that for every extra floor, there is 20%-25% less footfall. But developers build as much as possible to utilise the FSI (floor space index), not knowing why or how. They can't use it, neither lease it. They can build something else in that extra space; which will be synergetic with the mall. Today's mall developments are better, what we call the 4th generation of malls.
ML: Why are the big, new age malls unsustainable?
RV: Well, most of these emerged in 2006-2007 after the success of the second generation malls. These malls crowded the scene, and opted for unrealistic designs. They thought big was good, and declared projects with area of 3 million sq ft! How do you manage such an area? Then came the downturn in 2008. Now, many retailers have scaled down their projects.
ML: So who are the retailers who are actually going strong today?
RV: After 2003, international architects and knowledge partners specialising in retail came in. Malls which made the most of these resources are still going strong, like Inorbit Malad (at Malad, a Mumbai suburb) or Select City in Delhi. But they had the advantage of being among the first players and understanding their needs before others. Their followers don't have that advantage, because there is increased competition. Now, you cannot succeed unless you create your own niche and differentiate yourself from the rest.
ML: Today, we see more malls than people. How can a retailer sustain himself in this competition?
SV: The scene is too crowded in some places, because everyone wants to build a mall. Most malls look exactly alike. You have to know your catchment, and you have to decide on the price points. You cannot have very expensive luxury brands or very base-level prices.
The other problem lies with the developers, because they do not pay attention to the mix in the malls. The large anchor stores are the ones that bring in the traffic, and those have to blend in with the others. So if you have a basic value brand like Hypermarket, you cannot have fashion retail which is very expensive. The merchandise is the same in every mall, because all of them have the same brands. It is the mixing of brands that gives it an individualistic flavour.
ML: What about the retail boom in tier-II, tier-III cities?
SV: I don't believe in the word 'boom', so let's just say that retail development in a tier-II or tier-III city has to happen according to its scale. In a small place like Aurangabad, you cannot have 20 malls. But unfortunately, in such places, after the initial ventures succeeded, developers rushed in and crowded the scene.
ML: Talking about FDI, what kind policies can the government frame?
SV: If you have to have FDI, the government needs to manage that investment. Let's take food-grains-due to poor transportation and storage, we lose 40% of our produce. Policies should focus on the back-end logistics and infrastructure that will support both the big and small retailers. Private foreign retailers can give (us) the knowhow.
The government should plan things, specify what the most viable position for a mall is, and lay down norms both for developers and mall managers.
ML: In the West, we see that a lot of public buildings and malls are managed by REITs and REMFs. Are they viable in India?
RV: It will help, because these REITs and REMFs will bring in their own expertise.
SV: There are also many specialised investors who focus on retail and retail real estate and they bring their expertise of design, management and marketing. But the disadvantage is that there is no clear-cut exit option for an investor who is invested in REIT or REMF.
ML: What insights can you give on Indian shoppers in malls?
Priyanka Purkayastha: In the West, a mall is a place for shopping and transaction only, so they do not have food courts, restrooms, changing rooms, because people are not expected to hang around there for long. India views values differently. We want to multitask. The same holds true for the malls. These are not simply shopping centres, these are social hubs.
SV: You cannot neglect the social aspect of a mall. Unplanned urban growth has left cities with no open spaces for people to hang out safely. Malls are places where youngsters hang out, children play and stage performances are held. Some malls have walking zones for senior citizens, where they can stroll without worrying about the traffic. In order to succeed, you have to become a centre for the community-for that endears the mall to the people.
The meeting took place against the backdrop of slowdown in industrial production, rising cost of borrowing and global uncertainties, even as there were perceptions about policy paralysis in the government
New Delhi: The government on Monday reached out to top industrialists including Ratan Tata, Anil Ambani and Sunil Mittal amid cynicism over lack of policy initiatives against the backdrop of a raft of scandals, reports PTI.
Finance minister Pranab Mukherjee and commerce and industry minister Anand Sharma were closeted with the industry leaders, also comprising Anand Mahindra, Shashi Ruia, V Narayana Murthy and YC Deveshwar.
"There has been some cynicism expressed of late regarding lack of movement on policies and institutional processes. I find this view to be based more on perception than facts," Mr Mukherjee said in his opening remarks.
The corporate honchos after a two-and-a-hour meeting appeared re-assured.
"If there was a trust deficit, it was dispelled today ...it vanished today. There was an assurance on time bound action on our proposals," Mr Mahindra told reporters.
Echoing the sentiment, Mr Ambani said: "The interaction will certainly go a long way in building the momentum needed to catalyse economic growth."
Mr Mittal said: "Discussions took place in a frank and open manner."
Mr Sharma said the government remained fully committed to the reforms agenda. Several initiatives are in the pipeline and would be rolled out soon.
The industry was asked to give five specific suggestions for re-energising the economy.
The meeting took place against the backdrop of slowdown in industrial production, rising cost of borrowing and global uncertainties, even as there were perceptions about policy paralysis in the government.
Mr Mukherjee said: "Weakening of business sentiment is partly due to an uncertain global environment and perhaps also on account of rising cost of domestic credit."
He said a tight monetary policy has been necessitated because of the continuing challenge posed by inflationary pressure. Inflation was 9.44% in June. The Reserve Bank of India (RBI) has raised key interest rates 11 times since March 2010 to tame the rate of price rise, leading to overall hike in borrowing costs.
Mr Mukherjee said the fundamentals of the Indian economy remained strong and the growth drivers in the medium term remain broadly intact.
V Narayana Murthy expressed hope that the government would try to solve the problems of the industry. "They (government) wanted to listen to us...By and large they would certainly try and help us," he added.
RP Goenka also expressed hope that there will be co-operation between the government and industry.
Talking about the reform agenda, Mr Mukherjee expressed confidence that important financial sector legislations, like Banking Laws Amendment Bill, Pension Fund Regulatory and Development Authority Bill and Insurance Laws Amendment Bill would be passed in the ongoing Monsoon session of Parliament.
He also said the report of BK Chaturvedi Committee on issues relating to reconciliation of environmental concerns and coal mining will be discussed by the Group of Ministers (GoM) later this week.
The minister said the reports of the Vinod Dhall Committee-on the public procurement standards and policy-and the Ashok Chawla Committee on allocation and pricing of natural resources are being examined by Committee of Secretaries. The GoM will consider them by month end, he added.