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?

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.

As a working wife and mother who wants to run her home as competently as she runs her business, the advent of ‘organized’ retail, super markets and well formatted MBO’s seemed like an answer to one’s prayers. Yes, this was certainly what I dreamt of whenever I raced against the clock to get the month’s grocery shopping done in time to get home to cook dinner; or when the family had to subsist on instant noodles because picking up one’s dry rations and veggies from different locations at the end of a working day didn’t work out because of time and logistic constraints.

‘Organized’ retail is the answer to everyone’s prayers – the consumer and the producer…..or is it?

Products sit beautifully packaged on shelves which are easy to access, saying – BUY ME!!! Or BUY ME and get another like me free (oops, sorry! The free stock just ran out!)! Today I whiz around well lit and well laid out stores picking up products I need, and also don’t need, in double quick time to end up in a traffic jam at the cash counter!! And while I stand there watching the harried sales clerk struggle with the operation of a temperamental bar-code reader and the rush of shoppers waiting their turn to pay, I begin to notice (and miss) the many differences in my shopping experiences of the bygone days. I miss the ‘soft’ skills of the friendly neighborhood Lalaji who would notice and gently point out deviances to one’s standard shopping list; his mammoth memory bank that didn’t require him to cross check prices of unmarked/bar-coded products; his verbal promotion of new products; his ‘home delivery’ service of products that may not be in stock ……and all in all the complete warm, social and informative shopping experience.

For ‘organized’ retail in India to become an indispensable part of the shopping needs of the emerging segment of the urban Indian working women, retailers need to address many issues that go beyond large stylish stores, slick visual merchandising and bargains. Store planograms need to stock merchandise as per an Indian housewife shopping list which follows a pattern of ‘Dal’, ‘chawal’, ‘atta’, ‘tail’, ‘masala’…..rather than the western format which starts off with breakfast foods and so on. Shopping for Groceries in India follows a monthly pattern rather than a weekly pattern, and this needs to be taken into account while merchandise planning and stocking is done, so that stores are adequately and correctly stocked. Most importantly, deployment and training of staff needs to address peak and trough periods of the store traffic, and the ability to deal with client claims and returns efficiently.

Till then, either which ways, instant noodles will be the standard family fare on the nights that ‘mom’ goes grocery shopping!

A few days back I met a friend, a mother of a six year old and a primary school teacher by choice (so that she can be “gainfully occupied”!). We exchanged the woes of being a working woman, and she exclaimed that she was planning to begin getting her lunch and dinner organized through a “dabbawala”. This would free up the time spent on “non productive” chores of buying monthly grocery, the weekly veggies and stocking up to spend on “more important” activities in life.

No, she is not necessarily representative of a particular consumer segment, nor can one say at this stage that there is a significant number of such women in our society that “dabbawalas” should sit up and take notice of, who would want to give up the pleasures of browsing, shopping and bargaining and then let go of the appreciation that follows conjuring up the delicious cuisines.

But it is does make one think about how our changing lifestyle and attitudes are changing our needs and wants (and hence the desired products and services).

It makes one want to gaze into the crystal ball and see what promise does the changing social fabric of India hold for the market of products like pre-cut vegetables, or ready to-eat food, what about products like sanitized wipes. What does it mean for the potential of services like that of a qualified nanny or a temporary baby-sitter, or house cleaning services, or professional laundry services or dial-a-cab?

What would you (as a consumer or a marketer) like to add to the wish-list?

It’s quite amazing that “store productivity” doesn’t grab the attention of most people in the retail trade in India, despite the fact that real estate costs are riding an all-time high. It’s become quite typical for rentals to range 20-25% of sales, and in many cases even higher than that. (In those instances, a retailer could only hope to make money out of illegitimate activity or illegal merchandise, which is not part of the business plan of anyone I know!)

Many brands will (and possibly can) justify paying absurdly high rentals with the rationale that in the store portfolio, some locations will never make money, but are needed as marquee locations for “must-have” visibility. This can work if you do have a balanced store portfolio. The question is whether the low-rent locations actually have the capability to generate enough margin to support the unprofitable locations.

While some of the rentals are comparable to expensive real estate in the developed markets, gross margins in India are typically thinner than in Europe, USA etc., reducing the spread a retailer has for its operational expenses. Add to the mix over-estimation of consumer demand, and the scenario looks even gloomier.

In this context, to my mind, each store needs to be made as productive as it can be. There needs to be fairly sharp focus on store performance and category performance data.

However, in the last 18-months or so, conversations with Indian and international brands and retailers operating in the Indian market, showed that topline (sales) growth and new store openings were the focus for most retailers (even till a few weeks ago).  Most branded suppliers have also shown unprecedented sales growth on the back of new store openings – their own exclusive stores, as well as new sites being added by department store chains carrying their brand.

For instance, in March 2007, one (new) brand said that their business plan called for 50 stores by the end of 2007, and 100 by the end of 2008.

When sales growth can be achieved just by opening more new boxes (stores), productivity and efficiency don’t appear to be important.

I believe 2008 will see a change in management priorities. I don’t think the unnamed brand above will open its 100 stores. It is very likely that they will want their already opened stores to work harder.

Productivity is obviously linked to store operations (people, process, technology) – when the merchandise and the customer are both in the store, you need to make sure the two are matched quickly and effectively, and that there is a focus on conversion, average transaction values and efficient inventory management. But that is only one part of the story.

Support functions, such as marketing, supply chain, buying and merchandising have a huge role to play as well.

Category management, efficient and responsive supply chains, optimising store-footprint and catchment to ensure maximum walk-ins … these are some of the issues I believe top management needs to look at carefully in the coming 24 months.

If you are in a senior management position in a retail business, what are your priorities this year?