The Hindu Business Line : The writing on the mall

WHAT is your family's favourite Sunday outing? A visit to the crowded local market or a stroll through the air-conditioned mall just outside the city? Most likely the latter. Malls today present convenience and choice, be it the prospect of food courts offering several cuisines under a single roof, escaping the vagaries of the weather or just window-shopping.

And this penchant for the average middle-class Indian shopaholic is being translated into big business. Sample this: Within the next 12 months, organised retail in this country will touch the Rs 35,000-crore mark from the present Rs 28,000 crore. And the growth curve is expected to zoom in the years to come. Estimating organised retail to log growth rates of between 25-30 per cent over the next few years, an Images-KSA Technopak study has predicted the industry will cross the Rs 1-lakh crore mark by 2010.

"The size of the organised retailing market stood at Rs 28,000 crore in 2004, making up a mere 3 per cent of the total retailing market. Moving forward, organised retailing is projected to grow at 25-30 per cent per annum and is estimated to reach Rs 1 lakh crore by 2010. Its contribution to total retailing is likely to rise to 9 per cent by the end of the decade," KSA Chairman Arvind Singhal says.

The Images-KSA study found that the last few years have seen rapid transformation in many areas, setting scalable and profitable role models across categories, thus fuelling the rapid growth in retail. It projected that Rs 2,000 crore-2,500 crore investments will pour into this sector over the next 2-3 years and over Rs 20,000 crore could be committed to retail by 2010!

But the going is still tough for a number of players. For one, the industry is still highly fragmented. It also suffers from over-generalisation, thus stopping several established names from making their mark. Take, for example, William Bissell, the Managing Director of fabindia. He says malls are not where fabindia would like to be seen. "Conventional malls don't interest me. They need to be more efficiently designed so as to differentiate serious footfalls from those loitering around. fabindia targets a very sharply defined target audience, so I do not see why we must be present in conventional malls." fabindia has set up shop in a mall in Mulund, Mumbai, but Bissell says the concept here is novel and in line with the target audience. Bissell is not alone in this contrarian view. There are several established retailers that have shied away from being present in conventional malls because they are looking for a well-defined customer profile and are not really enthusiastic about getting window shoppers. Riyaaz Amiani, the Managing Director of coffee chain Mocha, also feels that Mocha differs from competitors such as Barista as it caters to a very select, niche clientele so there is no pressing hurry to invite the mall crowds.

Says a Chennai-based retailer, "Malls are getting slotted in India not as shopping but as entertainment, so it works for McDonald's, gaming parlours and the like but not for serious sellers. Spencer Plaza is an exception — driven by small tenants with wide merchandise. People who can get traffic on their own to the store will prefer standalones; the me-toos or small/frivolous who cannot will act as parasites and get into a mall." He adds that malls are not getting positioned as places to shop but ones to visit. For this, malls have to be like exhibitions drawing people who can buy something or the other — lots of low-value impulse goods and the occasional planned purchase.

Apart from the reluctance of several players to endorse the mushrooming malls and sky-high realty prices, a long gestation period and unimaginative retail concepts have also proved dampeners. Also, the Government's hesitation in opening up retail to foreign direct investment (FDI) has also slowed down investments and growth to some extent, say analysts.

Godrej Group chairman Adi B. Godrej terms intermediaries and small traders' claims that if retail is opened up, their business will get adversely affected as "myopic." FDI will not only encourage greater investment in retail but also skill and technological upgrade besides substantial job creation.

"Competition does not hurt anyone and I do not think the retail industry is any exception. In fact, FDI will mean faster growth and creation of many more jobs."

And while the Government is debating whether to open up retail and grant it industry status, several entrepreneurs are coming up with innovative concept malls. For instance, Ishanya, a project conceived by Deepak Fertilisers and Chemicals Corporation near Pune, is billed as a one-stop shop for all construction needs. The promoters have decided to invest Rs 110 crore in the project, which is expected to be operational by March next year.

The President and CEO (Retail Business), I. S. Narula, says, "We want to keep the crowds out. Ishanya is meant to attract only speciality footfalls - people concerned with designing, architecture, building and development."

He said Deepak Fertilisers got interested in this project after an ICICI Bank feasibility study projected potential for construction activity in the area to generate up to Rs 9,000 crore of business over the next few years.

Recently, real estate developer Aerens Group opened its first speciality mall, Goldsouk, for jewellery in Gurgaon. The company plans to set up 10 such Goldsouks over the next five years, each spread over two lakh sq. ft. on average. Each mall requires an investment of about Rs 30 crore-40 crore, excluding the land cost. Another developer, Omaxe, is slated to set up a Rs 70-crore, 1.75 lakh sq. ft. wedding mall in Gurgaon. In a first of its kind venture, Senior Builders is building a 10-storey auto mall in Gurgaon spread over 4.5 lakh sq. ft. Likely to be taken to other cities, the total investment in this project is expected to be close to Rs 200 crore.

But will speciality malls fuel the overall retail boom? KSA's Singhal feels otherwise. "I think the Indian market is still not mature enough for speciality malls. Many of these are being built only because the realtor has got hold of land." And his scepticism appears to be supported by the time required for such ventures to begin making money. Narula said break-even for Ishanya could take five or six years at least. Consumers too may take much more time to get used to the speciality concept.

So what does the future hold for retail? Despite all these hiccups, the sector appears on the verge of explosive growth. Management consultant A.T. Kearney has ranked India as the second most attractive retail destination among emerging markets globally, ahead of China, despite the ban on FDI and a relatively low market attractiveness. In its 2004 `Global Retail Development Index (top 30 Emerging Markets)' report, A.T. Kearney ranked India 88 on a scale of 100, aggregating points earned over parameters such as economic and political risks, market attractiveness, market saturation and time pressure. However, it has ranked India's market attractiveness a lowly 34, besides listing other downsides such as the market being fragmented with the top 10 companies holding only about 2 per cent market share.

Industry experts say there is no magic formula that can make an average retailer's business boom. The key to generating growth lies in the willingness to invest money for some years and experiment with different retail formats. Pantaloon's Managing Director Kishore Biyani is a case in point. From departmental store Pantaloon and the hypermarket discount store Big Bazaar, he has diversified into other concepts, including a seamless mall called Central and the food and grocery home delivery vehicle called Food Bazaar on Call. And he says more retail concepts are welcome. So, it appears that like in any other business, he who takes the risk and innovates is most likely to succeed in retail as well!

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