“Going forward, shopping malls will be an area of important focus for DLF. This will help us to make the maximum leverage of the retail boom in India,” DLF Retail managing director Arvind Nair said.

He, however, did not divulge investment to be made in development of 22 million sq ft of shopping mall space. According to a company source, DLF is planning to develop around 20 large shopping malls in the next three-four years, which would entail an investment of Rs 16,000 crore.

There is no magic answer to this question. However, one can make some educated guesses based on established best practices and how Indian conditions will modify or replace conventional wisdom. Let’s consider some of the factors that could affect the future of organized Retail in India.

Consumers – Who understands the Indian consumer the best will win in the end. What do we mean by the Indian consumer? Is it the teenager in Mumbai who commutes by local train, buys fashionable clothes from Linking Road and watches movies at the multiplex? Or is it the housewife who buys vegetables from the sabzi mandi and saves up money for chicken on Sundays. Or is it the fisherman out at sea who uses a cellphone to communicate his catch to the market on the shore? The Indian consumer is hard to pin down. As someone wisely said, the Indian consumer shifts loyalties with every 25 kilometers and with every 10 Rupees. The dimensions to deal with include class, education, language, caste and local customs in addition to the standard marketing dimensions used in the West.

Merchandising – Merchandising is what retailers do. This aspect has not received much media attention in India. However, this is often what differentiates a successful retailer from a flash in the pan retailer. Examples that come to mind include Zara, 7-Eleven and Walmart. Put simply, merchandising is the art-science of deciding what to sell where, at what price and when. The retailers that understand the Indian consumers and provide the right products at the right price will beat the competition.

Talent – This is already becoming a bottleneck for several Indian retailers. Experienced corporate professionals as well as fresh talent at the store level are hard to come by. The retailers that are able to retain their talent and provide them with growth opportunities could easily gain an upper hand in running a successful operation in India. Real Estate – This is a huge concern in India where quality real estate has become too expensive for many retailers to run a successful operation in cities. This is especially true for mass merchandise/discount retailers who operate on razor-thin margins. The acquisition of cheap leases in prime areas could decide whether a retailer becomes profitable at all or not. Another strategy is to expand in smaller towns and villages where real estate is still affordable and purchasing power is not as bad as one might think.

Supply Chain – This often quoted but not-so-often understood term basically refers to the back-end operations of a retailer. This includes the entire network of suppliers, warehouses, distribution centers and logistics operations. Effectively getting products to the right place at the right time is a lot tougher than it sounds when there are thousands of items and hundreds of stores involved. The supply chain infrastructure needs to be built from the ground up in India. This could easily affect the balance sheet of any retailer planning to start operations in India.

Policy – Although most people agree that FDI in Retail is just a matter of time, what this means is that till FDI is allowed, we will see our domestic players like The Future Group and Reliance Retail leading the way. What will happen when FDI is eventually allowed is anyone’s guess. If the examples of Brazil or China are taken into account, we will see a lot of consolidation with a few (6-8) large players remaining and several smaller niche players. Retail is a highly localized business (local preferences, local talent), so there is no guarantee that a foreign player will do better than an Indian player, as evidenced by Walmart’s failures in Germany and Korea. Surely, there are interesting times ahead!

Cafe Coffee Day (CCD), ethnic apparel wear Biba and Samsonite, are some of the players looking to expand in Tier-I cities. High rentals were a stumbling block in most locations. That has changed now. “On an average, we have managed to bring down rents by about 15-20%. There have been instances where the reduction has been as much as 50%,” says Samsonite director (global) Ramesh Tainwala.

The correction in some locations in Delhi has been as much as 80%. Though, Samsonite opened only three new stores in 2008, it plans to add 35 stores by 2009 end. Biba is also using the slowdown as an opportunity to expand. “We have renegotiated our rentals for 10 properties in the last one week alone,” says Biba Apparel director Sanjay Bindra.

In one of the existing stores in Navi Mumbai, it managed to negotiate its rental and brought it down by 50%. Lower rentals are now helping it expand to prime areas in New Delhi, where it has just one store. Today, Biba has 64-standalone stores across the country and plans are on to add 30 more over the next year. A property broker, on the condition of anonymity, cites the case of a Hyderabad mall where the rent was at Rs 300 per square foot, a year ago. That is now down to just over Rs 100 per square foot. Likewise, rates in a prominent mall in south Mumbai have reduced from Rs 600 per square foot to a third at Rs 200 per square foot. Like a host of other players, CCD, too, plans to use the fall in rentals to expand in Tier-I locations.

“Rentals in malls would have fallen by 20-30%, while on high streets it would have fallen by 15-30%. Falling rentals are definitely helping our expansion plans and helping us enter locations where we were not present earlier,” says CCD director Alok Gupta. He adds that it takes less time to negotiate with developers. The plan is to establish a stronger presence in south Mumbai and Delhi where developers were unwilling to negotiate on rents. CCD, which currently has 800 outlets, plans to ramp it up to 1,000 in the next financial year. A large part of it is scheduled to come up in the 115 cities where it already has a presence.

BUILDING BLOCKS

Correction in some locations in Delhi has been as much as 80% Samsonite plans to add 35 stores by 2009 end Biba, too, plans to add 30 stores over the next year Biba has managed to negotiate its rentals and bring it down by 50% CCD, which currently has 800 outlets, plans to ramp it up to 1,000 in the next fiscal.

Fathom this. Seventy per cent of India’s and 12 per cent of global population lives in rural India and contributes 50 per cent of the country’s GDP. Their population of 75 crore (750 million) is more than that of US, UK, France, Japan, Italy and Germany put together. In fact, as per Mckinsey, despite rising urbanisation, 63 per cent of India’s population will continue to live in the rural areas even in 2025.

Surging ahead in terms of growth

As per National Council of Applied Economic Research, rural market accounts for 55 per cent of LIC [Get Quote] policies, 70 per cent of toilet soap consumption, and 50 per cent of TV, fans, bicycles, tea and wrist watch consumption. So as a target market, it is attractive not only because of the size, but also because of impressive growth potential.

Rural GDP has been witnessing strong growth in the last four years (avg of 4 per cent) not only on the back of increase in minimum support prices for the agri-products but also due to availability of alternative employment opportunities.

Income_Distribution

Source: Business Today

In 2008, the rural areas grew at a robust rate of 25 per cent as compared to 10 per cent growth in urban retail market According to a McKinsey, rural India, would become bigger than the total consumer market in countries such as South Korea or Canada in another twenty years. It would grow almost four times from estimated size of $577 bn in 2007. While the per capita income is lower than urban areas, the customer base is thrice that of urban areas.

Resilient to slowdown

On account of negligible tax liability and little or no burden of loan repayments, the Indian rural population has a higher propensity to save. The rural areas account for 33 per cent India’s total savings. Being more conservative than their urban counterparts, the rural populace has not burnt their fingers in the real estate or stock market bust. Further, the rural income distribution pattern is also changing and the bottom is getting narrower.

While 18 per cent of rural India has earnings in the range Rs 45,000 to Rs 215,000 per annum, 58 per cent of urban population earns in this range. However, 27 m individuals form a part of this income bracket in rural areas while in urban areas it is about 29 m; of which large base is already tapped.

No of households (m)

Source : Ministry of Communications & Information Technology , India

As per the Associated Chambers of Commerce and Industry of India, the rural market is becoming increasingly attractive for FMCG, automobiles and organised retail businesses. Rural India accounts for more than 40 per cent consumption in major FMCG categories such as personal care, fabric care, and hot beverages.

FMCG sector in rural areas is expected to grow by 40 per cent as against 25 per cent in urban areas in the coming quarters. The size of retail market in India is estimated at US$ 280 bn of which the rural retail market works out to be $112 bn. This is expected to double in next 4 to 5 years because of the huge potential. Even auto companies in recent times are witnessing shift in trend as they are gearing to explore the huge market potential lying in the rural areas.

Source: Mint

As rural India becomes more lucrative and the government becomes more committed to its development, schemes like the rural employment guarantee, Bharat Nirman, focus on rural education, debt waiver plan and higher support prices will aid the rural demand. Although the penetration levels are still very low, the scope is huge. And India Inc. is not letting go of this opportunity.

Overall, the store rental-revenue dynamics have improved. Real-estate costs, which were a critical factor for retail has turned favourable, as companies work out deals for existing and prospective properties. “Though sales may have dipped 5-10% for a lot of retailers, rentals have come down 35-40%. As a result, existing stores are now breaking even or becoming more profitable,” associate vice-presidentretail & consumer goods at Technopak, Baqar Naqvi, said. The revenue sharing model, which has positioned malls owners as partners, is also transforming into a key stimulus.

“Earlier, most franchisees would ask for minimum guarantees. These clauses are now out of the system, making expansion through franchising much easier. However, only companies with cash reserves will be able to seize the opportunities in a downturn.

Unfortunately, there are very few of this breed,” added Mr Naqvi. Home decor brand Rosebys, which has announced an expansion to 110 stores this fiscal, is a case in point. For new entrants, there are strong reasons to invest. Take for instance, the Jawad Business Group which franchises Papa John’s and recently launched American south-western casual-dining chain Chili’s. “When there are fewer brands hitting the market, vendors are more willing to indulge in hard negotiations over payment terms, as they are also on the lookout for business,” general manager, restaurant division, Tapan Vaidya, said.

The RPG Group, which operates Spencer’s chain, sees it as an opportune time to test the market for its lifestyle format Mera World. “The downturn not only gives us an opportunity to perfect the model but it is also easier to tie up with the right partners for our shop-inshop formats.

“Many of these brands may have opened standalone stores if the market was better,” Speciality Retail’s president, K Dasaratharaman, said. Mera World has partnered with Baccarose for perfumes, Just in Vogue for watches and Eternity for eyewear. Media costs, which play a key role in brand building have also become much more fluid today.

Economic Times, Sarah Jacob BANGALORE, sarah.jacob@timesgroup,com

Vivacity will be housing, ‘Hyper City’ and ‘Shoppers’ Stop,’ as its anchor tenants. The two format retailers belonging to K Raheja group have leased an area of 85,000 sq.ft and 65, 000 sq ft respectively spread across the ground floor and the first floor. In one of its earlier developments, Sheth developers also announced its tie up with Cinepolis to set up fourteen screen megaplex with a facility to showcase over 70 shows on a single day with a seating capacity of 2,400 people.

Speaking about the 2 large anchors coming on board with Vivacity Mall, Mr.JP.Biswas, VP Leasing & Marketing, Sheth Developers said, “Our tie-up with Shopper’s Stop and Hypercity is in line with our promise of getting top brands in to Vivacity. We look forward to give a world class shopping experience to our customers all under one roof. With all these brands pitching in at Vivacity, we feel our customers will rediscover the way they shop.”

Commenting on its strategic tie-up with Vivacity, Govind Shrikhande, Customer Care Associate & President & CEO, Shopper’s Stop Ltd, said, “We always wanted to have a large Shoppers Stop store in Thane. Vivacity has filled in the gap perfectly for us. In our opinion Vivacity will be a dominant retail property in the Central suburbs. The size and expanse of the mall combined with our ability to pull customers will be key to the success of both Shoppers Stop as well as Vivacity.”

Speaking further on being the anchor tenant of Vivacity, B.S.Nagesh, Customer Care Associate & Vice-Chairman, Hyper City Retail Pvt, Ltd said, “We feel that Thane and its adjacent catchment area has a lot of present potential, and when we take into account the upcoming projects, the outlook becomes one of the brightest in the country. In view of this we have signed up for our second Hypercity in Thane at Vivacity. The strategic location of Vivacity and its ease of access is ideal for a hypermarket.”

Vivacity will be located on the Eastern Express Highway, spread over an area on 1 million sq.ft. Vivacity is first retail venture of the Sheth Developers and happens to be one of the largest malls in the state, with one-of-its kind experience for its consumers. The mall has currently has 37% occupancy by retailers from the country and are hoping for a 100% occupancy by the end of the year. The Mall is slated to open its doors for its consumer in the mid of FY 2011 – 12

About Sheth Developers:

Sheth Developers is one of the trusted Real Estate and Property Company with major presence in Western India and UAE with over 20 years of experience in building large residential and commercial complexes and townships in Mumbai and the suburbs. Sheth Developers is one of the few real estate developers to have won the prestigious awards like Best Interior Design for Iris Bay Dubai, Best High Rise Development for Vasant Lawns Thane; Best Residential Building for BeauMonde , Mumbai and many more. Also, it is one of the few distinguished developers to have won the Best Developer Retail Project (Future) for designing Vivacity Mall, Thane; one of the largest Malls in India. Sheth Developers Pvt Ltd has earned consistent accolades for its notable projects in India and abroad.

About Vivacity

Sheth Developers has extended its real estate presence with its colossal retail development – Vivacity. One of the largest malls in the country with a GLA close to 1 million sq ft, Vivacity is set to raise the bar in the industry. With a team of best in the class professionals on the projects, marketing and leasing fronts, Vivacity will ensure that both the retailers’ and the consumers’ interests are well taken care of.

For further information please visit: www.shethdevelopers.com

Media Contact for Vivacity:

Leon De Souza / Deepshri Iyer

leon@corvoshandwick.co.in / deepshri@corvoshandwick.co.in

+91 9833581376 / +91 9987266410