2020-21 were years of unprecedented challenges, changes, and growth — and the retail sector at large was no exception. Retail cultures have forever been shaped by the COVID-19 pandemic, reinventing the way we shop.
Come 2022 and retail reals estate has seen a V-shaped recovery of sorts from the worst effects of the pandemic. The expansionary demand from segments like QSRs, supermarkets and consumer durables are expected to rise. The hybrid model of retail i.e. online and brick& mortar stores is the new way retailers are making their presence felt and solving the supply chain issues.
Undoubtedly, retail malls across India are witnessing an accelerated rebound and occupancy levels as the Covid-19 pandemic is subsiding and restrictions getting relaxed. As per Shopping Center Association of India (SCAI), shopping malls across India are witnessing a phenomenal growth in footfall as ‘Revenge shopping’ has helped the malls recover faster.
RETAIL REALTY RESILIENCY
One of the sectors worst affected by the pandemic was the retail. Customers staying safe at home have now got accustomed to online shopping, something Indians at large till now were averse to doing. These experiences, many say are likely to affect behavior even post pandemic. In terms of retailing, there is a shift in terms of location from stores to online or High Street, from ownership to lease/rent and structural changes to do away with non-core operations or locations.
Muhammad Ali, CEO -Forum Malls, Prestige Retail said, “The pandemic gave us an opportunity to evaluate and realign our business. The changes were not easy, but they were the right choice for us and for the future of our business. Having built the strongest portfolio of retails assets in the country, it was a very strategic call to divest, merely as the first step towards a larger metamorphosis. We aim to replace the assets we gave up by creating bigger and better ones that are fully aligned with the needs of the retailer and consumer of tomorrow. And the best way to do that is to start afresh - tabula rasa - a clean slate.”
Pushpa Bector Executive Director, DLF Retail sharing her experiences elaborated. “DLF was the first brand that led the way in providing support to its tenants in times that had hit the retail industry adversely and set the path for other developers to change their policies to provide relief to the tenants. An area that we saw as an opportunity was to work towards building trust, both at a consumer level and at the retailer level. We used cutting-edge technology and undertook digital initiatives to enhance customer shopping experience.
Yogeshwar Sharma, Executive Director & CEO, Select CITYWALK Mall, expressing his strategy during the pandemic said, “We have collaboratively worked with all the retail partner on all aspects of marketing, promotions as well concessions during the last two years. Further in order to enable omnichannel services, we have introduced delivery as well as personal shopper services. We have also run several cross promotions based on the categories which needed to be addressed due to adverse effects.”
Nandini Taneja, Vice President- Leasing, Reach Pro Group added, “The first covid wave was a great learning experience for all of us, so we used it to better understand and refine our strategy. For a long time, the retail sector has been more of a collaboration between mall owners, retailers, and in some cases investors, thus it was critical to strike a balance between all parties and design device models that were financially feasible for everybody. All were given the necessary support with the goal of surviving and overcoming the period. During this time, the company also invested in upgrading its existing technology, systems, and database. Various support systems were created based on the tenant type, company style, and potential cover-ups.”
RETAIL REALTY RECOVERY
According to industry analysis, India’s retail leasing is expected to cross the pre-Covid levels this year and see 25% jump in new store openings compared to the previous year. The reasons are not hard to find.
- The opening of the market and business activities gaining momentum reflect the regained consumer confidence.
- The quick adaption and realignment of the sector to the evolving market landscape has helped strengthen the market sentiments.
- Brands or hypermarkets are targeting Tier 2&3 cities for expansion as the demand and behavior of the consumers have changed.
Retail malls in key cities have been recovering faster and retail sales has already reached 55-60% of pre-pandemic run rate. Rental revenue for mall owners in Mumbai are coming back to 80-85% of pre-pandemic levels this financial year, compared with 55-60% last fiscal, said ratings agency CRISIL. And as per Anarock Property consultants, sales across key malls in Delhi, Mumbai and Bangalore have seen 110% growth compared to FY2019-20 numbers as that would be the best benchmark to compare growth. Another report highlights Delhi-NCR market recording increase in rentals of high-street retail by 11-17 per cent and Hyderabad recording 72 per cent quarter-on-quarter growth in retail leasing in the last quarter of FY2021.
NEW REVENUE & LEASING MODELS
In FY21, the overall mall industry saw 70% footfall compared to FY20. From January to March 2021, several malls had witnessed a surge, clocking in 85-90% of pre- Covid level revenue. The retail industry has seen numerous modifications.
As per Nandini Taneja, various models arose throughout the pandemic, including the existing Minimum Guarantee Or Revenue Share, a capex investment and repayment model based on equivalent payments or more revenue share, a structured rent-free term to meet the desired average rentals, and so on. “Financial rent modelling has also been an interesting learning process,” she added.
Yogeshwar Sharma mentioned, “We at Select CITYWALK were pioneer in doing the Revenue Share or MMG with most of the retails which will be a new trend in future. New Domestic (Insta/Online) brands are collaborating at Offline level for short period which helps both the brand and shopping mall to showcase new products and earn revenue. Also, F&B will play a great role with the co-working collaboration to be done during non-traffic hours. Beauty, wellness and athleisure market share has increased and mix has to be work accordingly at mall level and Tech driven store will increase the footprints as they need less space to display more merchandise.”
“Mall owners and retailers seem better prepared this year, with many launching cloud kitchens and deliveries. As a business model, the business sharing model will be replacing the fixed rental model as it is a win-win situation for both developers and brands. DLF has always propagated a M.G + Revenue share model and this has further strengthened it,” said Pushpa Bector.
“If you look at most malls today, they are dominated by fashion but this is completely at odds with the needs of today’s customer. The average Indian consumer spends 20% of their disposable income on fashion. However, most malls in India have 80% of their offerings as fashion. There is a complete disconnect between consumers’ requirements and malls’ offerings. Our new malls will not have more than 40% of space dedicated to fashion. We will bring in new products and categories that are more relevant/ interesting for customers,” stated Muhammad Ali
RETAIL REALTY REINVENTION
As the saying goes, every crisis presents an opportunity. During the pandemic businesses have taken steps to retrospect and reinvent their organizations to do away with the old practices and bring in the new perspective. The retail real estate players went back to the basics to reconsider their value proposition.
Behavioural Change- Recognising the clear change in trends and buying behaviour and patterns of the consumer post the pandemic, retailers are adopting empathetic approach. Identifying key consumer segments beyond the geographical and demographic boundaries, grouping them by psychographics and attitudinal characteristics, will help devise a precise and value-oriented communication strategy that is certain to draw a deep emotional bond with the brand itself. Muhammad Ali elaborated, “Today, Covid has irrevocably altered people’s habits and lifestyles. One key change is that they are reluctant to leave their homes. It will take something really special to make them step out. We are delving into this change and understanding how to leverage it best. So, we did an exercise, where we listed products that people can't consume at home, where they need to personally interface or come outside because it cannot be provided at home. So one thing we’ll do is give more priority to those brands, have more depth and choice in them, and organise them in zones of specialization, both to mitigate the risk of a customer missing out and to facilitate impulse buying.”
Technology – Retail establishments are investing in digital channels to drive margins and acquire new customers. Web and mobile sites, self-service technology and retraining of workforce to use more technology-based assistance are some of the initiatives that have been adopted. “Retail development in the near future will see technology playing a great role and impacting the internal and external environment of the retail landscape in a positive way. Offline can also leverage from the space through events which can work effectively with the help of technology across all functions of Ops, Marketing and CRM. Other trends will include personal shopping service and more experiential stores,” concurred Yogeshwar Sharma.
Health Safety – The crisis has made shoppers conscious of health and hygiene and this is consumer psychology is here to stay. Shopping establishments too are emphasizing on health and safety and taking measures to create an environment of comfort for the shoppers. From improved HVAC to product and personal hygiene, the mall operators especially are hyper-aware of health safety issues.
Pushpa Bector recounted, “The group went above and beyond the guidelines that were issued by the state government by creating the safest retail infrastructure in the country. Before reopening our doors to customers, we ensured full vaccination for our employees & their families, retail partners & staff. Today we have successfully vaccinated 28,000 people across employees, partners, and staff. We also converted our clubs to isolation centres that could help one in need during these unprecedented times.”
Nandini Taneja shared, “Even when marketplaces started opening up with critical care. Only health and safety were the emphasis of our social media posts. At each of our sites, drive-thru vaccination camps were held, and we made sure that all of our employees were vaccinated. We stayed emotionally linked with all of our partners and assisted them in opening up and settling in as needed.”
OMNI CHANNEL RETAIL
The steady increase of online in retail is driving a new digital-commerce first approach. It was observed that during the pandemic, all age groups including the seniors had become digital savvy and were doing online, grocery and other shopping. Furthermore, as customers are becoming savvier, omni channel is the need of the hour, and it gives customers a seamless experience. The majority of malls and retailers are already working on it.
“The supply chain for omni channel commerce should be designed to be both cost-effective and responsive to customer needs. Because the physical and internet channels complement each other, hybrid architecture should be constructed to use both. The physical channel should be utilized for frequent and predictable demands, whereas the online channel should be used for variation and random needs. The physical channel can also act as a showroom and pick-up point for online orders. In emerging economies, where new internet businesses can work with existing local merchants to benefit both parties and the consumer, this hybrid structure can be very beneficial,” expressed Nandini Taneja
“With E-commerce on rise the Omni channel become a popular retail model and it is helping Offline retail in a bigger way as the pie has be growing. Omni Chanel will be way forward as online will be one of avenue for all retail brands More experiential store will be popular at Offline destination and new categories will emerge and will take share at offline space like FEC, Wellness, Beauty,” said Yogeshwar Sharma.
“The accelerated change in consumer behavior after 2020 has made an omnichannel strategy more important than ever before. While technological advancement has already made significant progress in giving customers convenience, the offline channel gives them an elevated, customizable personal experience. Therefore, a healthy mix of offline and online strategy is something to undertake as discovery happens online but the fulfillment takes place offline,” informed Pushpa Bector.
For retailers, the other upside of the COVID-19 pandemic is that customers today are more open than ever before to explore and manipulate omni channel shopping. This has been forcing a bridge between the traditional brick and mortar and ecommerce space, which have fuelled a surge in online shopping as well as in-store and curbside pickups. In effect, all of this is accelerating a trend towards a hybrid retail model.
Muhammad Ali added, “Stores are adopting high-tech fitting rooms, AR/VR, hospitality lounges, on-site returns, and shipping online orders from brick-and-mortar locations as they bring in-store shopping and ecommerce fulfilment into the same space. When we adopt these techniques, they will blur the lines between multiple channels. Fulfilment centres (in malls or retail spaces) will win the trust of customers and retailers when they deliver on fulfilment services time and again. With the hybrid model in place and omni channel strategies, brick and mortar is going to truly bridge the gap and enhance the experience quotient of shopping going forward.
DAWN OF A NEW ERA
With an era of ‘New Normal, investing in the right areas of technology, partnerships and capabilities is the key to success. Every business will need to find the options that best suit their needs. Retail is no longer about buying and selling. Malls and shopping centres, even boutiques and high street are now becoming experiential settings.
Retailers are investing in supply chains to modernize and build operational resilience, through automation in distribution centers, transportation, and last mile delivery. AI/ML systems are enabling better inventory management solutions. India still has a long way to go in terms of being fully organized. However, there is still a large gap in the number of retailers in India, therefore there is room for home-grown companies to flourish or for more international brands to enter the market.
India's retail sector is primed to take off. With a rising demand in commercial and residential realty, the retail sector is only bound to grow exponentially. A new hybrid approach has emerged for several businesses, and in real estate, mixed use developments and hybrid commercial establishments are paving the way for new opportunities for profitable and sustainable retail models.
The primary challenges would be to maintain a competitive edge by fulfilling the demands of a constantly evolving customer and stay technologically relevant and forward. “At Forum, customer experience is at the core of our business. With digitally integrated buildings, smart retail technologies, domain integrations and analytics to reduce costs through energy efficiency, we endeavour to give superior and hyper personalized experience for both our customers and retailers,” shared Muhammad Ali
No doubt, with the constant change in consumer behaviour due to the pandemic, operators who are at par with their technological innovation will continue to excel in 2022. Retail real estate in the future will need to provide convenient multi-channel options, customized services based on consumer needs, and engaging consumer experiences and developers will need to allow the flexibility of space use in the building design, planning and operating stages. As Pushpa Bector puts it, “The brands that succeed will be those that find the opportunities and build on their unique strengths to meet consumers’ evolving needs. To embrace the new opportunities, the brand has also added various new international and home-grown brands to its already strong retail offering and will continue to reinforce its leadership position in the year 2022.”
Global investors’ unabated interest in Indian retail developments coupled with confidence that retail consumption will rebound once the COVID-19 pandemic is over, has marked the largest acquisition of an operational retail asset in India in the last 5 years. Abu Dhabi Investment Authority-backed Lake Shore India Advisory acquired Viviana Mall in Thane from GIC for USD 248 million (INR 19 billion) during Q1 2022.
With the change in the behaviour and shopping habits of the customers, experts agree that historical data may no longer be relevant. Retailers will need to invest in building new intelligent decision models for creating future strategies and planning.
DLF Retail, with its strategic vision has been successful in strengthening its brand portfolio by recently announcing expansion plans by adding 6 new properties - the new properties to include 3 premium neighbourhood plazas, 2 office retail spaces and 1 premium mall. We have also added 132 new brands to the portfolio during the pandemic.
- Pushpa Bector
“Government policies need to be more favourable and there has to be created a quality landscape for mix used development. Assistance in terms of tax benefit in F&B sector, operating timings and tax issue on signage is also required.”
- Yogeshwar Sharma
“We are developing 8 new malls spanning 5 million sqft in Mumbai, Bengaluru, Chennai and Kochi. A conscious decision has been made to move into Tier 1 cities for better return on investments, creating this next generation of malls whose transformative and personalized experience will redefine the whole concept of malls in India.” - Muhammad Ali
“Customers want to experience everything under one roof – shopping, cuisine, entertainment, coworking, and so on – in huge regional centers with populations of one million or more that serve a catchment area of 12-15 kilometers and more. These are social gathering spots that cater to people of various ages. Our shopping center, Reach and Lakeshore Airia, has it all.” Nandini Taneja
As per EY India, India's retail market is estimated to reach $1.5 trillion by 2030, from $0.8 trillion in 2020, indicating that there is a massive opportunity for growth. With the growing demand, there are 4 new persisting purchase behaviors that will be witnessed in the near future:
A healthy mix of online and offline - Numerous digitally native, direct-to-consumer brands began online, however have since started extending their offline presence throughout the course of recent years. While the discovery happens online, fulfillment takes place offline.
Analytics and real time data - Taking into account the swift shifts in buying behavior that has now become expected in the retail landscape, brands focus heavily on analytics and real-time data to plan their way forward strategies including new product development, manufacturing and logistics, and go-to-market which will significantly have to be brought down to shorter periods.
Ethical and Values-Based Sustainable Brands on the Rise - The pandemic has completely changed consumer behavior. Health concerns have compelled people to live differently, think differently and in many ways buy differently. Consumers are looking at products and brands through a new lens and preferring value-based options with a thought behind them.
New Approach to Influencer Marketing - Influencer marketing was all about selfies, heavily edited photos, well thought- out captions etc. But, in the last few years, this content has slowly transitioned into a real and raw aesthetic. Content has been consumed in a never seen pattern before and authentic content is what consumers are looking for.