In the second part of the “Dead Mall Walking, Dheeraj Dogra, Realty & Retail Analyst has thrown the light on India retail realty sector.

Unfortunately, I am yet to find one retailer in organized retail or a developer with the same zeal to please their customers here in India. With all due respect to the retailer and developer community in India. The management seems mostly interested in cutting costs and would rarely talk about excellence. However, things even in India are about to change very soon. A live example is UBER, the cab experience in India was so crappy, when UBER started their services the customers embraced it with open arms and now there is no looking back. So going by that logic when better retailers and developers enter the Indian market the old ones who do not change their ways would disappear sooner than later. I recall in my various assignments here in India when I suggested excellence to my employers and offered to train the employees to create a pleasantly engrossing customer experience, sadly there were no takers. Having pioneered the concept of free personal shopping in the 90’s while with federated department stores once in India I tried to integrate it with CRM a combination which I strongly felt could have amazing results. However, most employers in India are looking at instant gratifications and for a majority of them investing in customer service is more of an academic exercise best suited for teaching case studies in marketing books.Or at the most you would see it on business cards or in ad campaigns as a feel good tag line proclaiming undying love for the customers. As a certified trainer for mystery shoppers I have rarely come across examples of exceptional customer service as a companywide strategy in build within the ethos of the company, apart from a rare individual effort. Surprisingly, the so called unorganized retailers fared much better in my interactions with them when it came to customer satisfaction.

India’s Tryst with Malls

Considering the mall scenario in India, out of all the total malls functioning currently in India an overwhelming majority are being run on a strata selling model. Strata selling model for a large shopping mall is a nail in the coffin, it can’t be fixed simply because strata selling leads to losing control over the mall as an entity. Strata selling of shopping centre in India is driven by the fact that the developers are cash starved and the easiest way to raise capital is by strata selling. However, a few brave developers have ventured into 100 percent lease models which is why they are relatively more successful than their majority strata sold cousins.

While the Indian shopping mall industry still in its infant stage was struggling to find a foothold, the online shopping started making inroads in the Indian retail scenario. With lack of quality retail space and sky high rentals several newer brands are finding refuge in ecommerce websites.

Then there are others who have curtained their initial plans of opening several new stores and are being extremely cautious in their approach with openings restricted to grade A mall in tier one cities.

No wonder many retailers post media announcements of opening xx number of stores end up opening much lessor numbers. A case in point a US retailer Gap initially announcing opening of 40 new stores in four years, two years down only ten have opened. However, Gap has established a strong ecommerce presence in India.

For the cash and carry fraternity, the likes of Walmart and Metro, things can also change for them now that Amazon is slowly getting into the wholesale business. Another typical phenomenon is what I call the flood or famine theory. A city like Gurgaon with a population of about two million in a classic case of flooding has over 40 malls and more in the offering. Anybody’s guess why majority of them are struggling.

Now let’s look at the famine part of my theory.I took up a challenging shopping mall a few years ago in Tirupur aborder town between Tamil Nadu and Kerala most famous for being the hosiery capital of India with export turnover of more than Rs. 23,000 crores. This was to be the only mall of the city of about a million people..

Trained Manpower: In absence of trained manpower, the management takes the next best option of hiring professionals from the service industry like hospitality who have to go thru their own learning curve of learning the nuances of shopping center and retail trade

Market Research: Seldom are market research studies done to get a feel of the target audience, their preferences and other data pertaining to demographics. Even by a remote chance research studies are conducted they are rarely followed and their findings are restricted to being used to generate funds from the lending institutions.

Terms of Agreement: Another case in point is the current practice by retailers to go with revenue sharing agreements with or without minimum guarantees. Once again to decide what would be the right revenue sharing percentage the developers need to understand the margins on what a retailer worksto create a win win for both the stakeholders.

Similarly, the developer may insist on standard long term leasing agreements to safeguard their future income without understanding the dynamics of the retail trade. How the consumers would react to a first time brand entering the market is anybody’s guess.

Private Equity Firms join the bandwagon

Private equity firms are increasingly exploring opportunities to invest in India's shopping malls as such retail assets can be listed under Real Estate Investment Trust (REIT) portfolios. Private equity firms like Blackstone and Xander felt there was enough traction in the Indian retail asset class with shopping centers offering lucrative opportunities for consolidation in India.

REITS would bring considerable comfort to cash starved developers and additionally it would give a smaller investor an avenue to invest in real estate without them putting in their life’s savings at stake.

But, there have been several instances of retailers renegotiating a valid contract and in some instances simply walking away midway thru the contract in case the sales are not happening as expected. Enforcement of contracts using legal means in the Indian judicial system can take forever.