FINAL DISSERTATION- SUBMITTED TOWARDS THE FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS

Impact of shopping malls on customer and shop owners

IMBA-IB (2004-2008) Roll No. : A1210208A17/A1210204020

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

SUBMITTED BY: Gaurav Goyal

AMITY UNIVERSITY UTTAR PRADESH

Amity International Business School, Noida

CERTIFICATE OF COMPLETION

This report entitled Impact of Shopping Malls on Customer and Shop Owners submitted for the award of degree in Masters In Business Administration to Amity International Business School, Noida is a piece of original and authentic work carried out by Gaurav Goyal under the supervision of Faculty guide. This work has not been submitted in part or full to any other institute/university or organization for any additional mileage.

____________ Student

____________ Faculty Guide

TABLE OF CONTENTS

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Topic Preface Acknowledgement Introduction 3.1 Overview of the Retail Sector 3.1.1 Global Retailing Industry Executive summary 4.1 The Far East Experience 4.2 Retail Scenario In India Objectives of the research study Foreign Direct Investment 6.1 Positive Demographics Online Retailing Challenges of Retailing in India Employment in Retailing Retail Models in India 10.1 Evolution of Organized Retailing 10.2 Growth in organised retailing 10.3 Impact of Organized Retail Shopping Mall and its Global presence 11.1 Different types of Shopping Mall

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Review of literature Findings and recommendations 13.1 Chesterton Meghra findings 13.2 Jones Lang Lasalle findings 13.3 Pricewaterhouse Coopers findings 13.4 A T Kearney findings 13.5 Cushman & Wakefield findings Current Situation Present Study Methodology Appendix 15.1 Questionnaire & Results

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ACKNOWLEDGEMENT

A project is never the sole product of a person whose name has appeared on the cover. Even the best effort may not prove successful without proper guidance. For a good project one needs proper time, energy, efforts, patience, and knowledge. But without any guidance it remains unsuccessful. I have done this project with the best of my ability and hope that it will serve its purpose. To be or not to be is not anything which matters, how to be thankful is what really matters It was really a great learning experience and I am really thankful to Amity International Business School considering my candidature for Dissertation and thus providing me an opportunity to work for such an upcoming field. I am also indebted to my Faculty Incharge, Mr. Aditya Gupta who not only guided me but also motivated me and helped to bring the best out of me. I sincerely thank to all the Manager-in-Charge of various outlets, who spared his precious time and helped in expanding my knowledge. I also would extend my sincere gratitude to all of mine respondents with out whose efforts the report would not have been successfully completed and the process of learning would not have been easier. Last but not the least; I am also thankful to all the respondents who have spent their valuable time and efforts in providing me some very valuable inputs.

(Gaurav Goyal)

Overview of the Retail Sector :An Introduction Unlimited Opportunity

GLOBAL RETAILING INDUSTRY

Retail has played a major role world over in increasing productivity across a wide range of consumer goods and services .The impact can be best seen in countries like U.S.A., U.K., Mexico, Thailand and more recently China and India. Economies of countries like Singapore, Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector. Retail is the second-largest industry in the United States both in number of establishments and number of employees. It is also one of the largest worldwide. The retail industry employs more than 22 million Americans and generates more than $3 trillion in retail sale annually. Retailing is a U.S. $7 trillion sector. The latter half of the 20th Century, in both Europe and North America, has seen the emergence of the supermarket as the dominant grocery retail form. The reasons why supermarkets have come to dominate retailing are not hard to find. The search for convenience in food shopping and consumption, coupled to car ownership, led to the birth of the supermarket. As incomes rose and shoppers sought both convenience and new tastes and stimulation, supermarkets were able to expand the products offered. The invention of the bar code allowed a store to manage thousands of items and their prices and led to 'just-in-time' store replenishment and the ability to carry tens of thousands of individual items. Computer-operated depots and logistical systems integrated store replenishment with consumer demand in a single electronic system. The superstore was born. On the Global Retail Stage, little has remained the same over the last decade. One of the few similarities with today is that Wal-Mart was ranked the top retailer in the world then and it still holds that distinction. Other than Wal-Marts dominance, theres little about todays environment that looks like the mid-1990s. The global economy has changed, consumer demand has shifted, and retailers operating systems today are infused with far more technology than was the case six years ago. Saturated home markets, fierce competition and restrictive legislation have relentlessly pushed major retailers into the globalization mode. Since the mid-1990s, numerous governments have opened up their economies as well, to the free markets and foreign investment that has been a plus for many a retailer. However, a more near-term concern, has been the global economic slowdown that has resulted from dramatic cutback in corporate IT and other types of capital spending. Consumers themselves have become much more price sensitive and conservative in their buying, particularly in the more advanced economies. From an operational point of view, active practitioners have voiced their opinion that retailer concerns in 2003 have turned to deflation, lack of pricing power, global overcapacity, low interest rates, economic stagnation, slump in world tourism and declining consumer confidence.

But, even before the global economic slowdown that forced retailers into monitoring costs more effectively, technological advances were a way of life in retail organizations. Technology has become the real enabler for retailers over the last six years. Supply chain innovations for retailers were particularly strong in the second half of the 1990s and have continued into today. With all the emphasis on technology and cost-cutting, a major thrust of retailers continues to be demand-based: finding new markets through globalization efforts. For Four years, more than half (53 per cent) of the top 200 retailers operated in a single country. Today, only 44 per cent remain single-country merchants. This globalization trend can only intensify in the years ahead. The benefits of increased sales and greater economies of scale are too large to be ignored. The global retail industry has traveled a long way from a small beginning to an industry where the world wide retail sales alone are valued at $ 7 trillion (Source: 2003 Global Retail Report, Deloitte Touche Tohmatsu). The top 200 retailers alone account for 30% of worldwide demand. Retail sales being generally driven by peoples ability (disposable income) and willingness (consumer confidence) to buy, compliments the fact that the money spent on household consumption worldwide increased 68% between 1980 and 2003. The leader has in-disputably been the USA where some two-thirds or $ 6.6 trillions out of the $ 10 trillions American economy is consumer spending. About 40% of that ($ 3 trillions) is spending on discretionary products and services. Retail turnover in the EU is approximately Euros 2000 billion and the sector average growth looks to be following an upward pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06. Positive forces at work in retail consumer markets today include high rates of personal expenditures, low interest rates, low unemployment and very low inflation. Negative factors that hold retail sales back involve weakening consumer confidence. Worlds Top 15 Retailers

GLOBAL RETAIL (Source: CSO, MGI Study)

1999

2002

2005

Total Retail (US$ billion) Organized Retail (US$ billion) % share of organized retail

150 1.1 0.7

180 3.3 1.8

225 7 3.2

The Far East Experience:

The Retail Industry in the Far East has evolved into what could be called the breeding ground for emerging models with countries like Singapore being the home to some of the big players in the industry in these parts of the world. The presence of all the major players of the retailing industry is found in Singapore. Singapore has 2 hypermarkets, one run by Carrefour and the other by Giant Hypermarket, part of Dairy Farm International. According to the government, there are slightly more than 11,000 market stalls operating in 150 markets located all across Singapore Island. The markets further spread to China, Thailand, and Malaysia thanks to the major support that the local governments provided in creating the necessary regulatory framework in establishing their presence. Singapore, Malaysia and Thailand not only fueled the retail industry within the country, but also attracted hordes of tourists to experience the shopping experiences that they created in these islands. The markets are now saturated with no additional space for a new entrant and are expected to consolidate within the next few years. Apart from Singapore, which is a more recent development, Japan enjoys an active spot on the retailers map. The retail industry is as huge as US$ 1088 Billion, with a split of US$ 594.8 Billion in the non-food segment and US$ 493.2 Billion in the food-retailing sector. The leaders in sales are Ito-Yokado, Aeon, Daiei, Takashimaya, and Uny, in that order. Several retailers, however, have made recent improvements in their warehousing and distribution technologies to make their presence felt in the Japanese market. Convenience stores, which are small and suitable in a country where land is very expensive, continue to do well. Food, in fact, has been one of the few sectors that have experienced growth over the last several years. A period of shake up in the industry is likely now that Wal-Mart has entered Japan. Numerous smaller, less efficient retailers may become takeover targets. The entire Japanese retail sector will likely undergo some form of restructuring over the next decade as a result of overcapacity, dismal profits and the Wal-Mart factor. In Mainland China, the retail markets have mushroomed over the years of intense economic development to a very considerable size. The total volume of retail sales for consumer goods and food increased by 10.6 percent in China over the last couple of years which shows tremendous growth. Consumer spending has held strong. A decade ago, the top five retail enterprises in China were all traditional merchandise companies, but now the top five are mainly supermarkets and chain stores. The world is enamored with Chinas potential and opportunities. But in medium-sized and small cities and rural areas, traditional retailing methods, such as department stores and local retailing networks, will be sufficient, as consumption is lower. In Indonesia, Wet markets and supermarkets remained the major distribution channels for food products. Although these retail sub-sectors also offered non-food products, such as household goods, food products remained dominant in terms of the number of items. Wet markets distribution of food products tended to be much greater than non-food as these retail channels mainly provided fresh produce. Conversely, supermarkets had an almost equal distribution, with food taking up the greater proportion.

On the other hand, the distribution of non-food products benefited from both food and non-food retailers. For example, some food retail formats offered non-food items, such as supermarkets, hypermarkets, and convenience stores. These retail outlets provided some basic non-food products, such as toothpaste, soap, or detergent. However, non-food retail outlets rarely provided food items, except certain department stores or druggists.

In Malaysia, a majority of food retailer outlets offer food and non-food items, with at least a 70:30 distribution. The traditional food distribution system in Thailand is through so-called 'wet markets' which sell fruits, vegetables, meat and fish, together with small 'mom and pop' food stores which distribute dry goods. However, the rapid growth of the economy, particularly during the decade before the financial crisis began, has led to dramatic changes in the structure of the food-retailing sector. Modern supermarkets, superstores, hypermarkets and convenience stores developed at breakneck pace to service the growing middle class with their demand for more sophisticated food stores and a greater variety of products many of which were imported.
RETAIL SCENARIO IN INDIA: Touching Meteoric Scales

Spread of Organized Retailing in India Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiris as early as 1904, the retail revolution happened with various major business houses foraying into the starting of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily.

In the Indian context, a countrywide chain in food retailing is yet to be established as lots of Supply Chain issues need to be answered due to the vast expanse of the country and also diverse cultures that are present. Table 1: Components of Service Sector in India Components Share % in Growth during GDP (2002-03) 2002-03 Construction 5.3 7.3 Trade 14.0 4.5 Hotels & Restaurants 1.1 4.0 Railways 1.1 5.7 Other Transport 4.3 6.0 Storage 0.1 -7.8 Communications 3.5 22.0 Banking & Insurance 6.9 11.6 Real Estate, 6.1 5.9 Business/Legal Services Defense 5.9 5.3 Other Community & 7.8 6.2 Social Services Total 56.1 7.2 Source: Presentation to FICCI by MBN Rao (Chairman, Indian Bank): Strategy for Financing Service Sector (Sept. 15, 2004) A. T. Kearney Inc. places India 6th on a global retail development index. The country has the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7% of the population in India is engaged in retailing, as compared to 20% in the USA. In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food-related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2002. The share of foodrelated items had, however, declined over the review period, down from 73% in 1999. This is not unexpected, because with income growth, Indians, like consumers elsewhere, have started spending more on non-food items compared with food products. Sales through supermarkets and department stores are small compared with overall retail sales. Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about 30% per year during the review period). This high acceleration in sales through modern retail formats is expected to continue during the next few years, with the rapid growth in numbers of such outlets due to consumer demand and business potential.

Some of the facts which are very much responsible for the growth of the Indian retail

sector can be expressed as follows: Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity.

It was only in the year 2000 that the global management consultancy AT Kearney put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent.

Retailing in India is thoroughly unorganized. There is no supply chain management perspective. According to a survey b y AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized.

As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).

Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). There is no data on this sector's contribution to the GDP.

From a size of only Rs.20, 000 crore, the ORGANISED retail industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey by AT Kearney)

Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context.

The first challenge facing the organized retail industry in India is: competition from the unorganized sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labor costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector.

In contrast, players in the organized sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. High costs for the organized sector arises from: higher labour costs, social security to employees, high quality real estate, much bigger premises, comfort facilities such as airconditioning, back-up power supply, taxes etc. Organized retailing also has to cope with

the middle class psychology that the bigger and brighter sales outlet is, the more expensive it will be. The above should not be seen as a gloomy foreboding from global retail operators. International retail majors such as Benetton, Dairy Farm and Levis have already entered the market. Lifestyles in India are changing and the concept of "value for money" is picking up.

India's first true shopping mall complete with food courts, recreation facilities and large car parking space was inaugurated as lately as in 1999 in Mumbai. (This mall is called "Crossroads").

Local companies and local-foreign joint ventures are expected to more advantageously position than the purely foreign ones in the fledgling organized India's retailing industry.

These drawbacks present opportunity to international and/or professionally managed Indian corporations to pioneer a modern retailing industry in India and benefit from it.

The prospects are very encouraging. The first steps towards sophisticated retailing are being taken, and "Crossroads" is the best example of this awakening. More such malls have been planned in the other big cities of India.

An FDI Confidence Index survey done by AT Kearney, retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would make an impact circa 2003.

A Synopsis: (Please note that the figures given in this report have been contested by some people in India itself. So, they may not be accurate. Yet, they are indicative).

India has registered a very impressive growth of its middle class -- a class which was virtually non-existent in 1947 when India became a politically sovereign nation. At the start of 1999, the size of the middle class was unofficially estimated at 300 million people. The middle class comprises three sub-classes: the upper middle, middle and lower middle. The upper middle class comprises an estimated 40 million people. They have annual incomes of US$600,000 each in terms of Purchasing Power Parity (PPP). (Please note that the calculation of PPP is complicated, but suffice it to say that it is based on what a unit of currency can PURCHASE in one country compared to what the same currency can purchase in another country. It is also known as the "law of one price" that governs the price level of general goods and services between the two countries). The middle class comprises an estimated 150 million people, each with PPP incomes of US$20,000 per year each. The lower middle class comprises an estimated 110 million people. An estimate of their annual income is not available, but they are mostly the relatively affluent people in the rural areas of India. The middle classes ON THE WHOLE (i.e. upper middle + middle + lower middle classes) is expected to grow by 5 to 10 percent annually.

The Indian retail sector can be broadly classified into: Food Retailers There are large number and variety of retailers in the food-retailing sector. Traditional types of retailers, who operate small single-outlet businesses mainly using family labour, dominate this sector .In comparison, super markets account for a small proportion of food sales in India. However the growth rate of super market sales has being significant in recent years because greater numbers of higher income Indians prefer to shop at super markets due to higher standards of hygiene and attractive ambience. Health & Beauty Products With growth in income levels, Indians have started spending more on health and beauty products. Here also small, single-outlet retailers dominate the market .However in recent years, a few retail chains specializing in these products have come into the market. Although these retail chains account for only a small share of the total market , their business is expected to grow significantly in the future due to the growing quality consciousness of buyers for these products. Clothing & Footwear Numerous clothing and footwear shops in shopping centers and markets operate all over India. Traditional outlets stock a limited range of cheap and popular items; in contrast, modern clothing and footwear stores have modern products and attractive displays to lure

customers. However, with rapid urbanization, and changing patterns of consumer tastes and preferences, it is unlikely that the traditional outlets will survive the test of time. Home Furniture & Household Goods Small retailers again dominate this sector. Despite the large size of this market, very few large and modern retailers have established specialized stores for these products. However there is considerable potential for the entry or expansion of specialized retail chains in the country. Durable Goods The Indian durable goods sector has seen the entry of a large number of foreign companies during the post liberalization period. A greater variety of consumer electronic items and household appliances became available to the Indian customer. Intense competition among companies to sell their brands provided a strong impetus to the growth for retailers doing business in this sector. Leisure & Personal Goods Increasing household incomes due to better economic opportunities have encouraged consumer expenditure on leisure and personal goods in the country. There are specialized retailers for each category of products (books, music products, etc.) in this sector. Another prominent feature of this sector is popularity of franchising agreements between established manufacturers and retailers.

Forecast total retail sales Retail sales are predicted to rise more rapidly than consumer expenditure during 20052008. The forecast growth in real retail sales during 2005-2008 is 8.3% per year, compared with 7.1% for consumer expenditure. According to KSA TechnoPak, a leading consulting firm, the organised sector will grow to almost Rs 30, 000 crore by 2005, representing 6 per cent of the total retail market. Inevitably, modernisation of the

Indian retail sector will be reflected in rapid growth in sales of supermarkets, department stores and hypermarkets. Foreign Direct Investment: For most of the 1990s, total foreign direct investment (FDI) flows attained new record levels every year (figure 1), and increasing investment flows were taken for granted in many countries. Then, in 2001, investment plummeted, and the subsequent years saw a steady and steep decline in global FDI flows.

Given this backdrop, the recent clamour about opening up the retail sector to Foreign Direct Investment (FDI) becomes a very sensitive issue, with arguments to support both sides of the debate. It is widely acknowledged that FDI can have some positive results on the economy, triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards, apart from greater integration into the global economy. Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price reductions and improved selection, brought about by the technology and know-how of foreign players in the market. This in turn can lead to greater output and domestic consumption. But the most important factor against FDI driven modern retailing is that it is labor displacing to the extent that it can only expand by destroying the traditional retail sector. Though most of the high decibel arguments in favor of FDI in the retail sector are not without some merit, it is not fully applicable to the retailing sector in India, or at least, not yet. This is because the primary task of government in India is still to provide livelihoods and not create so called efficiencies of scale by creating redundancies. As per present regulations, no FDI is permitted in retail trade in India. Allowing 49% or 26% FDI (which have been the proposed figures till date) will have immediate and dire consequences. Entry of foreign players now will most definitely disrupt the current balance of the economy; will render millions of small retailers jobless by closing the small slit of opportunity available to them. Imagine if Wal-Mart, the worlds biggest

retailer sets up operations in India at prime locations in the 35 large cities and towns that house more than 1 million people. The supermarket will typically sell everything, from vegetables to the latest electronic gadgets, at extremely low prices that will most likely undercut those in nearby local stores selling similar goods. Wal- Mart would be more likely to source its raw materials from abroad, and procure goods like vegetables and fruits directly from farmers at preordained quantities and specifications. This means a foreign company will buy big from India and abroad and be able to sell low severely undercutting the small retailers. Once, a monopoly situation is created this will turn into buying low and selling high. Such re-orientation of sourcing of materials will completely disintegrate the already established supply chain. In time, the neighboring traditional outlets are also likely to fold and perish, given the predatory pricing power that a foreign player is able to exert. As Nick Robbins wrote in the context of the East India Company, By controlling both ends of the chain, the company could buy cheap and sell dear. The producers and traders at the lowest level of operations will never find place in this sector, which would now have demand mostly only for fluent English-speaking helpers. Having been uprooted from their traditional form of business, these persons are unlikely to be suitable for other areas of work either. It is easy to visualize from the discussion above, how the entry of just one big retailer is capable of destroying a whole local economy and send it hurtling down a spiral. One must also not forget how countries like China, Malaysia and Thailand, who opened their retail sector to FDI in the recent 13 Census 2001, Registrar of Census, GOI 14 Robbins, Nick, The Worlds First Multinational. The New Statesman, (Dec. 13, 2004) past, have been forced to enact new laws to check the prolific expansion of the new foreign malls and hypermarkets. Given their economies of scale and huge resources, a big domestic retailer or any new foreign player will be able to provide their merchandise at cheaper rates than a smaller retailer. But stopping an Indian retailer from growing bigger is something current public policy cannot do, whereas the State does have the prerogative in whether foreign entry in the retail sector should be stalled or not. It is true that it is in the consumers best interest to obtain his goods and services at the lowest possible price. But this is a privilege for the individual consumer and it cannot, in any circumstance, override the responsibility of any society to provide economic security for its population. Clearly collective well-being must take precedence over individual benefits. Positive Demographics Indian economy is set to grow at a CAGR of 7%. GDP growth is fast translating into higher income levels and with a median population age of 25 years, Indian earning class is expected to multiply. Indias urban population at 28% is expected to rise to 38% by 2025.This coupled with the benign interest rates and growing plastic money is resulting in higher consumer spending. Western experience points towards India with favorable

demographics and policy initiatives to deliver one of the highest growth rates in the organized retailing industry over the next decade. Rising share of organized retail Organized retailing is currently pegged at around Rs280bn. Share of organized retail has risen from about 1% of total retail sales in 1999 to almost 3.5% in 2004. This is expected to rise to 8-10% over the next 5 years. The industry offers huge growth potential and many have been quick to seize this opportunity, as seen in rising level of large retail formats. Total new mall space of 75mn sq ft is expected to spring up by 2007 in the country. The big three retailers Pantaloon Retail, Shoppers Stop and Trent plan to double retail space, together adding almost 3mn sq ft retail space by 2007. Ascending the learning curve With most of the players operating for over 5 years now, new formats have been tested and back end systems have been put in place. Not only are footfalls growing, but conversions are rising and so are average ticket sizes. Most of the players have raised capital either through private placement, rights or public issue and are in the process of executing their aggressive growth plans. Robust growth in earnings We expect sector earnings to grow at a CAGR of 55- 60% over the next 2 years. Market leader Pantaloon with expected earnings CAGR of 65% remains our top pick in the sector. We also reiterate our Buy on Trent (Expected earnings CAGR of 63%). We recommend Book Profits on Shoppers Stop Managing growth - the key challenge The fast pace of growth throws up major worries - Do the players have the necessary supply chain and IT systems in place to manage the growth? Is FDI in the sector really required? Are increasing footfalls resulting in conversions as growth would rest not on footfalls, but on conversion of window shoppers to consumers. Players inability to manage the growth and high inventory write offs could be the key risk to our estimates.

Informed Consumer Over the years, the increasing literacy in the Country and the exposure to developed nations via satellite television or by way of the overseas work experiences, the consumer awareness has increased on the quality and the price of the products/services that is expected. Today more and more consumers are vocal on the quality of the products/services that they expect from the market. This awareness has made the consumer seek more and more reliable sources for purchases and hence the logical shift to purchases from the organized retail chains that has a corporate background and where

the accountability is more pronounced. The consumer also seeks to purchase from a place where his/her feedback is more valued. Social Trends Social trends of a country have impact on the scheme of growth of food retailing in a country. India is country that is vast geographically and diverse culturally. This has taken its toll on food retailing with retailers having to adapt to the local cultures and palates of the area in which they have established or plan to establish. This is a major reason for many or most retailing chains restricting their operations to a certain part of the country. But the trends now are slowly moving towards cultural integration where people of all states and diametrically opposite cultures tend to try out foods and materials of other states and communities. This movement towards social integration would make it very feasible in the near future for retailing chains and erstwhile local chains to spread across the country. Increased income levels and more women willing to make use of their education by joining work has increasingly affected the shopping pattern that is moving towards fulfilling the need of convenience shopping in the form of Supermarkets (now graduating to Hyper format) home deliveries. Indian consumer is quality and price conscious and this awareness would drive the retailers to rework their supply chain relationships. A recent analysis shows that countries go through a distinct food consumption evolutionary pattern. In the first stage the focus is on obtaining basic dietary inputs, the second stage focuses on improving and building basic foods, before moving to the third stage of adding premium food to the diet. Most of urban India has already moved to the third stage and it is a great avenue for food retailers, if they could slowly introduce the rest of India to it. The future would witness creation of specific models/formats one for the upwardly mobile urbanite and the other for the rural markets. Also since the taste habits change from place to place in India, there would emerge a leading

Online Retailing The single most important evolution that took place along with the retailing revolution was the rise and fall of the dotcom companies. A sudden concept of `non-store' shopping emerged, which threatened to take away the potential of the store. More importantly, the very nature of the customer segment being addressed was almost the same. The computer-savvy individual was also a sub-segment of the `store' frequenting traffic. Internationally, the concept of Net shopping is yet to be proven. And the poor financial performance of most of the companies offering virtual shopping has resulted in store-

based retailing regaining the upper hand. Other forms of non store shopping including various formats such as catalogue/mail order shopping, direct selling, and so on are growing rapidly. However, the size of the direct market industry is too limited to deter the retailers. For all the convenience that it offers, electronic retailing does not suit products where `look and see' attributes are of importance, as in apparel, or where the value is very high, such as jewellery, or where the performance has to be tested, as of consumer durables. The most critical issue in electronic retailing, especially in a country such as ours, relates to payments and the various security issues involved. However, using the internet to be able to source products and also check for availability of stock among stores of retail chains has been proven to be effective and cuts down on wastage by a vast amount. It makes logistical support very easy and efficient. The trend in India is such that usage of the electronic medium for business purposes and integrating it into the systems is increasing. This would slowly spread into the retailing sector as well. It has already started in the case of some large retail houses where the affects are here to see. This again would result in the supply chain getting leaner and vertically integrated. Though the initial costs to implement these systems are high, in the long run it results in cost reduction where this privilege can be passed on to the final consumer.

Challenges of Retailing in India Retailing as an industry in India has still a long way to go. To become a truly flourishing industry, retailing needs to cross the following hurdles: Automatic approval is not allowed for foreign investment in retail. Regulations restricting real estate purchases, and cumbersome local laws. Taxation, which favours small retail businesses. Absence of developed supply chain and integrated IT management. Lack of trained work force. Low skill level for retailing management. Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence and low margins. The retailers in India have to learn both the art and science of retailing by closely following how retailers in other parts of the world are organizing, managing, and coping up with new challenges in an ever-changing marketplace. Indian retailers must use innovative retail formats to enhance shopping experience, and try to understand the regional variations in consumer attitudes to retailing. Retail marketing efforts have to improve in the country advertising, promotions, and campaigns to attract customers; building loyalty by identifying regular shoppers and offering benefits to them; efficiently managing high-value customers; and monitoring customer needs constantly, are some of the aspects which Indian retailers need to focus upon on a more pro-active basis. Despite the presence of the basic ingredients required for growth of the retail industry in India, it still faces substantial hurdles that will retard and inhibit its growth in the future. One of the key impediments is the lack of FDI status. This has largely limited capital investments in supply chain infrastructure, which is a key for development and growth of food retailing and has also constrained access to world-class retail practices. Multiplicity and complexity of taxes, lack of proper infrastructure and relatively high cost of real estate are the other impediments to the growth of retailing. While the industry and the government are trying to remove many of these hurdles, some of the roadblocks will remain and will continue to affect the smooth growth of this industry. Fitch believes that while the market share of organised retail will grow and become significant in the next decade, this growth would, however, not be at the same rapid pace as in other emerging markets. Organised retailing in India is gaining wider acceptance. The development of the organised retail sector, during the last decade, has begun to change the face of retailing, especially, in the major metros of the country.

Experiences in the developed and developing countries prove that performance of organised retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with customers and their needs. In spite of the positive prospects of this industry, Indian retailing faces some major hurdles (see Table 1), which have stymied its growth. Early signs of organized retail were visible even in the 1970s when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their operations. However, as a result of the roadblocks (mentioned in Table 1), the industry remained in a rudimentary stage. While these retailers gave the necessary ambience to customers, little effort was made to introduce world-class customer care practices and improve operating efficiencies. Moreover, most of these modern developments were restricted to south India, which is still regarded as a Mecca of Indian Retail.

Employment in Retailing A simple glance at the employment numbers is enough to paint a good picture of the relative sizes of these two forms of trade in India organised trade employs roughly 5 lakh people (see Tables 8 & 9), whereas the unorganized retail trade employs nearly 3.95 crores5! According to a Government of India study the number of workers in retail trade in 1998 was almost 175 lakhs. Given the recent numbers indicated by other studies, this is only indicative of the magnitude of expansion the retail trade is experiencing, both due to economic expansion as well as the jobless growth that we have seen in the past decade. It must be noted that even within the organised sector, the number of individually-owned retail outlets far outnumber the corporate backed institutions. Though these numbers translate to approximately 8% of the workforce in the country (half the normal share in developed countries) there are far more retailers in India than other countries in absolute numbers, because of the demographic profile and the preponderance of youth, Indias workforce is proportionately much larger. That about 4% of Indias population is in the retail trade says a lot about how vital this business is to the socio-economic equilibrium in India.

Organised retail is still in the stages of finding its feet in India even now. Though organised trade makes up over 70-80% of total trade in developed economies, Indias figure is low even in comparison with other Asian developing economies like China, Thailand, South Korea and Philippines, all of whom have figures hovering around the 20-25% mark. These figures quite accurately reveal the relative underdevelopment of the retail industry in India. (Here development is used in the narrowest sense of the term, implying lean employment and high automation).

Retail Models in India: Current & Emerging Hypermarts Large supermarkets, typically (3,500 - 5,000 sq. ft) Mini supermarkets, typically (1,000 - 2,000 sq. ft) Convenience store, typically (750 - 1,000 sq. ft) Discount/shopping list grocer Traditional retailers trying to reinvent by introducing self-service formats as well as valueadded services such as credit, free home delivery etc. The Indian food retail market is characterized by several co-existing types and formats. These are: 1 21. The road side hawkers and the mobile (pushcart variety) retailers. 3 42. The kirana stores (the Indian equivalent of the mom-and-pop stores of the US), within which are: 0 a. Open format more organized outlets. 1 2 b. Small to medium food retail outlets.

Modern trade the organized retailers Within modern trade, we have: 11. The discounter (Subhiksha, Apna Bazaar, Margin Free) 2 32. The value-for-money store (Nilgiris) 4 53. The experience shop (Food world, Trinethra) 6 74. The home delivery (Fabmart) While the focus of this chapter is on modern organized retail trade, we hereunder present insights into the smaller, semi and unorganized retailers. Hawkers mobile supermarkets The unorganized sector is characterized by the lari-galla vendors (also known as mobile supermarket) seen in every Indian bylane and is, therefore, difficult to track, measure and analyse. But they do know their business these lowest cost retailers can be found wherever more than 10 Indians collect a rural post office, a dusty roadside bus stop or a village square. As far as location is concerned, these retailers have succeeded beyond all doubt. They have neither village nor city-wide ambitions nor plans their aim is simply a long walk down the end of the next lane. This mode of mobile retailers is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of fresh foods in India occurs in Mandis and roadside hawker parks, which are usually illegal and entrenched. These are highly organized in their own way. Hawking of food products, cooked food and FMCG products is a very interesting model of retailing. Much has been written about these roadside malls from social security issues to their nuisance value. However, if you put these hawkers together, they are akin to a large supermarket with little or no overheads and high degree of flexibility in merchandise, display, prices and turnover. While shopping ambience and the trust factor maybe missing, these hawkers sure have a system that works. Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores are characterized by the more systematic buying from the mandis or the farmers and selling from fixed structures. Economies of scale are not yet realized in this format, but the front end is already visibly changing with the times. These stores have presented Indian companies with the challenge of servicing them, giving rise to distribution and cash flow cycles as never seen elsewhere in Asia. The model is very antithesis of modern retail in terms of the buyer (retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link the supply of one line of products to another slower moving line of products. Evolution of Organized Retailing

Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains, convenience stores and fast-food chains. The traditional grocers, by introducing self-service formats as well as value-added services such as credit and home delivery, have tried to redefine themselves. However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its cost-effectiveness, has come to be identified with lifestyles. In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. In a sense, this trend is already visible with the emergence of stores with an essentially `value for money' image. The attractiveness of the other stores actually appeals to the existing affluent class as well as those who aspire to be part of this class. Hence, one can assume that the retailing revolution is emerging along the lines of the economic evolution of society. It was only in the year 2000 that the economists put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which is expected to develop to around Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent. Retailing in India is unorganized with poor supply chain management perspective. According to a recent survey by some of the retail consulting bodies, an overwhelming proportion of the Rs. 400,000 crore retail markets are UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).

Growth in organised retailing

Currently the retail landscape is filled with Supermarket chains with over 1000 outlets all over the country to increase to around 5000 by the 2005. The success of a couple of Hypermarts indicating the evolution of hypermarkets in the country prominent among them is Giant, Metro, Big Bazaar models. While the average bill value at a supermarket is in the range of Rs.300 per bill, the average bill amount at a Hypermarket is in the range of Rs.7501000, indicating that the model is in tune with the global models where the average spend is increasing with the shopping experience. Impact of Organized Retail Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiris as early as 1905, the retail revolution happened with the RPG group starting the Food world chain of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends and the group is now foraying into other territories as well. Owing to the success of Food world model of RPG group, several new models such as Trinethra, Subhiksha, Margin Free and others have made their foray into this sector albeit at regional levels. Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the organised food retail segment is about 1 per cent and increasing at a pace of over 20% year-on-years. To be successful in food retailing in India essentially means to draw away shoppers from, the roadside hawkers and kirana stores to supermarkets. This transition can be achieved to

some extent through pricing, so the success of a food retailer depends on how best he understands and squeezes his supply chain. The other major factor is that of convenience shopping which the supermarket has the edge over the traditional kirana stores. On an average a supermarket stocks upto 5000 SKUs against few hundreds stocked at an average kirana stores. Though with excellent potential, India poses a complex situation for a retailer, as this is a Country where each State is a mini-Country by itself. The demographys of a region vary quite distinctly from others. In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. Hence we may find more of regional players and it would take enormously long time before nation wide successful retail chains emerge. This is the main reason as to why the successful retail chains in the country today operate at regional segments only and are not aiming at nation wide presence, at least for the time being. In the organized retail industry, the gestation periods are long, institutional funding is difficult, and there is none or little Government support. But the belief among top retailer chains in the country is that the industry will see large investments coming once the current ban on foreign direct investment is lifted. But that could be two-three years away. Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy. For example, the next-door grocery shopkeeper is smart and delivers good customer service, though not value. As of now, while Chennai has about five organised food and grocery retail chains, other big cities such as Delhi, Bangalore, and Mumbai average only two-three such chains. Almost all food retail players have been region-specific as far as geographical presence is concerned in the country. To illustrate with examples, the RPG Group's Food World, Nilgiris, Margin Free, Giant, Varkey's and Subhiksha, all of which are more or less spread in the Southern region; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbai-centric; while Adani is Ahmedabad-centric. Industry topography in India is such that spreading presence across cities is a tough call. As pointed out by many experts, organised food and grocery retailing chains going national requires significant investments. Retailing within this sector is not just about the front-end, but involves complex supply chain and logistics issues as well. The trend and mindset of the present retailer chains in India can be best understood by studying FoodWorld as an example, which came in first in the food and grocery retailing sector. The chain has no plans to venture beyond the Southern region just yet. Current plans are to focus on the Southern markets and achieve saturation. The intention is that by 2005, they could look at the other regions. Subhiksha, a Chennai based discount chain, too wants to be the principal store of purchase for at least 40 per cent of all consumers living within 500-750 meters of the store, that is, within walking distance. This makes the point very clear that the strategy among most existing retail chains of various formats is to completely saturate the markets where they are already established players and then move on to virtually untouched areas where the challenge of sourcing

resources and extending their supply chain model to best suit the size and expanse of the market would be a challenging task. Meanwhile, the RPG group plans to take its new formats such as Giant Hypermarkets national over the next three years. Grocery is a large component of this format, but not the only one. To elaborate on the hurdles of going pan-Indian, fundamentally, the way a basic grocery retailing model works is that the high set-up costs in terms of setting up buying/ distribution infrastructure is gradually amortised over a larger number of stores. The backend costs without distribution centre costs, or what in retail jargon is called retail administration costs, should stabilise at around 2.5 per cent to 3 per cent of sales. It can be explained that the obstacles of looking at a pan-India model for grocery are several. Given the federal nature of the country, the weak infrastructure and the major variances in eating habits in different parts of the country, one will have to replicate the retail administration costs for at least each region and therefore the gestation period of the project becomes huge. However, if a model is in place where the upfront store revenues scale very rapidly, then it is possible. Therefore, if one is to attempt a pan-Indian grocery foray, it will have to be in the hypermarket format with its attendant investment numbers and risk profile. If a close look is taken at the nature of the Indian Retail Markets, it can be seen that there is so much potential to extract from individual regions that players are in no tearing hurry to spread out. Based on a recent study by a renowned government institution in India, in the six major metros, Delhi has the highest per capita consumption of food and grocery, among supermarkets. Chennai, the mecca of retailing, comes at fourth place. This shows the high potential the sector presents. Chennai has some five supermarket chains, and each of these is doing well for themselves. So there is enough scope to expand even in one single city in India. Sabka Bazaar, a supermarket chain restricted to Delhi alone, is now generating sales of about Rs 11 crore from its 19 stores which best illustrates the potential of each individual city. This explains the reason for delay in intentions of retailers to spread far and wide. Pantaloon Retail (India) Ltd, which operates two types of retail formats, made its maiden foray in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloon group's discount store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in Delhi is the sixth for the group, and the first in North India. It has been found that existing Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attract average footfalls of 20,000 to 25,000 per day, more so during weekends. While Big Bazaar is essentially a discount store retailing product categories ranging from food and grocery to apparel to footwear to home and interior products, food and grocery retailing forms a significant part of the chain's business. Typically, while food and grocery

retailing does well at the beginning of the month, the apparel sector sees maximum off take during festivals. It can be observed that the most popular retail format in India is the supermarket, beside the corner shop/grocery store/mom and pop store. Hypermarkets have very recently come into being and are negligible in number though most retail chains do intend to expand their presence through this format as well very soon. Discount chains are also substantial in number and are growing at a fast pace through the country, predominantly, in the southern region. Given that organised retail has been registering growth rates of approximately 40 per cent over the last three years, it is expected to grow to about Rs 35,000 crore in 2005, and close to Rs 70,000 crore in 2010. If projections were to be made considering the current trends in food retailing in India, some years down the line, food and grocery stores will become dominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such stores. Also, once established, in-store label brands will become a real threat to the industry as manufacturers will have to compete with the store label brands that are generally very price-competitive. As for the spread geographically, strong chances stand that the major chains would spread to the next grade of cities in the country over the next 5 years or so and then progressively start covering every corner of the country. Most chains have already started developing their own unique supply chains that would suit their needs precisely. Replicating the success stories of the big names of the Western nations may still be a distant dream for Indian food and grocery retailers, but at least the winds are blowing in the direction of growth. Shopping Mall and its Global presence 1. An urban shopping area limited to pedestrians. 2. A shopping center with stores and businesses facing a system of enclosed walkways for pedestrians. A Shopping center, Shopping Mall, or Shopping plaza, is the modern adaptation of the historical marketplace. The Mall is a collection of independent retail stores, services, and a parking area, which is conceived, constructed, and maintained by a separate management firm as a unit. They may also contain restaurants, banks, theaters, professional offices, service stations etc. A Shopping Mall (or simply Mall), Shopping Centre or Shopping arcade is a building or set of buildings that contain stores and have interconnecting walkways that make it easy for people to walk from store to store. The walkways might be enclosed. In the United Kingdom and Australia these are called shopping centres (and sometimes a mall) or shopping arcades. In North America the term mall is preferred.

The first shopping mall was the Country Club Plaza, founded by the J.C. Nichols Company and opened near Kansas City, Mo., in 1922. The first enclosed mall called Southdale opened in Edina, Minnesota (near Minneapolis) in 1956. In the 1980s, giant mega malls were developed. The West Edmonton Mall in Alberta, Canada, opened in 1981 - with more than 800 stores and a hotel, amusement park, miniature-golf course, church, "water park" for sunbathing and surfing, a zoo and a 438-foot-long lake. In the mid-20th century, with the rise of the suburb and automobile culture in the United States, a new form of mall was created away from city centers. The Valley Fair Mall, located in Appleton, Wisconsin was built in 1954, and is recognized as the first enclosed shopping mall in the United States. A very large shopping mall is sometimes called a Mega Mall. The title of the largest enclosed shopping mall was held by the West Edmonton Mall in Edmonton, Alberta, Canada for 20 years. One of the world's largest shopping complexes at one location is the two-mall agglomeration of the Plaza at King of Prussia and the Court at King of Prussia in the Philadelphia suburb of King of Prussia, Pennsylvania, USA. The most visited shopping mall in the world and largest mall in the United States is the Mall of America, located near the Twin Cities in Bloomington, Minnesota, USA. Mall can refer to a Shopping Mall, which is a place where a collection of shops all adjoin a pedestrian area, or an exclusively pedestrian street, that allows shoppers to walk without interference from vehicle traffic. Mall is generally used in North America and Australasia to refer to large shopping areas, while the term arcade is more often used, especially in Britain, to refer to a narrow pedestrian-only street, often covered or between closely spaced buildings. A larger, often only partly covered but exclusively pedestrian shopping area is in Britain also termed a shopping precinct or pedestrian precinct. Shopping malls have become a way of life in America. The opening of the South dale Center in the Minneapolis suburb of Edina, Minnesota, in October 1956 heralds the beginning of mall mania in USA. By 2000, there were more than 45,000 shopping malls in the United States, with 5.47 billion square feet of gross lease able space.

Different types of Shopping Mall Regional Mall

A regional mall is a shopping mall which is designed to service a larger area than a conventional shopping mall. As such, it is typically larger, and offers a wider selection of stores. Given its wider service area, these malls tend to have higher-end stores that need a larger area in order for their services to be profitable. Regional malls are also found as tourist attractions in vacation areas. Super-regional malls are usually shopping centers with over 1 million square feet of retail space and serves as the dominant shopping venue for the region that it serves.

Strip mall "Pitt Street Mall" of Sydney is Australia's busiest shopping precinct. This strip mall has eight retail centres and more than 600 specialty stores, within two city blocks. A strip mall is a shopping center where the stores are arranged in a row, with a sidewalk in front. Strip malls are typically developed as a unit and have large parking lots in front. They face major traffic arterials and tend to be self-contained with few pedestrian connections to surrounding neighborhoods. In the U.S., strip malls usually come in two sizes. The smaller variety is more common, and often located at the intersection of major streets in residential areas; they cater to a small residential area. This type of strip mall is found in nearly every city or town in the U.S. They are service-oriented and will often contain a grocery store, video rental store, dry cleaner, small restaurant, and other similar stores. In the past, pharmacies were often located next to the grocery stores, but, now, the drug store is often free-standing in the parking lot. Sometimes, gas stations, banks, and other businesses will also have their own free-standing buildings in the parking lot of the strip center. The other variety of strip mall in the U.S. has large, big box retailers as the anchors, such as Wal-Mart or Target. They are sometimes referred to as power centers, in the real estate development industry, because they attract and cater to residents of an entire population area. The type of retailers may vary widely--from electronics to bookstores to home improvement stores. There are typically only a few of these type of strip malls in a city, compared to the grocery store-anchored strip mall. Some of these strip centers may only have three of four of these large retailers in them, while others may have a dozen or more major retailers. Some strip malls are a hybrid of both of these types.

Strip malls vary widely in architecture. Older strip malls tend to have plain architecture with the stores arranged in a straight row; in some cases there are vacant stores. Newer strip malls are often built with elaborate architecture to blend in with the neighborhood or be more attractive. In some cases, strips malls are broken up into smaller buildings to encourage walking. Sometimes the buildings will wrap around the parking lot to hide the parking from the road or residential areas. Due to land use issues, strip malls in the United Kingdom are typically found on the edges of cities on greenfield sites, and are known as out of town shopping centres. Ones in more urban areas (often brownfield redeveloped sites) are more typically known as retail parks.

Mall Mania
Concept: Shopping Mall

Review of literature

Shopping Mall in India The fast growing middle-class population and the rise in women workforce and consumerism over the decade are the major force in driving demand in the retail sector. To the present generation shopping means much more than a mere necessity and malls are now fast becoming image benchmarks for communities. The future of Indian malls is in the

Hybrid format, the Discount malls and Gen X malls that have emerged as the hottest concepts in 2005.

Malls in India under operations

Operational Malls/Shopping Centres as on 31 August 2005 Built-up Area in sq.ft Delhi - NCR Mumbai, Navi Mumbai & Thane Kolkotta Chennai Bangalore Pune Hyderabad Others Total All India 6,533,374 6,575,000 741,660 1,350,000 1,260,000 1,230,000 695,000 3,179,830 21,564,864 No of Malls 29 27 3 2 5 5 5 20 96

Chesterton Meghra findings a. Middle-class forms 20-25% of the total population (200-250 million), and is driving demand in the retail sector. b. Increased spending by Indias middle class is estimated to be over US$ 300 million.

c. Lifestyle orientation of people is changing: The super rich class of 17 million will increase to 35 million in 5 years. d. Over 40 million in India have same purchasing power as Americans. e. Overall consumer spending grew at a pace of 6% pa in last 10 yrs. f. Around 75% of population in India is under 40 years of age. g. Among factors that spurred the mall mania on: Dearth of organised retail for one and the demand to replicate the mall experience of shopping in foreign countries was the other reason. h. Age of Gen X malls: Greater than 500,000 sq. ft with large entertainment area, ample parking spaces. i. Enter Discount malls: At least 5 outlets in each of the major cities this fiscal - to provide goods that are at least 25-50 per cent cheaper than the retail price, manufacturers can directly sell to the end-users. Hotel shopping plazas gaining popularity Traditionally hotel retail was restricted to jewellery and handicraft items but post 2003 this is changing with various international retailers entering the market preferring the hotel environment more suitable to get a feel of the market. Assessing this demand, new upcoming hotels are incorporating distinct retail areas in their plans on the lines of Grand Hyatt in Mumbai and Leela Galleria in Bangalore. Jones Lang Lasalle findings a. Hotel shopping plazas with sizes varying from 10,000- 220,000 sqft coming up. b. Existing hotels are making efforts to revamp and expand their existing retail spaces. c. In 2004-2005 Oberoi Hotel Delhi, Taj Mahal, Mumbai, Imperial Hotel Delhi, Maurya Hotel, Delhi have seen prime retail space being increasingly leased to high end retailers. d. Apparel consumes more than 50% of this hotel retail space. Acute shortage of anchor retailers One of the key challenges for a developer in India today is the lack of choice with respect to anchor retailers that is limited to a total of less than 15 as of now and clearly presents a demand-supply imbalance, especially with more than 300 shopping mall projects coming. For the developer, this means inability to create a distinctive positioning and character for

the mall and also inability to replace a not so well performing retailer with a better performing one. Pricewaterhouse Coopers findings a. Majority of upcoming mall developments remain fragmented and sub-optimally planned. b. In near future there is likelihood of a shake-out within shopping mall business. c. Emergence of few large, dominant and relatively more professionally managed national/regional and a host of specialty/niche local players likely. d. With globalisation of the real estate sector, shopping malls of international scale and quality would soon emerge. With FDI, India can replicate the Chinese experience in retail growth: Food and apparel most happening sectors India is the most compelling opportunity for retailers in 2005 though timing is one of the most crucial decisions in retail, which if not tackled properly, can cause retailers to exit the market. Fierce domestic competitors and shaky infrastructure are among the major obstacles for international retailers, says A T Kearney report. The success story of China is a glaring example where the domestic retail industry is still thriving despite FDI. Food and apparel present the greatest opportunities for global retailers in the Indian retail market, the study says. A T Kearney findings a. In 2005, India offers most compelling opportunity for retailers. b. Indias retail industry (food and non-food) is the second largest employer after agriculture. c. Indias retail industry is worlds second largest untapped market (after China). d. Department of commerce has recently proposed that 100% FDI be allowed in retailing. e. Benefits from FDI: A multiplier effect on the economy as a whole, manufacturing, food processing, packaging & logistic services to gain. f. FDI to bring significant increase in employment in front-end and supply chain streams. g. FDI to lead to greater export opportunities for Indian suppliers due to increased sourcing by major players. h. Strong retailing sector will boost tourism as seen from the experience of Singapore and Dubai.

i. In China: FDI permitted in 1992; retail sales have grown at the rate of 15% CAGR year on year; initially FDI was restricted to 49% equity shareholding, restrictions have gradually been phased out. j. Since 1992, foreign retailers have pumped USD 3 billion into China; have set up more than 2,200 branch stores, yet sales of foreign retailers make up less than 3.5% of all retail sales in China, indicating that the domestic retail industry is thriving. k. Food and apparel present the greatest opportunities for global retailers in India - most of the growth over the next few years is expected to be in these two sectors. REITs can provide better finance solutions for retail estate Financial structuring is among the most crucial aspects in mall development as the cost of a retail development is generally 40 per cent higher than any residential or commercial development and the mall takes 4 to 12 months post construction period operations to get fully occupied. REIT (Real Estate Investment Trusts) can provide a good alternate financing solution to retail real estate development as they bring in the flexibility to rope in retail investors and still maintain the overall control on the tenant mix and other aspects of the mall management, says the study by Cushman & Wakefield. Cushman & Wakefield findings a. Cost of a retail development is generally 40% higher than residential or commercial developments and malls take 4-12 months post construction period to get fully occupied. b. REITs can provide a good alternate financing solution to retail real estate development c. Ongoing mall projects estimated to require construction cost funding of approx INR 128 billion d. In the next stage of large scale stabilisation, more sophisticated funding mechanisms will emerge e. The Indian retail real estate market is poised for an even greater revolution in the years ahead.

Concept based positioning more important than design/looks During the last 10 years, four clear shopping center models have emerged: the Family Center, the Fashion Center, the Themed Mall experience as a leisure enhancement for tourists, and the Community based center - each suggesting quite different approaches to the

interiors. Colour and materials are still important, but theyre no longer the whole story, says Mr Stan Laegreid, AIA, principal, Callison. Modern retail practices and mall management call for expertise in various specialised fields and for sure the country is deficient in terms of trained professionals for these tasks, in retail as well as retail real estate - this is one major challenge that the industry will need to address in right earnest. The Delhi deal This, the second in a series of excerpts from the Knight Frank India Retail Review, looks at the real estate scene in the Capital, already a hotspot for retailers Delhi is ranked as the second largest market in the country in terms of size and socioeconomic profile. The population of Delhi is 13.7 million with a per capita income of Rs 28,885 per annum (pa). Being the capital city, it has an affluent population comprising a cosmopolitan mix from across the country. Delhi has the highest share of all India urban households and 38 per cent of the total households in the city have an annual spending power in the range of Rs 50,000-1,00,000. The total average expenditure per household in Delhi is the highest in the country, Rs 11,597 pa, compared to an all India average of Rs 4,577 pa.

What constitute a Mall?? What with the malls sprawling up on the roadsides in the city of Gurgaon, the mall constitution has to be done up in order to keep up with the ever increasing competition. First

of all there is nothing to be left from the hygiene factors' list. If these are not taken care of, the customers will just not enter your mall. Some of these factors are as following: A Good Anchor: Almost always and at least for the generation of initial footfalls, the anchor store comes in handy. Take Sahara Mall for example, the biggest crowd puller there being the Big Bazaar. The anchor store also communicates the positioning of the mall. So if you believe in "value for money" and would pack up your shopping spree with a good healthy Indian meal at Haldiram's, then Sahara is the right choice. A Kids' Center: Young mothers who have just stepped into the bandwagon of "Indian Consumerism" wouldn't like to divide their attention between the various flashy brands, stores on one hand and her kid on the other. Preferably it should be a set up where caretakers are present. Mothers won't trust mattresses and soft swings without a human face available. They are ready to pay for it. Food Courts: People are spending larger chunks of time in the malls. So they are likely to get hungry as well. Families who come for a real shopping experience necessarily look for wholesome eating experience as well. This can be provided by not one particular kind of cuisine but one which can satisfy many a taste bug. A good example is the food court in the Metro City mall on MG Road in Gurgaon. Multiplex: Not because everybody who enters comes for a movie but for the fact that your prospective customers might be shopping in a mall with a multiplex housed in it, right after watching a show. Disciplined Parking: It goes without saying that majority of the footfalls in any shopping mall belongs to the "own vehicle" category. Visitors expect guidance inside the parking and speedy acceptance of payment and verification. The above were factors which are a necessary evil for all the malls now. Over and above these factors the following might help get the malls score an edge above the clutter. The motivators are as the following: Valet Parking: Nothing at all should lead to exit of a prospective footfall. So better still give him comfort from the moment he/she enters the premises. Given the conditions of Delhi-Gurgaon traffic, they would love someone to spare them the misery of parking the car, taking the slip and paying for it.

Centralised Mall Administration: Such a move should provide for an office inside the mall premises where the customers can avail the following services: -

o o o o o o

Lost and Found Announcements for lost children or relatives Baby Carts Common Shopping Carts Complaints Lockers for the visitors

Sticky Tools: These are facilities which encourage the customers to sit and while away time inside the mall and leads to greater conversions of footfalls into sales. The malls should provide for free sitting area so that each time the visitor is tired after shopping he/she doesn't necessary spend money to sit inside a food parlour and take rest. Make sure the visitor doesn't leave the mall too soon. The malls are surely housing the new and more stylish incarnations of the kapdewala, TV wala, chat wala and the works. Nonetheless, it has to be done in style, which meets the needs of the modern consumer. Otherwise even before the mall mania reaches a saturation point, the footfalls might be shying away for the most convenient form of shopping which is "FREE HOME DELIVERY". Current Situation

Shopping Malls under Execution

Location Bangalore Chennai Delhi Faridabad Gautam Budh Nagar Gaziabad Gurgaon Hyderabad Kolkata Mumbai suburbs Thane Source: www.projectstoday.com Projects 10 3 44 9 10 9 17 8 6 14 7 Cost (Rs Crore) 545 N.A. 1,302 383 712 45 1,690 300 189 420 2,207

Shopping malls are a relatively new phenomenon in India. A decade ago, there was not a single shopping mall in the country. Currently, in seven cities there is a total of approximately 42 million sq ft of malls in various stages of completion. It is expected that within two years there will be over 300 malls, shopping centres and multiplexes in India.

India's property market is a vibrant and growing sector with new initiatives being taken by government, the construction industry, architects and developers to transform the urban landscapes. A new emergent middle class, a steady and growing market size, abundant availability of natural resources for manufacturing, cost attractiveness, a reliable business community, high levels of intellectual manpower, engineering expertise and a reform process that has brought about impressive economic liberalization, have resulted in unprecedented growth in many areas of commerce and industry. The mall phenomenon is changing the way people shop and entertain. As single-point destinations for food, shopping and entertainment, the malls have revolutionised retailing and have led to a significant increase in consumption spending. Along with this growth has come an increasing need for world-class retail facilities. Growing stage Shopping malls are still in a nascent stage in India when compared to those abroad. Retail specialty stores in India have mainly originated and developed in the southern cities of Chennai, Bangalore and Hyderabad. Also in some of the smaller metros, real estate is relatively cheaper and large spaces are easily available. However, it seems certain that there is much happening on this front during this year and the next couple of years to come. Most retail chain stores cater to a particular product segment such as garments, groceries, music etc. Some of the major players include the RPG Group (FoodWorld, MusicWorld and Health n Glow) Tatas Westside, C Raheja Groups Shoppers Stop, LifeStyle, Pantaloons (Big Bazaar and Food Bazaar) Crossword (now acquired by Shoppers Stop), Globus and Valdel Corporations Family Mart. New lifestyles Another reason attributed to this success story is that the target audience is a segment with rising disposable incomes, changing lifestyles and most importantly a paradigm shift in mindset of consumers to not only accept this concept but also make it a huge success. According to Mr V Muralidharan, Head-Mall Business, Pantaloon India Retail Ltd, significant portions of the Indian population mix are young and aspiration people. The educational and awareness levels are increasing. With increasing job opportunities and better pay packages, the disposable incomes are certainly on the rise. The demand for products and services in line with International standards are also fast changing with the changes in lifestyle of an average Indian consumer. This change has influenced the retailers to change their formats, service levels and product offerings. With the accent on consumer delight, value adds like car parks and maintenance will play an important role determining the future success of malls and giving customers value for their money and a standard quality ambience. The practice of annual and biannual discounts also is fast becoming popular. Discounts have generally proved to improve sales.

However the quantum and frequency of discounts are a function of the format, the business model and the value proposition of the retail adapts.

New concepts Experts opine that India will also witness malls catering to specific customer income groups. Also there is talk of specialty malls like auto malls, malls dedicated to home improvement, designer fashion labels, and gold. This also does seem to indicate that positioning therefore would be the key differentiator. Take for instance Globus that started in 1999 as a departmental store chain but today it has positioned itself as a fashion venture for the youth. Also, Pantaloons new concept of the show-case mall that proposes to offer the customer the complete experience of shopping-eating-and celebration. A show case mall is a seamless mall, well designed with categories in accordance with the customers preference offering the best of national and international brands. In terms of business, we are able to offer the brands a complete mall where they can show-case their products and manage their business themselves to the customer, this format offers the best of choice in every category of shopping, food and entertainment, says Mr Muralidharan. The organised retail industry is presently pegged at Rs 18,000 crore out of a total of Rs. 9 lakh crore. With industry experts hinting at a consistent growth of 25 per cent per annum over the next decade, retailing is surely here to stay. Shopping Malls advertising spends grew 24% during Jan-Nov '05 compared to that of 2004 on Television Key Findings:

24 per cent rise in Shopping Malls advertising spends during Jan-Nov 2005 compared to the same period of 2004 on Television More than 50 per cent growth in TV advertising spends in 2004 compared to 2003 Q4 gets the maximum spends by Shopping Malls 'Big Bazaar' tops advertising during Jan-Nov 2005 on TV Maximum advertising on National Channels

2004 observed a growth of more than 50 per cent in Shopping Malls advertising compared to 2003 Maximum growth (96 per cent) observed in 2003

Maximum advertising spends in the last quarter

 Compared to Jan-Nov '04, there has been a rise of 24 per cent in their advertising spends during Jan-Nov 2005 Which are the Top Shopping Malls advertised on TV in Jan-Nov 2005?

Big Bazaar leads Shopping Malls advertising on Television P P Design Estate at second position

Do the Shopping Malls shows any tilt towards Regional states?

More than 50 per cent of Shopping Malls advertising on National channels Tamil Nadu, the second choice

Future 51 today, 100 tomorrow: Will this be the future? So, FDI in retail is here! Albeit through the back-door. Nevertheless, its here. In some way or the other. The news is still nebulous in its clarity, but we have some top-line information from the policy decision announced last week. Single-brand retailing will have all of 51 per cent FDI. There is of course the need for a FIPB approval. All the same, as the guidelines get framed and laid out, you and I can look forward to some quantum of foreign investment happening in the retail end of our lives. Indian retail has been in the limelight for the last five years for sure. There has been a lot of debate, a lot of due-diligence and indeed a lot of speculation on this bubbling end of our economy. After IT, ITES and Biotech in line in that order, the retail industry has been one that has seen the most prognosis of prosperity. I welcome this bit of sunshine news that peeks at the Indian retail industry. Hats off to the Union Commerce Minister responsible for all of this, Mr Kamal Nath! Whats this debate all about? Let me trace a bit of history on this one.

Sensitive issue The big issue really is the issue of allowing FDI into the retail trade end of the business of this country. The issue is particularly sensitive as the debate is one polarised at two ends of the spectrum of political possibilities. At one end is the Left Front and at another is the end that co-incidentally Man Mohan Singh, the current Prime Minister of the country helped cascade more than a decade ago. The mantra of LPG at hand. Liberalisation, Privatisation and Globalisation. The Left Front seemingly has no issue with FDI at all. It understands that it is good for the country. The prime issue at hand however is the issue that keeps getting raised by the leaders of the Front. The issue of jobs. The Indian retail enterprise employs a total of 40 million people who work across a retail universe of 12 million! Some more facts The retail industry in India is a subset of the US$ 6.3 trillion business world-wide. The retail sector further employs the largest number of people in the world. India is no different as well. The Indian retail industry was last estimated to contribute a turnover of Rs 930,000 crore. Organised retail contributing a very small Rs 16,000 crore out of this and the rest being in the hands of small retail. The key worry then that is forever articulated is the fecund thought as to what would happen to small retail and all those people who depend on it for their livelihood if organised retail spurred on by foreign money was allowed to happen. The debate on FDI is forever stalled on this one big issue. The issue, needless to add, is political. Has the horse already bolted on that point though? The feeling is it has. Indian business houses have already grabbed the opportunity that is offered by a bubbling economy, and have started laying out their mega plans. The Shoppers Stops of our life and the Pantaloon Group have made forays which are a part of urban buy-lore today. The Reliance group is further putting together its mega plans in place. As all this happens, small retail is in any case an endangered species in a large number of the metro-points that comprise our country.

Perspectives The current policy that allows for 51 per cent FDI in single brand retail is but a small cog in the really big wheel of FDI in the retail trade across board altogether. If you view it from that angle, the perspectives are many. Five perspectives then: 1) Firstly there is the perspective of the salivating business houses from overseas, looking at the large numbers of bellies and bladders that comprise this country of ours, not to speak of other body parts that seek satiation of need, want and desire. We are the second largest in the space of human beings bound in one political territory. The guys out there want 100 per cent FDI to be allowed to capitalise on the opportunity that this country represents. 2) And then there is the perspective of Big Indian retail. The business houses that have already attempted opening up the sector are all keen to expand and set up their foot-prints before the biggest from overseas come in. They really need and demand time, in their own covert manner, to ramp up numbers, attract the traffic, build a brand name and then possibly wait for the best of mergers and acquisitions that may or may not happen. This is a valuation game for many. 3) Talk then of the perspective of small Indian retail. This guy is not an organised entity. He is watching everything with awe. The guy in the small towns and villages of the country is blissfully unaware of any threat. The guy in the bigger cities is already facing the pinch. He, however understands this game of big fish eating small, and is sprucing up to stay competitive. 4) There is the political perspective then. Out here, the politician is truly standing up to be counted as a friend of the masses who comprise the retail universe of this country. Many are confused even. Remember, there are 12 million retail outlets and 40 million people working in it, supporting all of 200 million people. The long term perspective can be a confusing one for the politician, as he has to remember that he either puts his weight behind a 200 million base or a 900 million base of consumers out there. 5) And finally, there is the consumer perspective. There are a total of 1.1 billion people out here. The perspective is that organised retail will bring in the best of efficiencies in terms of sourcing of products for the mass market, scale that will push prices down and quality besottedness that will improve the lot of the consumer on the whole.

Shopping malls: Myths & realities

With new shopping-malls having become operational in many cities across India, it is interesting to observe how the shopping-behaviour of consumers in the vicinity of these malls has changed and thereby draw some lessons that could be of some use to the developers of hundreds of new malls that are currently under planning or construction across India. It is still not too long ago that the operators of a particular new shopping-mall at Mumbai had to contemplate restricting entries of visitors by imposing conditions that such entry was limited to those having mobile phones or credit cards a.k.a., the income tax department's one in six criterion for filing a tax return. Delhi and Gurgaon saw some of the initial mall developers become parking lot operators as well by charging exorbitant parking fees from all visitors.Rentals, rather than going down with more malls coming up, started moving up even as the quality of services within the malls started deteriorating. In this context, therefore, it is somewhat surprising that questions are already being asked, albeit in whispers, whether shopping-malls can survive and operate profitably in India. Many tenants lament about the low percentage of conversions from those who walk through the portals of these malls, and casual observers routinely find shopping-bags missing in the hands of the supposed shoppers visiting these malls as an indicator that the initial euphoria about shopping in the malls is already on the wane and that consumers are reverting to their traditional shopping-destinations. There are some myths and some realities about these observations. It is, indeed, true that many Indian retailer tenants in the shopping-malls have now become familiar with terms such as footfalls, conversions, average transaction value, and repeat customers. However, it is also true that for many of these tenants, it has been their first expansion beyond their traditional high street locations and hence, they have expectations born more out of hype than by any real experience. For instance, I would like to speculate that daily or weekend footfalls in traditional shopping high streets of India such as South Extension and Karol Bagh in Delhi, Linking Road in Mumbai, Commercial Street or Brigade Road in Bangalore, or for that matter, T Nagar or Anna Nagar in Chennai would easily exceed the more carefully estimated (or measured) footfalls in any of the malls in the country. Similarly, if one were to carefully observe the ratio of visitors having "shopping-bags" in their hands in these high streets versus those in the new malls, it is not going to be very different. As far as individual retailers' performance is concerned, even in the traditional markets some established retailers do extraordinarily well while many other shops see a change of "shop boards" very frequently.

There is no reason to believe that it should be any different in a shopping-mall, which, in any case, is fundamentally no different from a traditional shopping-high street, except that a mall has a more modern and compact structure, in most cases a single roof. Local retailer tenants who move into a new mall for the first time should not expect any customer loyalty being built up overnight. For example, in Delhi's case, it is possible for a retailer to be very successful in Karol Bagh or Lajpat Nagar shopping-districts but he would have to start from scratch in terms of building up brand recognition as well as generating customer conversions in a new location such as Gurgaon or Noida. In contrast, national retailers such as Shoppers Stop, or national exclusive brand outlets such as those operated by Madura Garments, Arvind Brands, Raymond, and Zodiac, have national brand recognition and hence the performance of their outlets in shopping-malls is usually comparable (or even better) with their outlets in traditional shopping-markets. Secondly, with most mall developers having blindly opted for a questionable winning formula of shopping, entertainment (read Multiplex) and food (read MacDonald's/Pizza Hut as the main draws), it is no surprise to find many mall visitors having no shopping-bags since they have been enticed to visit only for watching a movie and/or having a burger or a pizza or even a cup of coffee. The situation pertaining to shopping, for instance, would be no different in locations such as Saket or Vasant Vihar in Delhi, which are better known for their movie theatres and eating options. What is the lesson for mall developers and for the prospective tenants? For the developers, the critical lesson is to invest some quality effort in understanding the shopping-needs of customers in their targeted "catchment" areas and then build a carefully planned portfolio of retail options that can meet the needs of these targeted customers. In many instances, customers would only need shopping and eating options rather than a multiplex as well. The developers also have to understand that their retailer tenants have to earn a profit and hence the rentals have to be aligned to what the retail business can bear (usually 5-8 per cent of gross revenues).Mall developers also have to create distinctive identities for their specific malls, much like the identities that have developed over time for major shopping-high streets in various cities in the country.

Their work is not done just when the mall has been commissioned! As for the would-be retailer tenants, it is important to realise that merely moving into a mall does not guarantee business for them.They have to work as hard to draw consumers to their own stores once the

latter have entered the mall, and then have the right value proposition for them to get converted into customers, and then become repeat customers. The final, obvious, conclusion is that mall developers have to invest in getting a better understanding about the retail business, while retailers have to get a better understanding about the dynamics of operating at a new location. Stimulus for Mall Fever Why have so many projects been launched almost at the same time and why are they almost excessively dependent on bank credit? It is partly due to the developers' tactics of using mall projects to obtain money from banks. Meanwhile, local governments' stimulation of the sector also cannot be ignored. "We can attribute the local governments' enthusiasm for mall development to their desire to speed up construction and cultivate commerce, but, to some extent, the pursuit of political achievements by officials plays an important to the local authorities' short-sighted attitude reflects some fundamental problems with China's perennial official assessment system which is almost solely concerned with economic indicators in officials' short terms in office. Its all in the place! As in building any other structure the first thing is the choice of the venue. To speak in lay man terms, it decides what will be the type of the mall, whether it will be a shopping complex or a multiplex. The choice is based on two aspects, first is the catchment area and second is the types of malls and market places in the vicinity. An intensive market survey reveals what the area lacks and the basic psychology of the people in the neighborhood as far as their purchasing power, their status and likes and dislikes are concerned. Abdul Rab talks about the reason behind coming up with Vasant Square Mall at Vasant Kunj in New Delhi, Vasant Kunj and the nearby areas had a lot of markets, but there wasnt a single mall in the vicinity where people could find everything at the same place. Moreover, the spending power of the people in the area is also high. Sunil Anand, Senior Marketing Manager, Shipra Mall gives his reasons for opening a mall in Gaziabad, We came up with the Shipra Mall in Gaziabad as it falls amidst the cities of Gaziabad, Delhi and Noida, moreover its on a national highway, which will bring many footfalls and will give great visibility to our brands.

What can be learnt through Malls?

Centralized Retail Management (CRM) Techniques One of the primary problems with downtown revitalization efforts is the independence of downtown merchants. Often, merchants have operated on their own for decades, if not generations, and have developed a perspective that other downtown retailers are their primary competitors. Yet, in the last generation the competitors to downtown merchants has shifted and primary competition comes from outside of the downtown, from the many businesses associated with suburban shopping centers and malls. The only effective way for downtown merchants and business owners to compete with these management monoliths is to cooperate with each other, rather than trying to put each other out of business. A downtown commercial district is not a mall, and it would be an exercise in futility to try to be one. But there are aspects of mall management procedures that could be used to strengthen the environment of the downtown commercial district as well. As shown in a study by the International Downtown Association, "...the key difference between downtowns and their suburban competition is not the physical amenities, but management."1 One method for downtown businesses to work cooperatively is through "centralized retail management" techniques. Similar to the techniques of management used by malls, these include strategies for optimizing the downtown as a retail environment. Some of the elements include: Management Downtown stores are managed by individual business owners who make decisions on management based primarily on their individual concerns. They see other downtown businesses as competitors; there is little or no cooperation one with another regarding common concerns such as hours, promotions, parking or general planning. In contrast, businesses located in shopping centers/malls are subject to very tight control by a centralized management. Many policy decisions are left up not to the discretion of the individual storeowners, but are decided by management. Management establishes common hours, promotions and many other aspects of operations to which the individual businesses must comply. This distinctly different approach to overall management issues is probably the most significant difference between downtowns and shopping centers/malls. Downtown businesses would benefit greatly by adopting a similar Centralized Retail Management (CRM) approach.

Market Analysis and Merchandising Plans

In a significant departure from traditional downtown revitalization efforts, CRM attempts to intervene directly with and support downtown merchants. One of the most important undertakings in improving and enhancing the operations of downtown merchants is an analysis of the market. Usually involving an experienced professional consultant, such a market study identifies current and potential customers for downtown businesses. A market study also allows the development of a tenant mix target or merchandising plan. While it builds on an analysis of likely economic viability, the final target list may be modified to reflect local objectives. The merchandising plan informs all involved of the downtown retail revitalization effort's overall objectives. It also helps establish priorities for developing retail business recruitment programs. Coordination of retail promotions Shopping malls are easily identified by potential customers because of their coordinated promotions. The name of a mall (e.g., "Northwood Mall") conjures up for shoppers an image of an environment with many shops, even though someone may not think of any particular shop by name. Each store may be more or less nondescript on their own, but as part of the "Mall" they all benefit from a common image. Similarly, downtowns need new, strong images to present to the public representing it as a place with many businesses. Typically, a downtown consists of a relatively large number of businesses each trying to draw customers through individual name recognition. These businesses could benefit greatly from a joint promotional program, especially if it was tied to an effort to enhance business compatibility and retail image. Visual improvements Shopping malls are carefully designed both in common areas and for individual businesses. Downtowns could also benefit from better design. Common area improvements could include a number of things, including a coordinated "streetscape" (benches, trees, paving) and better designed signage. Individual visual improvements could include a program giving incentives for storefront improvements. These strategies do not mean that a downtown should try to look like a mall. Indeed, such an appearance would be completely inappropriate. The strength of a downtown's commercial area is its own integral character. Business type compatibility The concept of business complementarily is well understood by shopping center and mall management. Typically, they will have a formula defining the number and types of businesses that should be together to optimize this carefully managed shopping environment. For example, they may insist that three shoe stores and one ladies accessory store be in proximity with an anchor store. As a result, each business will reinforce the others, and this programmed competition will help all. Business Recruitment and Retention

Retail business recruitment is key to a successful CRM program. By building on a formally agreed-upon tenant mix strategy, public and private efforts can focus on an aggressive, sophisticated, and ongoing recruitment and retention program. Equally important, but often overlooked, is a formalized retention program. The closing or relocation of a high-quality downtown business should not catch a city off guard. Ongoing communication with proprietors should alert downtown leaders to businesses considering a move out of the downtown, and such information should trigger a set of strategies designed to encourage such businesses to stay. Business Support Services A CRM program can offer a series of services designed to improve or reduce the operation costs of individual merchants. Many CRM organizations routinely offer merchants counseling and consulting services on topics such as small business bookkeeping, taxes, employee training, window displays, advertising layout, or facade of signage design. Emphasis on such services not only improves the economic viability of merchants but also helps gain their cooperation. Common Covenants A major asset enjoyed by shopping centers is their degree of control in enforcing at least a minimal level of quality. Downtowns could also benefit through the use of such covenants. Cooperating property owners incorporate these covenants into new or renewed retail leases and pledge to make a "best effort" to incorporate them into existing leases as well. Covenants are similar to those used in shopping centers and place controls on items such as cleanliness of display windows, sidewalk or entryway obstructions, external noise or light, handmade signs, certain chronic sales (going-out-of-business of fire sales), the maintenance of exterior frontages, and the approval of remodeling programs. In addition, tenants are required to become dues-paying members of the CRM organization. Review of Proposed Retail Uses Another type of control that lies at the heart of CRM relates to a management organization's authority to approve or reject retail operations based on their conformity to overall objectives. One of the most important assets of shopping center management is the opportunity it provides to exclude businesses it deems incompatible and to approve those that complement other establishments. As practiced within the downtown setting, decision making on compatible uses is problematic. With sometimes high retail vacancy rates, a CRM approach means a community must summon its courage and patience if it is to be selective when filling an empty storefront.

Security

An enhanced security program could be an important tool of CRM. Such a program must be sensitive to the hours of store operations, which should include evening and weekend shopping hours. It also should recognize that downtown shoppers are less familiar with their surroundings than downtown workers, and therefore may need special assistance and courtesies shown them when visiting the downtown. Maintenance Common area maintenance is a program that has been applied succcessfully in downtown settings. In practice, merchants also contribute to cleanup and maintenance of downtown spaces in addition to the city's normal responsibilities. Special Events Festivals, parades, outdoor concerts, and other special public events have long been popular techniques used to create a greater public awareness of downtown. Retailers, however, are not always pleased with the results. Particularly when held during the popular weekday noon hour, such events compete with stores for the attention of downtown workers, cutting into one of the few remaining stable market sources. To counteract retailer opposition, communities should take care to include retailers in planning such events.2 The most important element in making a CRM effort successful is to have enough retail space, and enough businesses, under management so it is possible to alter the business mix as needed based on ever-changing consumer patterns. To be able to expediently make these changes, stores must operate under common agreements, usually based on some type of master lease. These organizational forms may include limited joint partnerships, property owners associations, or for-profit or not-for-profit development corporations. The centralized retail management approach does have some potential pitfalls, however, and it is important to realize concerns and challenges about which people may be concerned. Business Hours: Common business hours are a highly volatile issue. Potential customers and civic leaders often point to the failure of retailers to establish common hours as an example of their unwillingness to help themselves. Yet, extending hours can place severe financial hardships on small business owners, at least in the short run. Tenant Mix: Owners are likely to balk at the CRM organization's potential veto of a prospective tenant for a long-vacant space. They are likely even to resist sharing information on upcoming lease expirations, out of concern for loss of confidentiality or fear of a raid by competitors. Encumbrances: For lease covenants to be meaningful, they must remain in force even with subsequent ownership changes. Ideally, though, property owners prefer that their titles remain as clear as possible, and as a result, typically they resist encumbrances.

Holdouts: Regardless of the degree of owner or tenant participation achieved, a few prominent parties are likely to go their own way. That these holdouts will benefit from an overall improvement in downtown business conditions can be a source of resentment and frustration. Organizational Control: The balance of control and influence over activities, especially expenditures, is delicate. In the case of an assessment district, the property owners usually provide most of the direct funding. Yet a lack of real influence by retailers can lead to early failure. Retail Representation: Downtown retailers are hardly monolithic. They include department stores and small shops, owners and managers, independent stores and chains, with vastly different trade areas and operational requirements. It is nearly impossible to maintain an accurate sense of the overall picture by dealing with only a handful of merchants or their elected representatives. Will shopping malls deliver? LIKE the classic Whirlpool washing machine tagline `Mummy ka magic chalega kya?' property consultants are putting a question mark on the ability of the mall magic to deliver. India Retail Summit 2004 has said that only 77 malls out of the estimated 300 to be developed by 2007 are in any serious stage of execution. "Around 283 malls of approximately 19 million square feet area are in various stages of development, out of which 150 of them were still in papers," said Mr Anuj Puri, Managing Director, Chesterton Meghraj. Against the current rate of development of malls in India, he cited the example of Wal-Mart, which opens a new store every three days. Mr Yogesh Samat, Managing Director, InOrbit Malls, said that malls have been around in the country for a while but have not really evolved. The per capita of mall access in India is as low as 100 square inches of organised retail. Gestation in the industry and capital cost are fairly high, he said. However, Mr K. Iyer, CEO, Crossroads, had another take on malls. "If you cater to the basic needs, you cannot go wrong. If you understand the customer well, there is no question of the bubble getting burst." On the one hand, there were property developers who followed the `loot and scoot' model. This comprised developing a mall, selling the property to some retail player and prematurely washing his hands off the project, Mr Iyer said. On the other hand, there were the `work and earn' players, wherein the developer stays with the buyer, thus adding value to the mall. "It is more about mall management. Such `work and earn' models succeed. Retail pays more than real estate business," he said, adding that presence of malls in mixed use of property development also increased its net worth value.

However, all is not hunky-dory with malls. Returns take their own time to fructify in this business. As Mr Samat of InOrbits summed up, "Real estate rents are too inflated, and will take us around 7-8 years to break even." Crunch time for retailers and mall owners It is crunch time for retailers and mall owners. Booming sales growth has masked excessive property costs, but with occupancy costs at an all time high and a softening retail outlook, sick times are ahead for ill prepared retailers. Retail expert Stephen Spring looks at the background and offers these tips. Every working day, I interact with numerous retailers in differing locations and circumstances. They are independents, franchisees, chain store owners, directors and franchisors. In my speaking engagements, Im privileged to talk with retailers in many diverse retail sectors; normally enthusiastic, passionate and energetic about their colleagues, their industry, their food or merchandise and peak selling seasons. Sadly, in recent months Ive noticed a quiet uneasiness in many retailers that seems more pervasive than previous years. Many share the problem that just about whatever they do to make their business better above-the-line, the question of below-the-line occupancy costs remains their greatest challenge. All their efforts sourcing best buys to improve sales and margins, all the hard work merchandising, improving recipes, training staff and communicating with customers in other words, being better retailers is eventually passed to the landlords. They love their work, yet many small retailers with meagre resources and facing dwindling profits seem helpless as cash and credit lines dry up and they cannot wait to escape the clutches of their onerous lease. For a huge chunk of retailers, the thing keeping them awake at night is how to meet the next months shop rent often their single biggest overhead and risk. And it seems cries for rent relief often fall on deaf ears, singling out the likes of Westfield, Lend Lease, QIC and other listed property giants who are in the business of making money for their stakeholders, not assisting struggling retailers. With overall annual rates of retail sales growth plunging from nine percent in mid 2004 to 2.5 percent currently, joining them have been WC Penfold, Lindcraft, Lawrence Mansours, Can Can, Kernels, Juice Station, NrGize, Collins Bookstores, Danoz, Wayne Copper, The Muses and Gaslight, all striking difficulties recently. Lately, JB Hi-Fi, Just Group, Strathfield, Rebel Sport and Millers Retail have indicated their earnings will be affected and some have announced store closures. Not all the problems are specifically rent related, but are these early warning signals, perhaps a bellwether of things to come? Is there anything that retailers can do now? On the other hand, many retailers are expanding. Nespresso, Kookai, Zarraffa, Shakespeares Pies, Husk and Fellas to name just a few are reported to be hunting for sites. When one store closes, another one opens.

Landlords brace for lower rents headlined Carolyn Cummins in the Sydney Morning Heralds property section mid July, explaining that lower sales throughout the economy and squeezed margins mean a smaller piece of the pie for retail landlords. She predicts a year of flat to negative rent increases from tenants who are feeling the pressure of falling consumer sales. She goes on to say that, if income at the cash register is lower then the landlord will have to keep occupancy costs flat or face retailers leaving. Danger signs emerge says Jacqui Walker in a recent issue of BRW, writing about vulnerable franchise operations that have ridden high on upbeat consumer demand, quoting Cassandra Michie from PricewaterhouseCoopers who says, The economy has been very good and there has been a natural growth that may have covered inefficiencies in the business but, she warns, a huge number of franchise systems are operating in marginal territory about 60 percent hold fewer than 30 franchise units. To survive we estimate that franchise systems will have to achieve critical mass of at least 20-30 stores to generate enough revenue to sustain marketing campaigns and system overheads. Are these franchise systems facing the same battles as the small guys? My guess is yes. As I go about my business of consulting to retailers at grass roots level, it is obvious seasoned retailers saw danger long ago and implemented a program to protect them. And they didnt have secret formulae or employ overseas retail gurus. The astute retailers watched mall occupancy costs slowly creep from an average of 10 percent of turnover in the 1980s to 14 percent in the 1990s and with it now edging 20 percent, many realized that to survive they needed to do things differently. Other retailers just watched. In the last edition of Franchising, Deacons Consulting managing director, Rod Young, said: Many specialty retailers have developed an unhealthy dependence on shopping centres to provide traffic. He went on to say that, It is not unusual for retail franchise networks to have three percent of their turnover or less committed to advertising and marketing programs, and in many circumstances expenditure below one percent of sales, especially in food service franchises is seen as the norm. This has created a dependence on the location to create traffic rather than the brand and marketing program and as a result retailers without marketing skills will be trapped in shopping centres. Young is exactly right. So to start with, smart retailers developed a unique offer and most lifted their brand recognition programs long ago. But what Young doesnt say when he writes Subway, Bakers Delight, Boost Juice, Nandos and Hairhouse Warehouse. These companies have spent considerable time and effort in their branding and marketing program to create a model that survives in strip and CBD locations is that those retailers are also best in their breed and have developed a product offer with a range of width and depth customers go out of their way to buy. In other words, they have become destinations in their own right. And thats the second so-called secret. If retailers want to be beholden to often insatiable landlords, they just need a metoo offer, a ho-hum range and keep quiet about their shops.

First, it seems obvious that choosing the best location and completing a proper retail analysis and other homework before committing to any retail lease is the foundation of any sound retail decision, right? Think again. In my experience, too few retailers take enough time and effort in pre-lease enquiries and negotiations. And for franchisors, recent court actions make this process a legal must do. Many neophytes over estimate store revenue potential and ignore demographics, competition and other location characteristics, seduced by industry averages and landlord incentives. As a consequence, those retailers load themselves with high rents relative to sales and as one retailer put it, when the rent train pulls out of the station, the hill ahead can be long, slow and very arduous. Equally important is the capital and running costs of the enterprise. All costs must be factored in and be complete before being committing to a lease. If retailers havent done the retail homework to produce a robust business model, they should keep their pens in their pockets. Second, small retailers often misunderstand the nature of a lease and fail to be proactive in their lease portfolio management. Too often a lease is signed and shoved in the bottom drawer. A lease is a contract setting out rights and obligations of landlords and tenants for a fixed period of time, but most specialty shop leases are governed by state-based retail legislation and also common law a set of complex rules overriding retail leases regardless. Because it is almost impossible for most retailers to fully understand all aspects of lease management without a dedicated legal and property team, if the governing law and documentation is hard going, retailers must engage specialists in the area. To avoid leasing blues, it is vital retailers consistently inform themselves of changes to legislation and the retail property market operating in their local environment. In fact, lease management is too important to ignore, delegate to an in-house junior or even a law firm without the necessary commercial and retail negotiation experience. Further, lease management software programs can impart a false sense of security. In the average NSW shopping centre lease, there are at least 20 critical notices that can impact retailers heavily. Ignoring them can have disastrous consequences. Many of these operate in complex areas of law, and clearly if a small retailer with, say, three shops is busy running the day-today and not across lease issues, potential for damage to the fledgling chain is high. Moreover, most landlords will not hesitate to use lawyers to protect their interests, so the potential for unnecessary costs are compounded. In a one-off operation or single franchise, mistakes can wipe out owner operators and create a private financial hell. Third, and to the most contentious issue in retail leasing today. What to do at lease end? Every few years, sitting retailers face the same agonizing challenge and ask themselves: How much is the landlord going to slug me this time? and its a difficult time for many. In all states and territories, a landlords or tenants notice normally triggers renewal negotiations or generates a bye-bye letter. Renewals should seem straight forward enough but one could be excused for thinking some retailers and mall managers live in fairyland. In general terms and unless compelled by legislation, the landlord is under no obligation to renew a lease. Normally its their freehold; they can do what they want with it. Equally, tenants have every right to walk away at the end of a lease. Things can get hairy if a landlord elects to deal with a tenant under a renewal, the tenant relies upon that conduct and the landlord changes its mind (lawyers, please note), but correct renewal decisions are vital.

Mall managers know many tenants are in weak positions at lease end and with livelihoods at stake, negotiations can be emotive. With assets on the line, mall management can easily kill a retailers business that may have taken many years of hard work to build up. They also know that a lease non-renewal may leave a crippling debt or bankrupt a retailer. Cavalier conduct may well attract a lawsuit. A retailer with a five-year rent escalated five percent compound pays $63,814 going into the sixth year compared to a commencing rent of $50,000. At 50 percent gross margin, to maintain a 14 percent occupancy cost ratio, sales must rise 21.5 percent to keep up with rent increases. In many locations, sales are stagnant or falling due to macro-economic factors, competition, cannibalisation or mall lifecycle constraints. Any increase on renewal will obviously gouge the retailers profit or add to its loss. One retailers story is typical: The rent was $117,064, but they [the landlord] demanded $208,366. We spend over $200,000 per year advertising. After 10 months of discussions they said they would settle at $153,000. The centre is in Sydneys top five, but its overall sales were down three percent and down about 20 percent in our category. We relocated to another centre with annual rent at $105,000 all up with better exposure, higher traffic and a longer lease. From mall managements viewpoint, lease renewals are the one chance to raise revenue, so most do their homework. After analysing trends in tenancy mix and profitability of individual retailers, weighing up the retailers relevance, rental values and hot retailers seeking space, many managers will risk a few vacancies squeezing tenants. Mall management has noted the best and worst traders and their occupancy costs. They know the doomed retailers, the ones to be retained and those to be booted out and replaced. They know hot brands, the building, the footfall patterns, shops needing re-fit and the future of major draw cards such as supermarkets or department stores. In an over-shopped world, the constant impact of malls nearby would have been evaluated, even using sophisticated computer models to maximise potential rental income. With so much at stake, its little wonder the anxiety levels are as high as the expectations. But put simply, mall managers know the overall target rent comprising of individual tenants lease rental income and in short, they have planned ahead.

Unfortunately, many retailers have not even thought about the end of their lease. Remember the famous saying: You dont get what you deserve, you get what you negotiate. Here are my tips to avoid end of lease blues: 1. Research local property and retail rents at least a year prior to lease end. This is key to knowing how to respond to any renewal offer. Prime yourself with information and costs well before any lease renewal negotiation. Rents go down as well as up, so bargain hard or walk away and relocate if the deal on offer isnt in your best interests. 2. Take the view that if landlords can take commercial advantage, they will. This means retailers should consult experienced industry professionals or an industry association if lease transactions are new to them. 3. If the business isnt profitable enough over the term to clear all outstanding debts and settle make good clauses at lease end, retailers should carefully rethink the deal. Amortise all capital investment over the term and never rely on a further renewal. Therefore, when it comes to negotiating a new lease, a neutral and dispassionate position can be taken because theres no remaining liability. 4. Identify industry trends, any emerging competitive threats and all micro and macro forces affecting the region and the location. These forces operate regardless of whether retailers take notice of them, but a savvy landlord will surely know them and perhaps use them against the retailer in lease renewals. 5. Never be fooled into re-signing up to a bad deal to protect perceived goodwill in the location or the franchise. If the business is barely profitable on the passing rent, goodwill is minimal or non-existent and the future risk may well outweigh any future benefits or ability to sell. Consumers Point to 'Must Haves' in the Ideal Shopping Experience in New Indiana University/KPMG Study How Profitable Is The Mall Business In Reality? First appearances can be deceptive. Emerging from the Mehrauli-Gurgaon road at the Delhi border, hundreds of twinkling neon and sky-kissing glass and steel facades welcome you to Gurgaonthe poster boy township of the India of tomorrow, the land to shop till you drop. Dozens of huge structures, nearing completion or gleaming with lights and banners, greet your eyes as you drive past. Or crawl past: with less than five malls operational on the Mall Mile, as it has been christened, this area of Gurgaon is a picture of urban chaos. Vehicles honk, swerve and look desperately for parking space, as hundreds of people dodge traffic through non-existent zebra lines. At the last estimate, Gurgaon had around 15 malls while the national index is 245 (most have come up within the last two years). However, the bright lights conceal an ominous truth. The weekend crowds do not exactly translate into the kind of booming revenue that has investors laughing all the way to the bank.

Many outlets, including restaurants at malls in Gurgaon and Delhi, have closed down and many retailers who bought space at Fifth Avenue, one of Bangalores earliest malls, have sold and run. "It is so expensive, it is OK to hang out but its not worth shopping there," says Vinoj, a techie, about Forum, his neighborhood mall in Bangalores Koramangala. "There will be an over-supply and some of the not-so-good ones may not survive," admits Ajay Khanna, CEO of DLF Retail, which runs DLF City Centre & DT Cinemas in Gurgaon. But he believes "there is definitely space for a well-run mall". Real estate developers and retailers are betting their shirts (literally, as garment stores take up more than 30 per cent space in most malls) on the mall revolution. There will be about 26.2 million sq. ft of malls across India by 2005, says the International Council of Shopping Centres-India. The National Capital Region (NCR)Delhi, Gurgaon and Noida will account for 40 per cent of mall space. The trend is booming in the rest of the country, too. Mills in Mumbai suburbs are being turned into malls. Mumbai has 10 malls, in addition to two dozen shopping centres and department stores. Space constraints and the high cost of real estate are inhibiting factors for a mall boom but the malls make up for the lack of numbers in quality experience. "A good ambience is important to inspire a desire for shopping," says Sunil Chander, vice-president (marketing) of Crossroads, the first mall in the city. The Benzer group chose Vashi in Navi Mumbai for launching its first mall, Centre One. Assistant manager Ruchi Sihare says the mall has notched up a weekend visitors tally of 70,000 in 15 months of setting up shop. While southern metros like Chennai and Bangalore have always had big shopping complexes (Spencer Plaza in Chennai, for instance), newer ones are coming up. The trend is spreading to smaller cities like Jaipur, Ludhiana, Pune and Indore. Shopping malls were the highlight of Diwali for Kinnari Shah, 17, mother Rannaben, 42, and grandmother, Shantaben, 65. They were among the many shoppers thronging the half-a-dozen malls in Ahmedabad. "There was no elbow room," says Kinnari. "But there were lots of freebies, discounts and lucky draws. And we could not help but shop like there was no tomorrow." Hasmukh Gadecha, who owns Supermall in the city, says people love the outing at shopping malls just like the Americans and Europeans. But the danger signals are flashing overtime. "There is going to be a boom, but [like with other sunrise industries] in India, everybody jumps in," says Ravi Melwani, CEO of Bangalores Kids Kemp and Kemp Fort, pioneers in big shopping experience in the south. The core of the problem lies in the origin of malls in India. With the opening up of the economy, came a bigger range of goodies and more media exposure. There was a need for a worldclass shopping experience. As the economy upped northwards and conspicuous consumption became a habit, department stores, shopping complexes and malls made their entry. Urban Indians, particularly the youth, found mallswith their stylised interiors, branded shops and fast-food outletsthe ideal place to hang out. A classic example is Ansal Plaza, near Delhis South Extension, which opened in 1999. The huge crowds (footfalls, in retail-speak) got property developers and retailers thinking

that they had stumbled on to the next big thing. There was never any evaluation whether there were customers for the typical upmarket products that would be retailed in malls. Says Navin Mehta, who works at Supermall: "Most of the shoppers are simply taking in the new experiencegawking at luxury goods, cooling off in air-conditioned comfort and enjoying the music." "A mall is a planned aggregation of shops," says Suresh Shingaravelu, CEO of Bangalores Forum. "In a shopping centre, success is an accident, while in a mall, [it is] a planned effort. Positioning is everything." It is hardly surprising that moviegoers who visit the PVR multiplex at Forum exit into the shopping area. "Shopping is about placing temptation in your path," says Suresh. All food outlets at Forum are on the upper floor because "the moment you put popcorn in a shoppers hands, he turns into a window shopper", he says. Having a USP could be a malls ticket to survival in the tough days ahead, but many do not seem to care. The mall mania is based on the assumption that people will desert the neighbourhood kirana stores and buy into the promise of a better shopping experience. This has not happened though there is opportunity, as the success of outlets like Food World in the south and Big Bazaar in the north shows. An analysis by Hyderabads Indian School of Business shows that neighborhood stores will remain in place. Many malls have nothing to differentiate them from one another as they stick to the general mix of clothing, consumer appliances and lifestyle products. For specific purchases, shoppers still have to go to markets specializing in those goods. Upcoming specialty malls are not only an answer to the dilemma, but companies claim they could well be the solution to the over-do. "When we did a study, we realized a general mall would not work," says Rohtas Goel, CMD of Omaxe group. "Customers have specific needs." Omaxe is building a wedding mall in Gurgaon, which will house everything from trousseau to event managers and jewellery. The Aerens Gold Souk nearby is a one-stop shop for jewellery, gems and luxury watch manufacturers. "In India, jewellery buying is a special occasion," says G.S. Pillai of Gold Souk. "So we felt a secure environment where all jewellery brands are under one roof, with child-care and food facilities thrown in, would work." He does not think customers would still prefer traditional gold markets. "There was no option, so customers used to go to Karol Bagh [Delhi] or T-Nagar [Chennai]. Now even those shops are taking up space in gold souks." More gold souks are being planned in other metros, as well as in cities with high gold sales like Pune, Kochi and Nashik. Specialty malls are coming up all over the country. Kolkata will soon see a furnishing mall on Elgin road, like Arcus Plaza in Gurgaon and the upcoming Urban Spaces in Pune. Expect an auto mall near the 32nd Milestone complex in Gurgaon; the 10-storey complex will even feature a rooftop testing track. Another mall in Gurgaon aims to re-create the old bazaars of Karol Bagh.

"A mall must have proper ingredients to be rated good and exclusive," says Raj Singh Gehlot, president of Ambience Infrastructure, which is building Ambi Mall in Vasant Kunj. From a negligible under-5 per cent, organised retail will go up to 20 per cent by end-2005. Bright prospects that can only get bigger, once foreign investment curbs are relaxed. But, says global retail-estate consulting group Knight Frank, it will eventually boil down to what value addition a mall can provide. The mall jungle is a big bad world where only one maxim will rule: survival of the fittest.

Consumers are Interested in Technology but Say Retailers Still Need to Deliver on the Basic Elements of the Shopping Experience November 20, 2000 -- A study from Indiana University's Kelley School of Business and KPMG LLP, the professional services firm, finds that consumers have definite views on what they are looking for in the ideal shopping experience -- both online and in-store -- and more complex technologies are not at the top of the wish list. The findings are revealed in the IU/KPMG study, "Creating the Ideal Shopping Experience: What Consumers Want in the Physical and Virtual Store," conducted among 2,120 people nationwide in June, 2000. The research measures consumers' acceptance of technology and offers insights on how consumers want to shop. The IU/KPMG shopping study found that when shopping online consumers must have accurate product and pricing information, convenient and secure ordering, order tracking, reliable delivery and accessible customer service. In retail stores, shoppers want knowledgeable and courteous sales help, competitive prices, fast checkout and convenient payment options. The study also reveals several shopping features that some consumers would prefer not to have. Consumers have the strongest negative reactions to personalization options that make product recommendations based on a customer's preference profile. For example 21 percent of shoppers dislike having a handheld scanner tells them which products match their personal profile. As well, 36 percent of respondents prefer not to have in-store prices that change daily based on stock levels and competition. "Consumers tell us they are not interested in technology for its own sake," says Dr. Raymond Burke, the E.W. Kelley Professor of Business Administration at Indiana University. "People want the basics in their ideal shopping experience and they are only interested in technology to the extent that it makes shopping faster, easier, and more economical." Mark Larson, national partner-in-charge of KPMG's retail practice adds, "Today's consumers have more choice than ever before-in stores, brands, and channels. That's why retailers need to consistently deliver the right value proposition to their customers -- across

all shopping channels. Technology can be a very helpful tool in that process but to create value successful retailers will know how and when to use it in the shopping process."

Present Study

Rationale: In much of the world, the local marketplace has evolved over centuries from open-air stalls in the town square, to stand-alone shops, organized high streets, and then the huge shopping centers and malls that erupted across the American landscape in the 1950s and spread to Europe, East Asia and Latin America. In India, however, the development of shopping malls has literally been a revolution. The opening of the Indian economy in the early 1990s brought a wide range of new household appliances, stylish apparel, and other consumer goodies, along with plenty of media exposure. But what the Indian consumer still lacked was a world-class shopping experience: a pleasant, open, relaxing, air-conditioned place to compare prices, quality and styles without other customers trying to squeeze through the shop doorway or shout over ones head to the proprietor. From eyeballs to footfalls - the human psyche has taken a complete downward journey in the last five years. If it was eyeballs (number of visits to websites) during the dotcom boom of 2000, now it is footfalls (number of visitors to malls). The current mall mania that has gripped a shopping-frenzy nation can only be compared to the dotcom madness five years ago. Today, some 250 malls are already in business and a similar number is going to come up in the next two years. By 2006, a whopping 19.6 million sq. ft of retail space will be made available in six major cities alone. And with the boom in this field and the acceptance from the people, it brought about a change in the way the people use to shop. So this revolutionized concept needs to be understood from the customers and shop owners point of view. Knowing their expectations from this new revolutionized format will help every retailer to give a new direction to the field of shopping, movies, party time or in one a full new experience , way to make customer delight.

Objective: The objectives of my study are as follows: To understand the Scenario of retail industry prevailing globally and various players into it.

To know in details about the retail scenario in India and the major players into it.

To learn and understand more about Foreign Direct Investment and other initiatives taken by Government in the retail Sector.

To understand the retail boom and the new format called Shopping Mall-concept.

To study the impact of Shopping Malls on the customers and the shop owners through a set of questionnaires.

Methods

The study used both qualitative and quantitative aspects. Both primary and secondary data was used in the research study.

The major source of primary data came from set of structured questionnaires, observations.

The secondary data came from related journals, websites and various newspapers giving an insight about the current scenario of the retail sector and the huge number of Malls coming in.

Two sets of Questionnaires were used during the study. The first set was specifically meant for the outlets in the Malls who have been seeing the sector boom and tough time with the entry of new MNCs in the country and is very much confused with the customers reaction to the new concept of Shopping Malls. This will in turn help these outlets to know more about the customers understanding and acceptance of the Mall concept. A sample size was 25 retail outlets.

The second questionnaire was meant for understanding the impact of Shopping Mall from the customer point of view. With the set of questionnaire developed, the survey was conducted within the Noida and few malls from the adjoining areas covering every age group. The sample size used for this questionnaire was one hundred (100) respondents.

Results

Analysis of the Questionnaire of impact of shopping Malls on Shop Owners: 1. Acceptance of the revolutionized concept- Shopping Mall: Acceptance of Malls Frequenc y 25 Percent 100.0 Valid Cumulative Percent Percent 100.0 100.0

Valid Yes

Acceptance of Malls

Yes

100

When asked with the respondents i.e; Manager Head of the various outlets it was found that every one has accepted the revolutionized concept of Shopping Mall and are happy with the format. Every one believes that this is one concept that will change the entire style of shopping experience.

2. How good is the format compared to others: How good is the Format Frequency Valid Very Good Good Total 12 13 25 Percent 48.0 52.0 100.0 Valid Percent 48.0 52.0 100.0 Cumulative Percent 48.0 100.0

How Good is the Format

60 50 40 30 t n c r e P 48 20 10 0 Very Good Good How Good is the Format 52

48% of the respondents has said that the format is very good compared to the different other format available to the retail sector and 52% of the respondents said that the format is good compared to other formats. This format provides every needs of the consumer under one roof.

3. Customer acceptance to Shopping Mall form the shop owners point of view: i. Customer acceptance to Shopping Frequency 11 14 25 Percent 44.0 56.0 100.0 Valid Percent 44.0 56.0 100.0 Cumulative Percent 44.0 100.0

Valid

Yes No Total

Customer acceptance to Shopping

60 50 40 30 e P t n c r 20 10 0 Yes No Customer acceptance to Shopping 44 56

According to the survey it was found that 44 % of the consumers who come to the shopping Mall do shopping but a major chunk of the consumers who does come to the Mall for various other reasons doesnt shop for the reason that sometimes they hear of consumer saying its too expensive.

ii. Customer acceptance to Party

Valid

Yes No Total

Frequency 14 11 25

Percent 56.0 44.0 100.0

Valid Percent 56.0 44.0 100.0

Cumulative Percent 56.0 100.0

Customer acceptance to Party

60 50 40 30 t n c r e P 20 10 0 Yes No Customer acceptance to Party 56 44

From the manager point of view it was found that consumers generally come for party reasons to the Mall more than actually spending more on the shopping purpose. It was found that 56 % of the respondents come to the shopping Mall for the party .

iii. Customer acceptance to Hangout Cumulative Percent 84.0 100.0

Valid

Yes No Total

Frequency 21 4 25

Percent 84.0 16.0 100.0

Valid Percent 84.0 16.0 100.0

Customer acceptance to Hangout

100

80 60 84 t n c r e P

40 20

16 0 Yes No Customer acceptance to Hangout

What has been seen and heard from various consumers even is that they generally prefer to hang out in the Shopping Mall and the same response is given by the outlet people who said that they maximum of the consumers come to the mall for hangout.

iv.

Customer acceptance to Lunch/Dining Frequency 16 9 25 Percent 64.0 36.0 100.0 Valid Percent 64.0 36.0 100.0 Cumulative Percent 64.0 100.0

Valid

Yes No Total

Customer acceptance to Lunch/Dining

70 60 50 40 30 20 10 0 Yes No Customer acceptance to Lunch/Dining t n c r e P 64

36

According to the survey conducted, it was found that consumers generally come for dining/lunching, movies and hanout purposes. There happens to be lot of footfalls in the mall but the conversion doesnt take place in that ratio. It was found that consumer do come for the dinner or lunch in the Malls.

v.

Customer acceptance to Movies Frequency 17 8 25 Percent 68.0 32.0 100.0 Valid Percent 68.0 32.0 100.0 Cumulative Percent 68.0 100.0

Valid

Yes No Total

Customer acceptance to Movies

70 60 50 40 30 20 10 0 Yes No Customer acceptance to Movies 68 t n c r e P

32

There has a wide acceptance of malls for the movies. According to the survey it was found that the 68% of the consumers come here to watch the movies and with price differentiation played by these outlets have even made them go a long way in their favour.

4. Are consumers ready to pay the price: Consumers ready to pay Cumulative Percent 56.0 100.0

Valid

Yes No Total

Frequency 14 11 25

Percent 56.0 44.0 100.0

Valid Percent 56.0 44.0 100.0

Consumers ready to pay

60 50 40 30 e P t n c r 20 10 0 Yes No Consumers ready to pay 56 44

According to the survey it was found that with their knowledge the consumers are ready to a price for the service and are quite happy with the services and the product offered by the outlets and Malls as such.

5. Able to cover up the expenses: Sales able to cover expenses Cumulative Percent 40.0 100.0

Valid

Yes No Total

Frequency 10 15 25

Percent 40.0 60.0 100.0

Valid Percent 40.0 60.0 100.0

Sales able to cover expenses

60 50 40 30 t n c r e P 20 10 0 Yes No Sales able to cover expenses 40 60

It was found that since the malls in few of the places are newly built and are into operation for less than a year so they are not able to cover up the expenses by now but are assured that the near future year will help in recovering the cost incurred.

6. Events/Shows helps in generating Sales: Events help in generating additional sales Frequency 16 9 25 Percent 64.0 36.0 100.0 Valid Percent 64.0 36.0 100.0 Cumulative Percent 64.0 100.0

Valid

Yes No Total

Events helps in generating additional sales

70 60 50 40 30 20 10 0 Yes No Events helps in generating additional sales t n c r e P 64 36

64% of the respondents when surveyed said that various events like promos or food day or some kind of exhibitions help the outlets in the Shopping Mall to generate some kind of extra sales. They help them a lot in attracting new customer who may or may not be willing to visit the outlet.

7. Do outlets in the mall helps in increasing sales: Outlet of other company helps in sales Frequency 5 10 6 4 25 Percent Valid Percent 20.0 20.0 40.0 24.0 16.0 100.0 40.0 24.0 16.0 100.0 Cumulative Percent 20.0 60.0 84.0 100.0

Valid

Seldom Occasiona lly usually Every time Total

outlet of other company helps in sales

40

30

20 e P t n c r

40

10

20

24 16

0 Seldom Occasionally usually Every time outlet of other company helps in sales

According to the survey conducted it was found that the other outlet in the Shopping Mall helps occasionally to the other outlets for generating some kind of extra sales which is not a regular fashion in the shopping Mall. However, 16% of the outlets head said that it do help in generating extra footfalls in the outlets which we do try to turn into sales.

1.

Visit to Shopping Malls Frequenc y 100 Percent 100.0 Valid Cumulative Percent Percent 100.0 100.0

Valid yes

Visit to Shopping Malls

yes

100

According to the survey conducted of 100 consumers it was found that every one has visited the Shopping Mall which also shows that the very new revolutionized concept or format is being preferred by the consumers for one reason or the other.

2. Purpose of your visit- Shopping Frequenc y 38 62 100 Percent 38.0 62.0 100.0 Valid Cumulative Percent Percent 38.0 38.0 62.0 100.0 100.0

Valid yes no Total

P rp u ose o yo r visit- S o p g f u h p in

70

60

50

4 0

y c n u q e r F

30

62

20

38

10

0 yes n o

P urpose of your visit- S oppin h g

ii. Purpose of your visit- Movies Frequenc y Percent Valid yes 71 71.0 no 29 29.0 Total 100 100.0

Valid Cumulative Percent Percent 71.0 71.0 29.0 100.0 100.0

Purpose of your visit- Movies

80

60

40 y c n u q e r F

71

20 29 0 yes Purpose of your visit- Movies no

iii. Purpose of your visit- Hangout Frequenc y Percent Valid yes 67 67.0 no 33 33.0 Total 100 100.0
Purpose of your visit- Hangout

Valid Cumulative Percent Percent 67.0 67.0 33.0 100.0 100.0

70 60 50 40 30 y c n u q e r F 20 10 0 yes Purpose of your visit- Hangout no 67

33

iv. Purpose of your visit- Lunch dining Frequency 63 37 100 Percent Valid Percent 63.0 63.0 37.0 37.0 100.0 100.0 Cumulative Percent 63.0 100.0

Valid

yes no Total

P rp s o y u v it- L n hd in u o e f o r is u c in g

7 0 6 0 5 0 4 0 y c n u q e r F 3 0 2 0 1 0 0 ys e P rp s o y u v it- L n hd in u o e f o r is u c in g n o 6 3 3 7

According to the survey conducted it was found that the consumers has accepted the shopping Mall concept more for the movies, hangout and lunch and dining purpose rather for a new shopping experience. 2. Time of visit Frequenc y Morning 20 Afterno 15 on Evening 33 Late 32 Evening Total 100 Percent 20.0 15.0 33.0 32.0 100.0 Valid Cumulative Percent Percent 20.0 20.0 15.0 33.0 32.0 100.0 35.0 68.0 100.0

Valid

Time of visit

40

30

20 y c n u q e r F 33 10 20 32

15

0 Morning Afternoon Evening Late Evening Time of visit

According to the survey conducted it was found that mostly people visit the Malls during the evening and Late evening time and there are few footfalls in the morning hours. However for the purpose nowadays the pricing strategy is being followed to increase the footfalls in the morning hours.

3. How often do you visit Frequenc y 40 30 21 9 100 Percent 40.0 30.0 21.0 9.0 100.0 Valid Cumulative Percent Percent 40.0 40.0 30.0 21.0 9.0 100.0 70.0 91.0 100.0

Valid

Once 2-4 times 4-6 times Daily Total

How often do you visit

40

30

20 y c n u q e r F

40 30

10

21 9

0 Once 2-4 times 4-6 times How often do you visit Daily

According to the survey conducted it was found that the visit to shopping Malls is once in a week. But if we look at the chunk of the consumers response it was found that 51% of the respondents either visit the Malls twice or four times in a week. 4. Where do you go first while entering? Frequenc y Valid Shoppi ng Movies Hango ut Total 17 31 52 100 Percent 17.0 31.0 52.0 100.0 Valid Percent 17.0 31.0 52.0 100.0 Cumulative Percent 17.0 48.0 100.0

Where do you go first while entering

60 50 40 30 52 y c n e u q F r 20 31 10 0 Shopping Movies Hangout Where do you go first while entering 17

According to the survey conducted of 100 respondents it was found that whenever the respondents visits the Shopping Mall they generally prefer to hangout or go directly to the movies area. This is major area where the outlet heads have to look in order to use the hangout percentage of the footfalls in the outlet. 5. Visit to Shopping Malls Frequenc y Planned 46 Unplan 54 ned Total 100 Percent 46.0 54.0 100.0 Valid Cumulative Percent Percent 46.0 46.0 54.0 100.0 100.0

Valid

Visit to Shopping Malls

60 50 40 30 20 10 0 Planned Unplanned Visit to Shopping Malls 46 y c n u q e r F

54

According to the survey conducted it was found that most of visits to the Shopping Mall done by the resposedents are unplanned. However if you look carefully there is hardly much of the difference in the percentage as because we took some of the responses who visits Malls in planned way. 6. With whom do you visit? Frequenc y 25 41 13 21 100 Valid Cumulative Percent Percent 25.0 25.0 41.0 66.0 13.0 21.0 100.0 79.0 100.0

Valid

Family Friends Colleag ues Spouse Total

Percent 25.0 41.0 13.0 21.0 100.0

With whom do you visit

Family Friends Colleagues Spouse

The respondents said that they generally prefer to visit the Mall along with their friends and with family. And if you take cross tab along with the age group, the respondents in the age bracket of 12-30 generally prefer going with friends in the Malls. 7. Has it changed the Shopping experience Frequenc y 53 47 100 Percent 53.0 47.0 100.0 Valid Cumulative Percent Percent 53.0 53.0 47.0 100.0 100.0

Valid yes no Total

Has it changed the Shopping experience

60 50 40 30 y c n u q e r F 20 10 0 yes no Has it changed the Shopping experience

53

47

The responses received from the respondents shows that the major chunk of them nearly 53% are happy with the shopping experience given by the new format called Shopping Malls. But there are also respondents who are not happy with the services provided as they are being charged higher. 8. if yes, how much satisfied are you Frequenc y Valid Highly Satisfied Satisfied Neither/No r Total System 23 29 9 61 39 100 Percent 23.0 29.0 9.0 61.0 39.0 100.0 Valid Percent 37.7 47.5 14.8 100.0 Cumulative Percent 37.7 85.2 100.0

Missing Total

If yes, How much satisfied are you

30 25 20 15 10 5 0 Highly Satisfied Satisfied Neither/Nor If yes, How much satisfied are you 23 y c n u q e r F 29

According to the respondents who said yes in the earlier questions, this question will let us know the degree of satisfaction achieved by them. When answered by the respondents it was found that they are satisfied with the new experience provided by the outlets in the Malls. 9. Selecting a particular Visit-proximity Frequency 64 36 100 Percent Valid Percent 64.0 64.0 36.0 36.0 100.0 100.0 Cumulative Percent 64.0 100.0

Valid

yes no Total

Selecting a particular Visit-proximity

70 60 50 40 30 y c n u q e r F 20 10 0 yes no Selecting a particular Visit-proximity 64 36

Selecting a particular Visit-parking Space Frequency 69 31 100 Percent 69.0 31.0 100.0 Valid Percent 69.0 31.0 100.0 Cumulative Percent 69.0 100.0

Valid

yes no Total

Selecting a particular Visit-parking Space

70 60 50 40 69 30 y c n u q e r F 20 31 10 0 yes no Selecting a particular Visit-parking Space

Selecting a particular Visit-variety of offers

Valid

yes no Total

Frequency 72 28 100

Percent Valid Percent 72.0 72.0 28.0 28.0 100.0 100.0

Cumulative Percent 72.0 100.0

Selecting a particular Visit-variety of offers

80

60

40 y c n u q e r F

72

20 28 0 yes Selecting a particular Visit-variety of offers no

Selecting a particular Visit- Anchor Store Frequency 50 50 100 Percent 50.0 50.0 100.0 Valid Percent 50.0 50.0 100.0 Cumulative Percent 50.0 100.0

Valid

yes no Total

Selecting a particular Visit- Anchor Store

50

40 30 50 y c n u q e r F 20 50

10

0 yes no Selecting a particular Visit- Anchor Store

Selecting a particular Visit-Ambience Frequency 73 27 100 Percent 73.0 27.0 100.0 Valid Percent 73.0 27.0 100.0 Cumulative Percent 73.0 100.0

Valid

yes no Total

Selecting a particular Visit-Ambience

80

60

40 y c n u q e r F

73

20 27 0 yes no Selecting a particular Visit-Ambience

According to the survey conducted it was found that consumers are looking for all these basic services and looks that the particular services should be provided by any Mall. They choose a particular mall on the basis of ambience, proximity, parking service, Variety of offers and the existence of an anchor store. 10. Shows and events attract Frequenc y 69 31 100 Percent 69.0 31.0 100.0 Valid Cumulative Percent Percent 69.0 69.0 31.0 100.0 100.0

Valid yes no Total

Shows and events attract

70 60 50 40 69 30 y c n u q e r F 20 10 0 yes no Shows and events attract

31

According to the survey conducted it was found that shows and events do enthuse them to go the Mall specially some first day show of movies, exhibitions and other such kind of activities. The footfalls during these days generally increases compared to normal weekdays 11. Find the price Charged Higher Frequenc y 53 47 100 Percent 53.0 47.0 100.0 Valid Cumulative Percent Percent 53.0 53.0 47.0 100.0 100.0

Valid yes no Total

Find the price Charged Higher

60 50 40 30 y c n u q e r F 20 10 0 yes no Find the price Charged Higher

53

47

According to the survey it was found that consumers feel that these outlets are charging higher that what services they are being provided. 53% of the respondents has responded that the prices are higher if looked from their perspective. 12. Age bracket you fall in Frequenc y 25 36 26 13 100 Percent 25.0 36.0 26.0 13.0 100.0 Valid Cumulative Percent Percent 25.0 25.0 36.0 61.0 26.0 87.0 13.0 100.0 100.0

Valid 12-22 22-30 30-40 40-50 Total

Age bracket you fall in

40

30

20 y c n u q e r F 25 10

36 26 13

0 12-22 22-30 30-40 Age bracket you fall in 40-50

The survey included respondents from the entire age bracket in order to have a fair understanding of the reactions of the customers towards the concept-Shopping Mall.

An analysis of the Indian Retail sector

1. An Overview of the Retail sector:
The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players 1. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP 2.

Source: Ernst &Young, The Great Indian Retail Story, 2006. A look at the statistics shows that the retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually. An ICRIER study has found that retailing ($180 billion) contributes to 10 per cent of GDP and employs 7 per cent (21 million) of the workforce 3. According to AT Kearney, India is given the top ranking as the next foreign investment destination, as markets like China become increasingly saturated 4. India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3 rd by 2010 just behind US and China1. Over the past few years, the retail sales in India are hovering around 33-35% of GDP as compared to around 20% in the US. The table gives the picture of India's retail trade as compared to the US and China.

Source: Economist, Let gradualism guide FDI in retail, 2006.

The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers 4. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes. This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper supply chain will help meet the competition head-on, manage stock availability; supplier relations, new valueadded services, cost cutting and most importantly reduce the wastage levels in fresh produce 5. Large Indian players like Reliance, Ambanis, K Rahejas, Bharti AirTel, ITC and many others are making significant investments in this sector leading to emergence of big retailers who can bargain with suppliers to reap economies of scale. Hence, discounting is becoming an accepted practice. Proper infrastructure is a pre-requisite in retailing, which would help to modernize India and facilitate rapid economic growth. This would help in efficient delivery of goods and value-added services to the consumer making a higher contribution to the GDP. International retailers see India as the last retailing frontier left as the China's retail sector is becoming saturated. However, the Indian Government restrictions on the FDI are creating ripples among the international players like Walmart, Tesco and many other retail giants struggling to enter Indian markets. As of now the government has allowed only 51% FDI in the sector to `one-brand' shops like Nike, Reebok etc. However, other international players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchisee agreement and cash and carry wholesale trading (since 100% FDI is allowed in wholesale trading).

2. How has the Indian consumer changed over the years?

In the past few years the whole concept of shopping has been altered in terms of format and consumer buying behavior. With the increasing urbanization, the Indian consumer is emerging as more trend-conscious. There has also been a shift from price considerations to designs and quality as there is a greater focus on looking and feeling good (apparel as well as fitness). At the same time, the Indian consumer is not beguiled by retail products which are high on price but commensurately low on value or functionality. However, it can be said that the Indian consumer is a paradox, where the discount shopper loyalty takes a backseat over price discounts 6. Indians have grown richer and thus spending more on vehicles, phones and eating out in restaurants. The spending is focused more outside the homes, unlike in other Asian countries where consumers have tended to spend more on personal items as they grow richer7. Spending on luxury goods have increased twice as fast with 2/3 of India's population is under 35, consumer demand is clearly growing. The mall mania has bought in a whole new breed of modern retail formats across the country catering to every need of the value-seeking Indian consumer. An average Indian would see a mall as a perfect weekend getaway with family offering them entertainment, leisure, food, shopping all under one roof.

Source: Ernst & Young, The Great Indian Retail Story, 2006. Indian consumer is also witnessing some changes in its demographics with a large working population being under the age group of 24-35, there has been an increasing number of nuclear families, increase in working women population and emerging opportunities in the service sector during the past few years which has been the key growth driver of the organized retail sector in India. The emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The selfemployed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, reuslting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. Indians spend over USD 30,000 a year (in PPP terms) on conspicuous consumption that represents 2.8% of the entire population (which is approx 30 million people) making it the 4 th largest economy in PPP terms next only to USA, Japan and China 1. With reference to the map of India's income class, it can be noticed that the real driver of the Indian retail sector is the bottom 80% of the first layer and the upper half of the second layer of the income map. This segment of about 40 million households earns USD 4,000-10,000 per household and comprises salaried employees and self-employed professionals and is expected to grow to 65 million households by 2010 1. In addition to this, facilities like credit friendliness, availability of cheap finance and a drop in interest rates have changed consumer markets. Capital expenditure (jewelry, homes, and cars) has shifted to becoming redefined as consumer revenue expenditure, in addition to consumer durables and loan credit purchases.

3. FDI in retail:
Global retailers have already been sourcing from India; the opening up of the retail sector to the FDI has been fraught with political challenges. With politicians arguing that the global retailers will put thousands of small local players and fledging domestic chains out of business. The only opening in the retail sector so far has been to allow 51% foreign stakes in single brand consumer stores, private labels, high tech items/ items requiring specialized after sales service, medical and diagnostic items and items sourced from Indian small sector (manufactured with technology provided by the foreign collaborations). Parties supporting the FDI suggest that the FDI in retail should be opened in a gradual/ phased manner, such that it can promote competition and contribute to the growth of the Indian economy. The impact of the FDI would benefit the end user of the consumer to a great extent and will help to generate a decent amount of employment as more and more entrepreneurs would be coming forward to invest and taste the new generation in retail marketing. The opening of FDI should be designed in such a way that many sectors - including agriculture, food processing, manufacturing, packaging and logistics would reap benefits. The table below lists the pros and cons of allowing FDI into retail.
Benefits of FDI in retail Inflow of investment and funds. Improvement in the quality of employment. Generating more employment. Increase in the real estate prices. Increased local sourcing. Provide better value to end consumers. Investments and improvement in the supply chains and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries. industries and other supporting The financial strength of foreign players would displace the unorganized players. Absence of proper regulatory guidelines would induce unfair trade practices like Predatory pricing. Marginalize domestic entrepreneurs. Drawbacks of FDI in retail Would give rise to cut-throat competition rather than promoting incremental business. Promoting cartels and creating monopoly.

Thus it can be said that this investment boom could change the face of Indian retail by offering quality goods at lower prices to the consumers.

4. Segment analysis:
The structure of Indian retail is developing rapidly with shopping malls becoming increasingly common in the large cities and development plans being projected at 150 new shopping malls by 2008. However, the traditional formats like hawkers, grocers and tobacconist shops continue to co-exist with the modern formats of retailing. Modern retailing has helped the companies to increase the consumption of their products for example: Indian consumers would normally consume the rice sold at the nearby kiranas viz. Kolam for daily use. With the introduction of organized retail, it has been noticed that the sale of Basmati rice has gone up by four times than it was a few years back; as a superior quality rice (Basmati) is now available at almost the same price as the normal rice at a local kirana. Thus, the way a product is displayed and promoted influences its sales. If the consumption continues to grow this way it can be said that the local market would go through a metamorphoses of a change and the local stores would soon become the things of the past or restricted to last minute unplanned buying.

4.1 Food and grocery retail:

The food business in India is largely unorganized adding up to barely Rs. 40,000 crore, with other large players adding another 50% to that. The All India food consumption is close to Rs. 900,000 crore, with the total urban consumption being around Rs.330,000 crore. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Most food is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household's spending on food is one of the highest in the world, with 48% of income being spent on food and beverages.

4.2 Apparel retail:

The ready-mades and western outfits are growing at 40-45% annually, as the market teems up with international brands and new entrants entering this segment creating an Rs.500 crore market for the premium grooming segment. The past few years has seen the sector aligning itself with global trends with retailing companies like Shoppers' stop and Crossroads entering the fray to entice the middle class. However, it is estimated that this segment would grow to Rs. 300 crore in the next three years.

4.3 Gems and Jewellery retail:

The gems and jewellery market is the key emerging area, accounting for a high proportion of retail spends. India is the largest consumer of gold in the world with an estimated annual consumption of 1000 tonnes, considering actual imports and recycled gold. The market for jewellery is estimated as upwards of Rs. 65,000 crores 9.

4.4 Pharma retail:

The pharma retailing is estimated at about Rs. 30,000 crore, with 15% of the 51 lakh retail stores in India being chemists. According to Vikas Bali, Principal, A.T. Kearney (India) Ltd, "Pharma retailing will follow the trend of becoming more organised and corporatised as is seen in other retailing formats (food, apparel etc)". A few corporates who have already forayed into this segment include Dr Morepen (with Lifespring and soon to be launched Tango), Medicine Shoppe, Apollo pharmacies, 98.4 from Global Healthline Pvt Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG group's Health & Glow is already in this category, though it is not a pure play pharma retailer but more in the health and beauty care business 10.

4.5 Music Retail:

The size of the Indian music industry, as per this Images-KSA Study, is estimated at Rs.1100 crore of which about 36 percent is consumed by the pirated market and organized music retailing constitutes about 14 percent, equivalent to Rs.150 crore 11.

4.6 Book retail:

The book industry is estimated at over Rs. 3,000 crore out of which organized retail accounts for only 7% (at Rs.210 crore). This segment is seen to be emerging with text and curriculum books accounting to about 50% of the total sales. The gifting habit in India is catching on fast with books enjoying a significant share, thus expecting this sector to grow by 15% annually 11.

4.7 Consumer durables retail:

The consumer durables market can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners (A/Cs). The existing size of this sector stands at an estimated USD 4.5 Billion with organized retailing being at 5% 12.

Source: E&Y, The Great Indian Retail Story, 2006. As noticed in the figure above, the organized retail penetration (ORP) is the highest in footwear with 22% followed by clothing. Though food and grocery account for largest share of retail spend by the consumer at about 76%, only 1% of this market is in the organized sector. However, it has been estimated that this segment would multiply five times taking the share of the organized market to 30 percent in the coming years 1.

5. Industry analysis of the Indian retail sector:

Modern retailing has entered India in form of sprawling malls and huge complexes offering shopping, entertainment, leisure to the consumer as the retailers experiment with a variety of formats, from discount stores to supermarkets to hypermarkets to specialty chains. However, kiranas still continue to score over modern formats primarily due to the convenience factor.

Source: IT Retailing: Are You In The Loop?, July 16, 2006. The organized segment typically comprises of a large number of retailers, greater enforcement of taxation mechanisms and better labour law monitoring system. It's no longer about just stocking and selling but about efficient supply chain management, developing vendor relationship quality customer service, efficient merchandising and timely promotional campaigns. The modern retail formats are encouraging development of well-established and efficient supply chains in each segment ensuring efficient movement of goods from farms to kitchens, which will result in huge savings for the farmers as well as for the nation. The government also stands to gain through more efficient collection of tax revenues. Along with the modern retail formats, the non-store retailing channels are also witnessing action with HLL initiating Sangam Direct, a direct to home service. Network marketing has been growing quite fast and has a few large players today. Gas stations are seeing action in the form of convenience stores, ATMs, food courts and pharmacies appearing in many outlets. In the coming years it can be said that the hypermarket route will emerge as the most preferred format for international retailers stepping into the country. At present, there are 50 hypermarkets operated by four to five large retailers spread across 67 cities catering to a population of half-a-million or more. Estimates indicate that this sector will have the potential to absorb many more hypermarkets in the next four to five years 1 .

List of retailers that have come with new formats:

Retailer Shoppers' Stop Ebony Crossword Piramyd Pantaloon Subhiksha Vitan Foodworld Globus Bombay Bazaar Efoodmart Metro S Kumar's Current Format Department Store Department Store Large bookstore Department Store Own brand store Supermarket Supermarket Food supermarket Department Store New Formats. Experimenting With Quasi-mall Quasi-mall, smaller outlets, adding food retail Corner shops Quasi-mall, food retail Hypermarket Considering moving to self service Suburban discount store Hypermarket, Foodworld express Small fashion stores Aggregation of Kiranas Aggregation of Kiranas Cash and carry Discount store

Traditionally, the small store (kirana) retailing has been one of the easiest ways to generate self-employment, as it requires minimum investments in terms of land, labour and capital. These stores are not affected by the modern retailing as it is still considered very convenient to shop. In order to keep pace with the modern formats, kiranas have now started providing more value-added services like stocking ready to cook vegetables and other fresh produce. They also provide services like credit, phone service, home delivery etc. The organized retailing has helped in promoting several niche categories such as packaged fruit juices, hair creams, fabric bleaches, shower gels, depilatory products and convenience and health foods, which are generally not found in the local kirana stores. Looking at the vast opportunity in this sector, big players like Reliance and K Rahejas has announced its plans to become the country's largest modern retainers by establishing a chain of stores across all major cities.

Apart from metro cities, several small towns like Nagpur, Nasik, Ahmedabad, Aurangabad, Sholapur, Kolhapur and Amravati as witnessing the expansion of modern retails. Small towns in Maharashtra are emerging as retail hubs for large chain stores like Pantaloon Retail because many small cities like Nagpur have a student population, lower real estate costs, fewer power cuts and lower levels of attrition. However, retailers need to adjust their product mix for smaller cities, as they tend to be more conservative than the metros.

In order for the market to grow in modern retail, it is necessary that steps are taken for rewriting laws, restructuring the tax regime, accessing and developing new skills and investing significantly in India.

6. Business analysis of the Indian retail sector:

The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last five years. 14 (KSA Technopak, June 2006). In modern retailing, a key strategic choice is the format; retailers are coming up with various innovative formats to provide an edge to retailers. Most attractive developing markets for retail by region according to AT Kearney Study: Percentage of markets that are `on the radar' and `to consider':

Source: AT Kearney, GRDI 2006. A look at the graph above shows that the Asian markets are considered attractive for retail as per the AT Kearney's report; India is being placed on the radar by the USA and UK. Global giants like Tesco and Walmart are experimenting with various options to enter India. One possibility for Walmart would be to open Sam's club wholesale business through a joint venture and sell strictly to other retailers. This strategy skirts the issue of not being able to sell directly to customers and establish a strong presence in the local market. On the other hand, Tesco is planning to get into a partnership with Home Care Retail Mart Pvt. Ltd expecting to open 50 stores by 2010 4. The government is taking gradual steps in allowing the FDI into Indian retail, when it takes the final steps the peak time will quickly pass giving the existing players a distinct edge.

6.1 Merger and acquisition activity:

India witnessed a record number of M&A deals in the first half of 2006, which were collectively worth USD 25.6 billion. A significant number of deals have being carried out in the Indian retail sector in the past few months in order to acquire a larger share in the growing domestic market and to compete against the prospective global and domestic players.13 The table below shows some recent deals that have taken place in the Indian retail sector:
Acquired/ JV Company/ Target Liberty Shoes Indus - League Clothing Odyssey India Landmark Consideration Acquirer Future group Future group Deccan Chronicle Holdings Tata Trent TGI Friday's (a subsidiary of Carlson Restaurant Worldwide) Etam group, France (Future group company) Nature of Business Retail (Footwear) Retail clothing Stake (US$ million) 51% 68% 3 5 14 24

Year 2005 2005 2005 2005

Leisure retail chain 100% (books, music, toys) Books, music, accessories Restaurant (Food retail) Lingerie and women's wear retailing 74%

2006

Bistro Hospitality Indus League clothing

25% 50%

N/A

2006

8 (JV)

Source: PricewaterhouseCoppers, Asia-Pacific M&A bulletin, Mid year 2006.

6.2 Business models for entry in Indian markets:

Due to the FDI restrictions the international players are looking for alternative avenues to enter the Indian markets. The chart below shows the current formats permitted by the Government of India for the international players.

Source: Ernst & Young, The great Indian Retail Story, 2006.

7. Employment opportunities in this sector:

The Indian retail sector offers an economic opportunity on a massive scale both as a global base and a domestic market. This sector yields many positive results like generating more jobs and bringing numerous goods to the consumers at reasonable prices. According to Ernst &Young's report `The Great Indian Retail Story' this sector is expected to create 2 million jobs by 2010. About 4 crore people are employed in retail trade, assuming each person supports a family of 5, this, implies that about 20 crore people are dependent on this sector. For a vast majority of the households, retailing is a euphemism for a marginal existence. Modern retail formats have generated huge employment for the young and even senior citizens and women wanting to work part-time (even in small towns). People have greater exposure to the technical aspects, training and also earn higher salaries along with bonuses and incentives.

With foreign companies opening expanding in India, employees are being re-trained according to international standards and practices that are being bought in. There is also an increase in the number of retail management programmes and institutes. This will bridge the gap in availability of talented professionals at the middle and lower levels. Successful Indian retailers are creating a robust second and third level of management by hiring aggressively for these key roles. Talented professionals will put increased pressure on wage costs. Therefore operating margins, especially for midsized retailers, are becoming a poaching ground for international retailers once they enter India. With private companies getting into retail, there are people employed from diverse cultures (no room for reservations unlike government owned stores) where there is a sense of unity in diversity. The companies are also employing people who are physically handicapped. The next few years are expected will see the sector offering new jobs to 50,000 young graduates and diploma holders.

8. What makes foreign firms come to India?

A host of traditional `brick and mortar' companies such a Tatas have entered the retail business. With demographic changes like rising disposable incomes and rapidly expanding middle class, the Indian retail sector is at an inflexion point where the growth in consumption and growth of organized retailing are taking it towards higher growth. Market liberalization and an increasingly assertive consumer population have attracted bigger Indian and multinational operations to make investments, but are yet to achieve success or reach break even. The Indian consumption pattern and preference have undergone vast changes over the years allowing the foreign retailers to play with the psyche of the brand conscious modern Indian, who has no qualms spending a fortune on overhauling his wardrobe. This led to the entry of up-market brands like Nautica and New Balance into the country to cash in on this opportunity. India has the youngest population in the world, with large population between 20-34 age groups in the urban regions boosting the demand. All these factors have tempted the foreign firms such as Walmart, Tesco and Carrefour to enter India. India is now firmly placed on the US and UK radars as US retailers are gradually realizing the potential of the retail and consumer goods sector. The timing is the most important source of competitive advantage for global and regional retailers in the globalization race. Knowing when to enter emerging retail markets is the key to success. AT Kearney's study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets. This implies that there are significantly low entry barriers for players trying to setup base here, in terms of the competitive landscape. The report further stated that global retailers such as Walmart, Carrefour, Tesco and Casino would take advantage of the more favourable FDI rules that are likely in India and enter the country through partnerships with local retailers. Other retailers such as Marks & Spencer and the Benetton Group, who operate through a franchisee model, would most likely switch to a hybrid ownership structure.

9. IT and latest development:

Technology has played a key role in retailers' efforts to compete in this volatile market. With e-tailing channels making its presence felt in India companies are using either their own web portal or are tying up with horizontal players like Rediff.com and Indiatimes.com to offer their products on the web 15 (www.alexa.com). IT has been used by retailers ranging from Amazon.com to eBay, in order to radically change the buying behavior across the globe 16. Retailers worldwide are looking forward to increase their IT spending by almost 15% in 2006, allocating almost half of this increase to application software with a particular focus on tools that facilitate multi-channel customer relationships, point of sale systems, strategic merchandising and supply chain management 17. The last 2-3 years have seen several retailers ranging from F&B operations to discount clothing implementing supply chain management (SCM) solutions to improve core business processes such as global sourcing, distribution, logistics, innovations, transparency and visibility in financials and inventory, compliance and management of point of sale (POS) data. However, organized retailers have not taken well to the concept of 3PL (third party logistics) due to their apprehensions of losing control over the supply chain. Currently, the transportation is carried out partly by organized service providers and partly by truckers and local transporters. In conclusion, it can be said that in order to deliver the levels of quality and service that consumers are demanding; the organized retailers are in a pressing need for a single enterprise wide IT platform to manage operations, which will become increasingly complex once the market expands.

10. A look at the rural retailing:

More than half of retail market in India is in the rural areas (55%); although share of urban market is increasing by almost 5% every 8-10 years 14. Accommodating almost two-third of the country's consumers and generating almost half of the national income, the rural India offers tremendous opportunities for organized retailers which many companies have failed to access. According to the study conducted by NCEAR, the number of `lower middle income' group in rural areas is almost double as compared to the urban areas, having a large consuming class with 41% of the Indian middle class and 58% of the total disposable income.

Source: Census; National Council of Applied Economic Research (NCAER).

A look at the demographics reveals that the highest income levels households in the rural areas are 1.6 million as compared to 2.3 million in urban areas. It has also been forecasted that the middle and the higher income households are expected to grow to 111 million by 2007 from the current levels of 80 million. Thus, it can be said that with 128 million households, the rural population is nearly three times the urban. This vast demand base and size offers a huge opportunity that MNCs cannot afford to ignore.

In order to meet with this rapid growth in demand the government has shown its concern by providing an induction of Rs.140 billion and Rs. 300 billion in the rural sector through its development schemes in the Seventh and the Eight plan respectively. The large players like ITC, HLL, BPCL are realizing the potential of this sector and are seen experimenting with new ways to tap this segment. ITC spent 3 years and Rs. 80 crore on r&d to come up with the concept of E-choupal and Choupal Sagar-rural hypermarkets 18. Through this, the farmers can access latest local and global information on weather and market prices, scientific farming techniques at the village itself through a web-portal - all in Hindi. E-Choupal also facilitates supply of high quality inputs as well as purchase of commodities at their doorstep. The hypermarket (Choupal Sagar) provides them with another platform to sell their produce and purchase necessary farm and household goods under one roof. Next in line, HLL came up with Project Shakti in late 2000 to sell its products through women self-help groups who operate like a direct-to-home team of sales women in inaccessible areas where HLL's conventional sales system does not reach. Another step to tap the rural market was `Operation Bharat' wherein low-priced sample packets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to 20mn households. As a part of their rural strategy, BPCL introduced Rural Marketing Vehicles (RMVs) that move from village and village and filling cylinders on the spot for rural consumers keeping in mind the low-income of the rural population. The Company also introduced a smaller size cylinder to reduce both the initial deposit cost as well as the recurring refill cost.

Future outlook:
Investments in the range of US$ 20+ Billion are expected in the next 5 years in Retail & its Supply Chain alone.

Size of modern retail likely to touch US$ 60+ Billion by 2011:

At least 2.5 Million additional direct jobs likely to be created in the next 5 years. Hyper-competition is expected to set in by 2008-9 as the footprint of the top-5 players starts significant overlapping in top 20 - 30 towns.

Significant impact on other retailers and branded good players creating new opportunities and threats:
According to Assocham, the overall retail market would grow by 36 per cent with the organised sector expected to register three-fold growth to Rs 15,000 crore by 2008. The total size of the market is also expected to increase to Rs 14,79,000 crore from the current level of Rs 5,88,000 crore.

Challenges faced by this sector:

The industry is facing a severe shortage of talented professionals, especially at the middle-management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India's educated class that has chosen sectors like IT, BPO and financial services. Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country.

The retail sector does not have 'industry' status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions. 13. Performance of the players in the retail industry:
Revenues Growth% (Rs mn) QoQ (compared to corresponding quarter) Trent 3464.41 15.94 4.75 47.75 57.07 Shoppers' 6455.74 Stop Pantaloon (Retail) 18677.71 India Limited Pyramid Retail Limited 991.99 Growth% Net Profit YoY Growth% Growth% OPM% YoY Q1FY06 OPM% Q1FY05 EPS Q1FY06 CMP P/E

(Rs mn) QoQ (compared to corresponding quarter) 243.78 (1.35) 271.05 (4.94)

27.91 42.43

6.25 4.38 7.00

7.07 3.00 6.82

4.55 2.03 5.89

875.00 604.60

53.88 76.73

26.28

72.30

641.58 (2.50)

66.42 (Q3FY06) (Q3FY06) (Q3FY06)

1844.85 120.42

(9.67)

0.00

(74.76) 3.20

0.00

(16.62)

0.00

(3.53)

114.85

0.00

Note: Market Price as at 11/10/2006. Source: bseindia.com, economictimes.com, myiris.com.

List of resources:
1. Ernst & Young, The Great Indian Retail Story, 2006. 2. FICCI - ICICI Property Services Study. 3. Let gradualism guide FDI in retail, Economist, 2006. 4. AT Kearney, GRDI 2006. 5. Retail scenario most developed in Bangalore, DH News service, According to Bijou Kurien, 6. President & Chief Executive - Life Style, Reliance Retail. 7. CII, Logistics and Freight News, March 2006. 8. KPMG analysis, Consumer markets in India - the next big thing, September 2005. 9. India's changing household, Deutche Bank, November 2004. 10. CII, Manufacturing Bulletin, June 2006. 11. Pharma's retail push, Business Line, 2006. 12. Northbridge Journal, Industry Outlook - Retail, 2006. 13. Express Press release, Consumer durables sector sees pick-up sales in India, 2006. 14. Price Water Coppers, Asia-Pacific M&A bulletin, Mid year 2006. 15. KSA Technopak, June 2006. www.alexa.com. Hoilday shopping defined by outlet malls of Amazon, eBay, CNet News, 9 th December 2002. According to Frost & Sullivan Research analysts. www.itcportal.com. CII, Retail scenario in India: Unlimited Opportunity.