Malls are in the business to achieve a good return on their investment and efforts as are retailers. Unfortunately, in more cases than we would like to believe, the Vanilla tenants are short-changed! Even more so if they are not part of a large chain or a multinational. This can potentially lead to a breakdown of relationship and even confrontation.
One way to avoid this is to draw up a reasonable agreement, one that is fair to all involved. The central basis being that both retailers and a Mall’s management are in this business together and one cannot thrive without the other. Demanding a fair arrangement via the legal route or government lobbying based on protection laws existing in the West, are other options.
However, I feel that a more practical, quick and sensible option would be to adopt a genuine ‘revenue share’ model. This means the retailer pays as rent, a fixed percentage of sales on a monthly basis without a minimum guarantee. Needless to add this arrangement should be reviewed / renewed after a mutually agreed period. There also could be parameters set with the overall revenue generation zone, category wise. Arbitrary, unilateral decisions is not conducive to a healthy relationship, I hope we all agree.
The rest of the agreement also needs to be modified to bring parity and true collaboration for future growth and stability:
With the true spirit of a joint venture, both Malls and Vanilla Retailers can flourish to maximise results, ensuring customer delight. After all, the customer is not only of the Mall or of the retailer alone. The customer is the same for both.
Utopian idealism? Maybe, after all that is the flavour of the season. So, let’s hope for the best. I readily concede that building and running Malls is not easy. But neither is running a retail store. That’s why true collaboration is the only way forward. One cannot dispute that.
]]>“Entrepreneurs in retail should build businesses because they see value, not valuation” – B S Nagesh, Chairman RAI, Founder, TRRAIN
Retail is Value
“The last 10 years has seen positive and negative changes. There has been growth and in some cases, it has tipped into aggressive business expansion. Some retailers have used the slowdown of 2010-2013 to rectify the mistakes. More importantly, there are now thousands of companies and sub-segments of industry who have joined the retail bandwagon,” said Nagesh.
“Amongst the top 5 companies in every country, there is at least 1 retail company. The time will come when an Indian retailer too will feature amongst the top 10 retail companies in the world.” He added.
The politics of Retail
“Whichever government comes to power, retail will benefit. If, after elections in May 2014, the government moves for FDI –5% of retail which is organized retail will benefit. In the Long term, the 95% of retail which is not part of Modern Retail will still benefit. And if, after May 2014, the government chooses to defer FDI, the sector will still grow”, he noted.
The next 5 years are likely to be golden years in terms of consumption he said. RAI believes that from the learning of last 10 years, the next 5 years are golden years in terms of growth and opportunity.
Do not build a business for FDI
“Entrepreneurs in retail should build businesses because of the market opportunity, not because of valuation” he said. It’s important that the people who build businesses focus on value, NOT valuation.
What will change
There are few major changes that we expect. One is the presence of online. While it’s still 5% of retailers top line, and less than 2% of the overall sector, the simple fact is tommorrow’s consumer is online.
People Power
People power is going to be important in the next decade. There’s a need to develop skilled professionals and RAI extensively works on this and “Manning Modern Retail” is one such platform where we discuss on this bringing in together India’s retail fraternity.
‘Real Power’ v.s ‘Power of Power’
The Power of Power – refers to the fact that power cost has gone up, power is scarce. At the same time, some governments are slashing tariffs. Retailers need to track developments and manage this dimension – as electricity costs impact the business.
Well-governed retailers will command a premium. There is no space for a “dukaandari” mindset, when it comes to Governance. – B S Nagesh, Chairman RAI, Founder, TRRAIN
Future focus: Governance
“Governance in retail is no longer ‘dukaandari’ governance. It’s about building structurally strong and well governed companies.
There’s no more space for a “khandani” mindset. Well-governed retail companies will create value – and will command a premium over peers. “- he noted.
“ NCR-Delhi and Mumbai continue to remain lucrative markets” – Shubhranshu Pani, Joint MD – Retail, JLL
RAI JLL Report “Retail Realty in India: Evolution & Potential” explains the trends in Retail Real estate across emerging markets globally – and emerging retail real estate trends in Tier 2 India.
Emerging Asia
GDP Growth of Emerging Asia, US and Euro Area
Emerging Asia’s demography – an “endowment” for retail
Faster rise in income and youth population together aids growth of organised retail
India is at the cusp of this organised retail revolution
Trend in Emerging Cities
Polarisation of Vacancy in Indian Cities
Vacancy is higher in average or poor grade malls in India
Higher vacancy rates in NCR Delhi and Mumbai are due to poor occupancy or very high vacancy rates in average and poor grade malls. A lower vacancy rate in superior grade malls compared to average and poor grade malls indicates an underlying trend of consumers increasingly favouring good-quality malls that offer better lifestyle and entertainment facilities
Key Takeaways