One always knew the success of the organised retail business depended upon the availability of land -- the reason why so many malls have come up in Gurgaon, for instance, is because of the fact that Delhi doesn't have much land available -- but it was only after reading a report by ratings firm Fitch that something else became evident. That, several of the country's well-known organised retailers are actually realtors!
Okay, not exactly the lowly real estate brokers who help you and I find a house, but real estate developers. The Rahejas, who run the Globus chain of department stores and Shoppers Stop, are real estate developers.
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While the Fitch report doesn't do a similar compilation for those developing shopping malls -- other than for the DLF group -- anybody in the business will tell you a very large proportion of malls are being developed by real estate people.
Just like hi-tech and corporate parks were the flavour of the season with retailers a couple of years ago, malls appear to be the in-thing today -- around 300 malls are in various stages of development at the moment, with plans to construct 45 million square feet of retail shopping space.
Horror stories abound of how builders are simply constructing pigeon 200-500 square feet pigeon-holes over huge areas and calling them malls. Naturally, they aren't able to get serious retailers to populate them.
Similarly, as I learnt while reporting a series on the problems with shopping malls, one of the reasons why the rentals were so high (more on this later) is that malls are being sold -- naturally, then, the result is that speculators enter the market, and then try and get the maximum return by charging higher rentals.
Malls, however, if you look at the ones in developed countries, are not sold, as office or residential space is. They're run, in exactly the manner you'd run, say, a retail store.
The product mix the Forum mall in Bangalore will have, for instance, was planned by the mall managers right down to how much of the retail space should stock lingerie, how much men's formal wear, and how much records -- in other words, a large part of the job traditionally done by, say, the CEO of a large department store, is done by the mall's CEO.
Once this was decided, and the relevant shops rented out, it is up to the shopkeepers to figure out their pricing and brand strategies. Even after this exercise is complete, Forum's CEO plans to monitor the traffic in each section of the mall through electronic counters, to figure out which parts are doing well, and which not.
Having done that, he plans to try and weed out laggards and put in winners in their place (that's one reason why mall space is always leased out, never sold abroad), plan mall loyalty cards, look at joint promotions, shopping festivals, and so on.
The reason for this is simple: the developers of the mall have spent Rs 100 crore (Rs 1 billion) on it -- if they don't plan the product-mix, and do whatever they need to on a regular basis, to get customers in, their tenants will leave, and the value of their mall will dip.
From what I understand, several malls in Australia have been bought by investors who've then turned them around in the manner I've just described, by replacing one lot of retailers with another, and then cashed out for a tidy profit.
But why blame us for the high rentals in malls, one of my interlocutors complained -- land prices in the country are high due to low availability, and all that mall developers are doing is to pass on this higher cost.
The fact that few developers are able to access bank finance, unlike buyers who are flooded with offers from finance companies, also adds to mall costs.
Besides, argued my interlocutor, the reason why rentals looked high was because retailers sold too little -- the fault really lay at the retailers end. Touche!
What organised retailers have to do to increase their sales is, of course, the kind of question that, if you answer right, puts you in the league of the most sought after marketing gurus. But even to a layman, especially one whose wife is in the retail business(!), a few points seem obvious.
That, on an average, the organised retailer is a lot more expensive than my neighbourhood kirana store. When he's cheaper, like Big Bazaar in Gurgaon, there are other problems -- it takes me 90 minutes, one way, to reach Big Bazaar from south Delhi where I live, and it's impossible to find a parking space. Since I get to save just Rs 200-300 on my monthly groceries, the effort's too much.
The only way big retailers can really beat the kiranas is if they get huge discounts from manufacturers, like say from a Hindustan Lever or a Whirlpool.
But these manufacturers don't want to give huge discounts, even if the retailers are reasonably big, because that causes dissonance with other dealers who would then refuse to stock their goods -- that's also why, during the dotcom boom, the dotcom retailers were never able to sell TVs or fridges at rates lower than your neighbouring store, despite the fact that they had lower overheads.
The solution, a partner of the very successful Margin Free chain of stores in Kerala once told me, is to sell so much that you get appointed as a company's 'distributor', and then get a higher margin.
Bypassing the branded-supplier, and being able to create your own store brands, is the other solution to lowering prices and hiking sales. But, I'm told, developing a supply chain, with consistent and large enough quantities, is easier said than done -- my wife went all the way to China to buy furniture since she said few Indian suppliers could supply her the volumes she needed for the store.
To cut a long story, India's organised retail market is a long way from happening, and the high mall-rentals aren't the only reason for it. In which case, expect to see a large number of shopping mall projects go belly up in the next couple of years.