Sep 18, 2008

Business - India;When realty bites

Heads, it’s a mall, tails, it’s a high street. India’s retail consumer spending, which is likely to touch Rs 16 lakh crore in the current year, has retailers in a spin. In a country where consumers are turning to retail therapy like people did to painkillers a few decades ago, retailers have no choice, but to be available ‘here and now.’

And so, with not much choice between locating themselves in malls or high streets, Indian companies are grabbing all the space that comes their way. But there should be an economic sense to this retail mania. What drives companies to choose a mall presence versus a high street store or vice-versa? Does one format give better sales realisations than the other?

“Malls have a shorter history in India, so we will have to wait and watch,” says Ajoy Chawla, Vice-President and Global Business Head (Titan & Retail), Titan Industries Ltd. The process of deciding on a store location is quite comprehensive at Titan, with the company first considering town assessment criteria. “There are some towns that have extremely successful malls and some with average performers.” In Bangalore, Chennai and Mumbai for instance, Titan stores in malls such as Forum, Spencer Plaza and InOrbit have yielded extraordinary sales revenues (about Rs 56,000-66,000 per sq. ft. per annum), while some malls in Delhi have been ‘indifferent,’ says Chawla. Titan is currently present in 32 malls and 253 high street stores across the country. “About 65 per cent of the mall stores are successful, they met what they had projected, but the hit rate on high streets is about 95-98 per cent, though the revenues per sq. ft. are comparable in both formats,” says Chawla.

Sales conversion rates have been better on high streets, recording about 85 per cent while those in malls have been a few notches lower at 65 per cent. But the number of walk-ins is higher in malls and the chance to induce trial is also higher. Consequently, therefore, higher are the chances of impulse buying.

For Arvind Brands’ Wrangler, the conversion rates story is quite the reverse. They are usually higher in mall stores as compared to those on high streets. “All other parameters remaining constant, we have seen around 20 per cent difference in the conversion rates in these two formats,” says Janani Subramaniam, Business Head, Wrangler. The brand has seen mall stores getting relatively higher footfalls, specifically the ones in malls which have multiplexes or food courts. She agrees the probability of consumers making an impulse purchase is much higher in these stores and the brand has seen good sales of low ticket items too.

Like Titan, for Levi’s too, high street stores have yielded higher conversions, especially mature high streets. They operate with conversions as high as 35 per cent and mall conversions range between 12 per cent and 16 per cent as a lot of the walk-ins there tend to be browsers. “However, revenue per sq. ft. and footfalls per sq. ft. are higher in malls,” says Bhaskar Kelkar, Director (Retail & SBU Head), Southern Region, Levi Strauss India Pvt Ltd.

He says Levi Strauss’ strategy for distribution of stores in high streets and/or in malls depends on the company’s decision on how much space and how many stores it should have in a city, the catchment area and the decision to be present on a particular high street or in a mall is based on the merits of the location and catchment. “High streets have a clearer catchment area,” agrees Chawla.

There are 60-70 malls coming up in the next few months, but, clarifies Chawla, the watch major is not dependent only on these formats though this is a good way of adding retail and getting good footfalls. High streets are also coming up as quickly as malls and the decision to shop here is also driven by convenience.

Though Titan’s actual presence in malls is far lower than its high street presence, sales revenue from malls and high streets for Titan in 2007-08 were comparable: Rs 20,000 per sq. ft. from malls and Rs 28,700 per sq. ft. from high streets, per annum.

In the current year, the company is expecting 11.5 per cent of its sales revenues to come from mall stores. The total revenues would include towns that do not have malls and about 18 per cent of revenues from towns that have malls.

Investment in malls seems higher because the loading factor is higher, though the quoted cost is lesser, says Chawla. “In malls, we can utilise the space in a particular manner and the average realisations are much better, because the ticket size is much better. The total revenues in high streets are higher because we take larger spaces there.”

Kelkar explains that the reason for the marginal increase in store set-up costs on high street stores is the retailer having to invest in air-conditioning units and diesel gensets, whereas in malls this is a given. Chawla argues that though the neighbourhood stores rentals may be lower, this is only a dynamic situation.

Commenting on whether there is a brand-retail format suitability factor involved, Chawla says malls are inherently more risky because of their short history in the country. “But for a newer brand, a presence in malls is important because the merit of the brand has to be established. For them, participation in the malling scene is as important as being on high street.” Chawla gives instances of malls that have done well, such as Forum and Spencer Plaza, and therefore have given Titan a very good response. On high streets, the brand’s pull determines the performance of the brand. As malls attract walk-ins in adequate numbers, it helps. Therefore, a brand’s performance in a mall is linked to the mall’s performance itself. “Of course, this is determined by the tenant mix, the anchor stores, the kind of food courts and multiplexes that malls have.”

Therefore, for Indian retailers, starved of space and scurrying for every inch of real estate available, the response has been a mixed bag. Participation in the malling of India is important and remaining firm with the traditional high streets, equally so.

2 comments:

Realty Rider said...

India is beginning to make news worldwide. It’s just the right time to think India. There's a new sense of confidence in Indian business. This confidence arises from the growing success of Indian enterprise in the face of competition in an increasing number of sectors. The India growth story is going stronger than ever. Favourable demographic and psychographic changes relating to India’s consumer class, international exposure, availability of quality retail space, wider availability of products and brand communication are some of the factors that are driving the retail in India. Real estate consultancy Jones Lang Lasalle Meghraj has identified 50 Indian cities that are likely to witness most of the retail action over the next couple of years — both in terms of development of malls and advent of organised retailers. And Jaipur, Lucknow and Kochi find mention among cities poised for “high growth.For more view- realtydigest.blogspot.com

Pawan Sharma said...

The present time is best time for the realty market.The worst of economy slowdown is over, so the price of property is at bottom line. The price of reality ready to increase by/within next quarter. The accelerated pace has spure a momentum in Reality sector. The leading banks have decreased the interest rates of home loans and the inflation level is also decreasing. Therefore, putting all together, the most property buyers are putting their money in different projects. The prospective buyers are desperate in their home-buying decision to buy properties because of a widespread conjecture of probable price increase in times to come.