Projections at best appear to be pipe dreams with developers admitting delays of nine months to a year in their mall projects
The lifting of certain lockdown restrictions in early June did result in a small uptick in retail sales, especially in non-metro circles, but fresh lockdown orders in July have once again destroyed a possible evolving momentum. “If I have to use one word to explain what is happening in offline retail or its most formidable pillar, the mall space, I would use the word ‘mayhem’.
On a broader basis, Covid has led to a contraction in the economy and people are saving money. Even if all malls become operational tomorrow, consumers will not immediately start splurging money. Probably, you can expect a V-shaped recovery which may take two years,” says Ankur Bisen, senior VP (Retail & Consumer Products) of Technopak Advisors. “For offline retail, the climate will continue to remain adverse for at least a nine-12-month period starting from April. During this period, consumers will not frequent advanced or modern retail setups for non-essential purchases,” adds an analyst of another leading consultancy firm.
The message is clear: the road to recovery for offline retail as identified by malls and high street setups is going to be long. Probably, longer than many would expect. And by the time the actual recovery happens, it may have broadly changed the contours and complexion of the organised offline retail business and its key components like malls and high streets.
For retailers who have been known more for their strong physical store presence across the country and have been comfortable with a small but growing online channel, the Covid crisis has forced them to give a hard push to the latter. While nobody is saying that Covid entails the end of the road for large brick and mortar formats like malls, the inevitability of serious streamlining in their offerings to consumers is a theory everybody seems to be backing today.
Darkest hour for offline retail
But before examining how badly corona has bruised the offline retail or, more specifically, the mall business, here’s a quick look at industry dynamics. According to a RAI-KPMG recent report, the estimated size of total retail in India (unorganised and organised combined) had stood at $854 billion in 2019. The share of organised retail was estimated to be 11 per cent of this pie, at $94 billion while the share of e-commerce had stood at just four per cent, at $26 billion.
The retail sector in India accounted for 10 per cent of the country’s GDP, providing employment to 46 million people. The specific pointers for malls in the report included about 650 large malls in the country generating a business of around Rs180,000 crore annually. In addition, the annual revenue generated from retail sales in 1,000-plus small malls in tier-2 locations, was estimated to be in the range of Rs50,000 crore.
Even as a serious economic slowdown had set in since the beginning of the previous fiscal, according to a report by real estate consultancy firm Anarock, released last year, Indian mall developers were looking to add over 65 mn sq ft of new supply by the end of 2022 across the country. Of this total new supply, the top seven cities comprised 72 per cent share and the remaining 28 per cent (18.2 mn sq ft) was expected to come up in tier 2 and 3 cities.
The point is – braving the cyclical vagaries and the growing online onslaught, the mall segment (the country had just three units in 2000) was expected to maintain a steady growth path in the years ahead. But cut to the present scenario and these projections at best appear to be pipe dreams with developers admitting delays of nine months to a year in their mall projects. That too, if the business shows signs of recovering before the end of the current fiscal.
Thermal checking at Pacific Mall, Dehradun
The sense of devastation is well explained by representatives of some of the most severely hit segments like restaurants and food courts which account for a 20 per cent share in any modern retail outfit. Ankit Mehrotra, co-founder and CEO, Dineout, commented in a recent webinar: “The food industry was operational even during the world wars. Never has the industry been shut like this.” He is of the opinion that, in the restaurant industry alone, 40 per cent of businesses that shut in March might not ever open again.
Meanwhile, a survey released by the Retailer Association of India (RAI) early this month highlights the de-growth trends across the brick and mortar retail business in more precise terms. According to the report, which captures market activities in the second half of June after ‘Unlock 1’ was announced allowing the opening of malls outside containment zones (mostly in non-metro circles), retail stores in malls reported a de-growth of -77 per cent which was slightly better in high streets (at -62 per cent).
Retail sales through malls in all the four zones in the country were down by over -75 per cent and high streets fared slightly better with a pan-India average of -62 per cent with the maximum drop of -68 per cent in the western zone. Footwear, restaurants, apparel and clothing are some of the most severely hit segments within the brick and mortar retail segment, accounting for a minimum of over -65 per cent degrowth.
“High streets seem to have fared better because all malls have not opened but that is hardly a consolation. The loss of confidence is acute and is visible across the board,” says Kumar Rajagopalan of RAI. “Unlock 1 had resulted in the opening of 450-500 malls which were mostly in non-metro circles but after the re-imposition of lockdown recently in many areas, about 75-80 malls in Karnataka have been closed again. There has been hardly any change in the degree of uncertainly we have been facing since the beginning of this crisis,” Amitabh Taneja, chairman, Shopping Centres Association of India (SCAI) points out.
Unlocking does not bring relief
Lalit Agarwal, CMD, V-Mart Retail, points out that though he spearheads a Bharat-centric retail chain and most of his stores are in non-metro areas, he is disappointed by developments in recent months. “I have 268 units across the country. Nearly half of them are closed and the remaining 30 per cent are facing marginal to major operational disruptions. Only 20 per cent would be working normally as of today,” he says.
Some mall operators are trying to go that extra mile to ensure safety for their customers
According to an industry insider, the re-opening of malls at several places has, at best, been partial since food courts and entertainment zones (including multiplexes) are still not working. According to Susil Dungarwal, chief mall mechanic, Beyond Squarefeet Advisory, a typical mall has three commercial components – merchandise, food courts, and an entertainment zone (comprising mainly of multiplexes). Food courts and entertainment zones typically account for nearly 40-45 per cent of a mall’s total business. And if they are not functioning, this has a serious impact on earnings.
According to Abhishek Bansal, executive director, Pacific Malls (which has units mainly in Delhi/NCR and in Dehradun), the scene after the initiation of the unlock process was not at all encouraging at the beginning. “Initially, the footfall was not more than 10-12 per cent. Now, it has gone upto 25-30 per cent. Sales at our food courts are currently down 30-50 per cent. Probably, after September, things will improve,” he says.
Amidst this ‘shut, open and shut again’ scene at several locations, some leading mall operators across the country are meanwhile trying to go that extra mile on the safety front for the consumer. According to Amitabh Taneja, 90 per cent of malls which have permission to operate in non-containment zones follow similar SOPs which entail thermal checking at the entrance, maintaining a safe distance at merchandise and entertainment zones between two visitors, regular sanitisation of premises, etc. Some leading mall owners are also going the extra mile and initiating extraordinary measures for confidence building.
“We are investing a lot in technology – we are putting in sanitisation mats, providing a sanitised UV box to all our customers where they can keep their purchases while they are in the mall and using artificial intelligence (AI) technology for a live count of consumers within the premises to ensure management of the prescribed customer density within the premises,” says Kalkar of Phoenix Mills. Initiatives like these are meant to send the message that the visitor is stepping into a safe environment. However, these seem to be more like future investments which will pay dividends when the crowd really returns.
Collaboration & streamlining
Here is most the critical issue of the financial arrangement between mall or store owners and the retailers occupying them. With both of them in the same boat (no earning or earnings dropping to a trickle), there have been instances of open bickering between them in April and May. With malls and other organised markets close to completely shut, industry insiders say that rental payments had initially completely stopped.
And when mall owners, buffeted by their own bankers to meet with their monthly obligations on loans, raised the issue with their tenants, the latter asked for rental waivers till the lockdown period was over or rental negotiations (a 30-50 per cent reduction as compared to the pre-Covid rental) as they feared the sales drop would continue during the greater part of the year.
Six degrees of separation: Metro cash and carry
The larger retail chains asked for revenue sharing, at least till the end of this financial year. “We had asked for rental negotiation in the beginning with the mall owners but they did not appear to be too receptive to the idea. But things have begun changing. DLF was the first company to respond when it announced a waiver for the lockdown period and then some others have also followed. In this hour of crisis, the best way of survival is understanding each other’s pain,” says Narendra Singh Dhingra, CMD of popular clothing brand Numero Uno which operates 250 outlets across the country with nearly 40 of them being located in malls.
But, as industry insiders point out, even as the two parties have agreed to not add to each other’s discomfort in these troubled times, there is no common formula which has emerged when it comes to mall owners doling out some relief to their tenants. “Negotiations or concessions are largely happening at the individual level and mall owners are responding on a case-by-case basis. Businesses that remain viable even during these turbulent times may get waivers or discounts in comparison to those severely affected,” says Anuj Kejriwal, MD, Anarock Retail.
Teething troubles notwithstanding, to conclude that retail space has completely lacked any meaningful fresh development in the recent past would clearly amount to under-estimating those who drive this gigantic business. “Given the ongoing crisis, we are expanding our e-commerce footprint by ramping up our presence in the online marketplace and allowing delivery in over 1,300 cities, rolling out home delivery across 900+ stores and giving customers the option to shop from home via WhatsApp chat with our neighbourhood stores,” comments Sandeep Kataria, CEO of India’s leading footwear brand Bata. “The retail sector has seen a substantial shift towards online shopping during the lockdown period, which, coupled with the omni-channel strategy will undoubtedly play a significant role in reviving business,” adds Deepak Bansal, Director, Cantabil Retail India.
Interestingly, even for wholesale retail majors like Metro Cash & Carry, putting more emphasis on the online channel has delivered the desired result in this hour of crisis. According to Manish Sabnish, director (supply chain & procurement) of the company, it has managed to restore 70-80 per cent of its regular sales thanks to two key initiatives: picking up goods directly from the factory gates of critical manufacturing partners and, secondly, expanding the scope of its online platform for direct bookings by buyers (mostly shopkeepers) and then ensuring delivery at their doorstep. “Earlier the contribution of the online channel to our total sales was in single-digit numbers but in a matter of a couple of months, it has gone up to double-digits,” he says.
The compulsion of staying indoors has also resulted in e-commerce majors like Flipkart making small inroads in segments like food and grocery (usually considered to be a stronghold of the offline platform, they account for nearly half of the total retail value). A company spokesman explains that the platform has also made the most of the opportunity in enhancing its seller base. “We have seen 125 per cent increase in new sellers signing up on the platform between April-June 2020. These sellers primarily cater to categories ranging from women’s clothing, personal care, food & nutrition to home improvement tools and baby-care products,” he says.
As per the post-Covid dynamics for the domestic retail business, if the crisis lengthens, a further push for adopting online tools both from buyer and seller is a foregone conclusion. Manoj Agarwal, CEO of Viviana Malls, Thane, responds: “The shift in shopping trends is temporary and short-term. In the medium and long-term, purchasing patterns will get restored and in fact we are hoping that business will surpass past results.”
The compulsion of staying indoors has also resulted in e-commerce majors like Flipkart making small inroads in segments like food and grocery
He emphasises that the core appeal of malls lies somewhere else – in being an experiential hub for a group (family or friends) where a lot of discretionary purchases happen. But not everyone from the mall-owners’ side is as confident as Agarwal. “Online can make a strong encroachment on touch and feel segments (another traditional strength of the offline platform) like electronics and even apparel. We will know this only when brick and mortar retail becomes fully operational again and nobody knows when that will happen,” says a senior official of a Gurgaon-based real estate firm which also has a shopping mall portfolio.
Meanwhile, experts are also pointing at the prospect of serious churning within the retail space, something that would have happened a few years hence, but has now been expedited by Corona. And the element is: an omni-channel strategy entering the fray. “Customer research had already moved online, but because of the sum of money involved in our category, most customers also wanted to do a physical verification of products. And that’s why, for retail, it has always been very important to be omni-channel and this will retain its importance going forward,” Ritesh Ghosal, CMO, Infiniti Retail (Croma) commented while addressing an industry webinar recently.
And even amidst the Corona crisis, there have been some recent developments indicating that players have begun making preliminary moves to align with the changing scenario. Global sportswear brand Puma, for instance, recently remodelled its stores at Banjara Hills, Hyderabad and Pacific Mall, New Delhi which marked the launch of the brand’s first Puma Select shop-in-shops in India to showcase an exclusive range of global designer collaborations.
The stores feature digitally connected offerings, personalisation zones and a futuristic product range. And here is another interesting example: on 17 July, Inorbit mall Cyberabad introduced an innovative video calling facility that will enable consumers to make selection and payment online and simply drive to the mall at the designated time to collect their shopping bags. Kalakar of Phoenix Mills promises the introduction of more technological inputs which would include facilitating contactless payment. So, though the mall business may appear to be on the mat right now, those running the show have begun to toy with new ideas to make the game more interesting at the first available opportunity.