franchising aspects Dec, 15 2009

Mall culture is in

Mall Culture is in, but with the fierce competition in the market franchisors and franchisees must do a research on the location, culture, taste and demography before taking up a space in the desired mall. The article enlightens on how malls are one of t

By Pallavi Majha
Chief Sub Editor
Mall culture is in

A prime location makes a lot of difference to the brand. Having taken up a retail franchise of a brand, the next step forward for the franchisee is to look for an appropriate location. High streets or shopping malls are considered to be the best locations to have an outlet of a franchised brand.

However, there is an increase in opening of large numbers of retail franchised outlets in the malls. As per the facts, there will be a total of 90 million sq.ft of retail space available in India from 600 malls by 2010. According to Anand Dutta, Head Retail, Pune, Jones Lang LaSalle Meghraj, “The process of taking up an outlet in a mall or in a high street is almost the same for the company owned outlet, franchised outlets or a stand alone. In case of malls, the mall developers decide retail and brand mix in his mall. So, it is up to him to decide whether he wants any particular brand to have an outlet in a mall or not. He always tries to specify in the agreement through a letter that the franchised outlet taken on rent in mall is particularly for a specific brand.”

The franchisee is advised to maintain good understanding with the franchisor before signing a franchise agreement. In case, the franchise agreement gets terminated or the brand does not perform well for one reason or the other, then franchisee has to take the permission from the mall developer to start selling some new brand from the same store in the mall.

Clarifying the above Dutta explains, “If such a situation arises then there are two options available to the franchisee. One is to give back the possession of the store that he had taken on lease for some specific time period. Second, the franchisee can take up a franchise of another brand which is acceptable to the mall developer to sell that brand from that store.”

Since past few years there has been an increasing demand of taking up an outlet in malls by the franchisees. Higher conversion rates and decent amount of footfalls are some of the attributes to it.  Also, Dutta informs, “The trend today is to go in for malls because malls provide security to the store operator in terms of convenience of shopping enjoyed by the consumers under one roof, malls serve as one stop shopping destination, convenience of parking, and the existence of food courts.”

When asked about the various categories of brands taking up space in a mall, Dutta informs, “Apparel, footwear and F&B are the prominent categories having franchised outlets in malls.”

Comparing the rentals

Dutta highlights, “The rentals in malls are quite comparative to rentals in high streets. But store operators do not mind paying some extra bucks for all the comfort, facilities and convenience that the malls provide. The facilities like common area, ambience, parking area, no tension of maintenance takes the mall rentals to the higher side.”

Minimum guarantee and revenue sharing models

The increase in the vacancy in malls is rising due to slowdown and high rentals. The increase in vacancy has further lead to correction in the mall rentals. Correction is followed by renegotiation that incorporates minimum guarantee and revenue sharing models for the franchisees and retailers. Large numbers of mall developers are following these models to attract more and more retailers and franchisors to open their outlets in malls. It works for both the retailers and mall developers. There is a huge amount of retail space lying vacant in malls. To utilise this space for better and to make some money out of it mall developers are offering revenue sharing and minimum guarantees to the retailers.

Franchisees are preferred in tier II and III cities

“Mall developers prefer to give retail space to the franchisees specifically in tier II and III cities. Therefore, franchisee approach is much easier here, as mall developers themselves want to have local people to open up their stores,” tells Dutta.

Higher footfall and conversion ratio

Shopping malls are a one stop shop destination. There is a variety of retail mix. Besides convenience of shopping, there are entertainment and foot courts for shoppers to enjoy. All this leads to higher footfalls and higher conversion rates. Malls provide complete entertainment package for families.

Word of caution

Till now, we have seen the brighter side of having a franchised outlet in a mall. But there are some cautions to it. Franchisees must consider the following:

  • Higher rentals as compared to high streets: The rentals in malls are comparatively higher to high streets. But then there are various facilities that malls provide which justifies the higher rentals.
  • Mall completions running behind schedules: According to Dutta, “Not even a single mall in the country is delivered on time. The delay for six to eight months is taken for granted by the developers.” 
  • Competition: Large numbers of brands are present in malls. Shoppers get ample variety to shop from. They can also compare the prices of various brands. So franchisees need to be cautious about it.

Related: Whats Better, Franchising Or Joint Venture?

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