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Sep, 10 2010

MANAGING THE MALL MAZE

SHOPPING malls or shopping centres are physical spaces created for retailing, fun, leisure and entertainment and have multifarious elements.

SHOPPING malls or shopping centres are physical spaces created for retailing, fun, leisure and entertainment and have multifarious elements. To manage all these areas effectively, mall management comes to the fore. It ensures smooth running of the mall, makes sure that there is a co-ordination between various activities and tenants, settles disputes, etc.

As per Susil S. Dungarwal, Chief Mall Mechanic, Beyond Squarefeet Advisory Pvt. Ltd, “Primarily, a mall can be divided into various zones, the prominent ones being retail, entertainment, food court and the atrium. Mall management encompasses coordinating all these zones but the process starts right from the beginning, i.e. with mall positioning. The positioning of a mall will determine how the developer should proceed.”

 

Generally, the trend is that a developer develops a mall and then sells it to some investor, who then leases it out to retailers and this whole process creates ownership issue, which creates problems in maintaining the malls. Experts say such malls are owned neither by developers nor by the retailers but are slowly owned by individual financial investors, which create unplanned and haphazard developments for the malls and eventually it depreciates the rental value of the malls.

This is the crux of the problem. Retailers face challenges due to lack of quality space, cross subsidisation, high rental costs, high occupancy costs, low margins because of fewer sales, lower percentage of conversions and shortage of mall management. Mall developers, on the other hand, have challenges of their own. They are battling increase in vacant spaces, poor footfall and shrinking catchments owing to traffic jams. A flawed location and incompatible tenant mix along with defective management add to the woes. DLF's Star Mall has been lying vacant and DT Mall is witnessing a similar scenario with several retailers walking out of the mall due to poor customer traffic.

A major reason behind poor consumer traffic is that once the space is sold or leased out, the developers stop paying attention to branding or promotions in a mall, which ultimately affects the retailer's business and leads to low consumer traffic in malls.

 

Confronting challenges

To conquer such challenges, developers are devising various strategies to deal with these roadblocks. They are seeking advice from the third party, i.e. mall management service providing companies, to efficiently cope with the problems.

Managing a mall is a big challenge. Real estate developers are bringing in skilled mall management firms to ensure development in terms of re-negotiating rentals with retailers/franchisees, entering into feasible models such as revenue sharing/minimum guarantee and optimising mall traffic by organising strong marketing initiatives to acquire good returns for both themselves and tenants as well.

 

Plan meticulously

Before building a mall, the developer must do a feasibility study about the region/state/city by covering a demographic survey. It should include population, per capita income, consumers' profile and their spending capacity, assessment of the retail market in terms of catchment profiling, financial feasibility of the site, nearness to competitors like high streets and malls, visibility of each brand with right merchandise mix, availability of right accessible points for public transport, ample parking space, etc. Depending on the survey report, a suitable land should be explored.

Pradeep Seth, Chief Managing Director, Stadia Group, explains, “Generally, mall developers go by their gut feeling and conduct a site survey and do market study through their own staff. The right approach is to do a proper market survey and study the demographics and income levels as well as spending potential of the population.”

To avoid any hiccups at later stage, the developer can also take guidance from real estate consultants, who provide solutions to mall developers for enhanced management of their mall.

Lt Col Ashutosh Beri (MRICS) (retd), Managing Director, Property and Asset Management, Jones Lang LaSalle Meghraj, enlightens, “Positioning a mall refers to defining the category of services offered based on demographics, psychographics, income levels, competition in neighbouring areas and extensive market research of the catchment.”

For example, if the market research indicates that the average number of households living in a particular area belongs to the upper middle class, then a high-end retail mall would suit the location.

 

Right tenant mix

As mall's success depends highly on its tenants, picking up a right tenant mix is imperative. In a mall, anchors tenants are right traffic generators, so a developer must pay attention towards choosing a prominent anchor and vanilla tenants. This could easily pull in traffic, bring in sales and increase the Return on Investment for franchisees. In addition, the developer should carefully plan out the portfolio of retail options that could meet the needs of the targeted customers.

Assortment of right tenant mix to meet diverse requirements of the shoppers with sufficient infrastructure support can appeal two types of customers, focussed and impulse. Developers should go an extra mile to pick the right brand mix to maximise profits. Appropriate zoning is another measure that ensures better consumer footfall.

 

Floor positioning

Placement of tenants on each floor is of prime significance. The floor-wise positioning of tenants should be clearly defined so that each floor gets the best footfall. Talking about zoning aspect, Seth says, “We always position the anchors at the two ends and the vanilla tenants in between. The positioning of tenants is decided in terms of the merchandise, which the tenants are dealing with. The ideal positioning is to segregate men's section at one level, women's section at another and children's section at another level with entertainment and food clubbed together.”

A good example of this is Fun Republic in Chandigarh, where the tenants catering to food and beverage category are clubbed together with entertainment tenants on the top floor. This is done to target both the impulse and focussed buyers at one place. It also ensures that customers explore other tenants on first and second floors too. Another example is Stadia Group, which does not put a shoe brand next to a tenant selling food stuff, as right positioning plays a key role too.

On selecting the good brand mix, Beri adds, “The selection of the right anchor tenant plays a crucial role in establishing a good tenant mix. The successful execution of zoning exercise for a mall is carried forward through lease management on an ongoing basis. Forging good leases with retailers is an essential part of ensuring presence of right retailers in a mall.”

The Forum Mall in Koramangalam, Bengaluru, is a successful mall led by good zoning and tenant mix mall management practices.

In malls, the occupancy cost usually differs from highest at ground floor to lowest on first and second or third floors. For example, in Shipra Mall, there is full occupancy, as they follow a revenue sharing model. Keeping this in mind, some malls have fixed ground floor for foreign labels while the first floor is allotted to women and kids section. The second and the third floors are reserved for consumer durables and information technology (CD&IT) and the home furnishing segment. It is also about dividing each floor as per the retail categories.

 

The strategic mix

To maximise impulse buying and bring in more footfalls, developers in association with the retailers must organise promotional activities during weekends or in first and end of the month or during festive seasons to augment sales. Other than this, professional mall management service companies advice mall developers to work on infrastructure, ambience, traffic and finance management to enhance customers' shopping experience.

According to Beri, “Mall management often implements significant changes that benefit all concerned. These may include (but are not limited to) change in management, including repositioning of tenants, addition of a food court, correction of poor sight lines and access, new shop fit-outs for all tenants, refurbishment of common areas and ceilings and re-evaluation and redirection of the marketing function.”

Traffic management for adequate parking space and facilities management for providing all kinds of ease to retailers can further up the chances of a mall's success.

 

Manage, merge & mix

Going by the growing number of malls, mall management is going to be the next hottest trend in the Indian realty sector. Mall developers are facing challenges primarily due to failure in areas of retail planning, managing lease, common area management, mall promotional activities and marketing and leasing contracts. To overcome such weaknesses, developers can consult real estate solutions offering organisations. Taking into account the augmentation of organised retail and increasing transparency in the sector, only professional malls will continue to exist in the times to come.

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