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In India, as we are all aware, the mall industry is arguably just about 14 odd years in the making and is still a sunrise sector.
Since malls are a conglomeration of retail brands under one roof, the evolution or change also happens in tandem between the retailer and the mall developer. The same is true for the issue of ‘Shrinking Store Sizes At Malls’.
Historically, if we see, then, the issue of store sizes was dependent more on available space juxtaposed with factors like location, business potential, customer profile, visibility, store frontage, ease of access and adjacencies. But as the high street market evolved and grew, multiple options in terms of both location and size were available and hence size also became an important consideration for the retail brand before a particular location option was selected. Similarly in malls, initially due to a paucity of mall developments much like the traditional high street, the issue of limited available spaces was put into play where size of store was traded off against brand presence and market potential. But over a period of time, the size and location choice limitations in malls also became a thing of the past and multiple options in various malls in the same micro market became a reality. Once, the issue of store availability was addressed, the store sizing also became a multiple option factor as well. This translated into a kind of a free choice on store sizing for the retailer. Initially, the retail marketeer in India, not being used to higher perceived square feet and location based rental model of malls, were hesitant to sign up for larger spaces being circumspect on possible sales and hence, store profitability. But, once the mall industry gained a firm footing in the retail space and became a popular option for shopping amongst customers, the confidence surged and store sizes were looked in a more bullish manner. Retail brands not only opted for larger spaces but also considered this as better for business as it gave them an opportunity to display and thereby sell the full gamut of offerings while providing convenience to the customers space-wise. However, this trend was not there to stay as the retailers competed with their counterparts within a particular mall and with those who were in other locations in the same micro markets or even with those who were present in a particular region or geography. Due to competition, multiple shopping options and formats as well as availability of a high number of quality offerings within a particular retail segment, all aspects of business for a said store became important and thus store sizing also became crucial. This was because the investment that went into fitting out a store, staffing the store, operating the store and stocking the store became a very important consideration for store and business profitability and hence, for the RoI for the individual store and the business as a whole. Also, practically when downsizing of an existing store was done, it was interestingly found that this had either no impact or at best a very marginal impact on sales. However, it most importantly improved the store profitability significantly. This was a kind of a contradiction to the earlier view on large retail store sizes.
Today and in the coming future, in my opinion, this issue will be kind of a mixed bag. With growing competition from online sales and with steady introduction of new brands from within India and outside, the smaller format store is preferred. This is also supported by slowing down of new mall developments due to which there is a trend of existing individual malls trying to offer as many shopping options or stores as they can to the shoppers by adopting the model of maximum number of stores albeit with smaller sizes. Also, for mall developers to sustain their business model smaller store sizes and hence, better affordability for retailers is a better choice to make than to have larger sizes stores signed up and have a constant pressure from retailers to reduce store rentals to bring down costs to an affordable level for the retailer. Also, as per industry norms, the smaller the store size, the higher the rental and hence, the return per square foot for the developer is better while the occupancy cost outflow for retailer is restricted given a lower sized store. Of course, this must be balanced both ways. In contradiction to this with many larger format stores entering the country and in markets where certain brands, especially international ones, are doing well there is a requirement for larger store sizes. Hence, in my view, one can say that the store sizing will continue to remain a crucial aspect for long term sustainability of the retail business and the optimisation of store sizing a constant endeavour for both the developer and the retailer. The rentals and their growth in keeping with the real estate growth trends for both mall spaces and high streets will affect the issue of optimal store sizing as well. Online sales impact and the technology used to deliver better experience will also work towards possibly reducing the size of store. Likewise, the store design development costs and the operating costs may interplay with each other to provide an overall cost and store sizing balance.
Manoj Agarwal is currently with L&T Realty as the Business Head for the Chandigarh SBU which includes the city's largest mall, the 1.1 million sq. ft. Elante Mall, the Elante Commercial Office Complex and the upcoming 5-Star Hyatt Regency Hotel. Overall, Manoj has over 29 years of rich experience in the hospitality and shopping mall industries. An IHM Pusa alumnus, Agarwal was AVP (Operations) for Inorbit Malls and was having a portfolio of six operating malls in West & South India. During the hospitality part of his career, he has had the distinction of working for 20 years plus with premium hospitality companies.