Retail real estate- scarcity amidst plenty

Demand is high for mall space, yet nearly one-fifth of developed space remains vacant – this paradox is a topic of interest for the realty as well as retail industries, seeking lessons for the future. As the industry matures and competition intensifies, employees in the sector find they have a shelf life too – read about this in the section on HR news.

-Chillibreeze Business Research Team

General Plans and Information

Real estate set for a boom: Assocham

Despite the real estate market being confronted with a temporary depression as real interest rates hovered between 12 and 16 per cent, the Associated Chambers of Commerce and Industry (Assocham) has projected a $21 billion spurt in foreign direct investment (FDI) in the real estate market in the next 10 years.

Since real estate in India is anticipated to be a major market, the chamber said the FDIs were constantly looking at India for parking their surpluses as returns on such investments would be the highest in the near future.

As per estimates, nearly 30 million sq ft of organised retail space is currently available. Another 100 million sq ft is likely to be added by the end of 2008 from over 300 mall projects. With the retail sector experiencing a boom, the country is witnessing a spurt in extremely large retail spaces.

Shopping malls with more than one million sq ft of space have become the order of the day. About 20 of these are now at various stages of construction across the country. Majority of retailers are now planning to expand within the current city and an equally large number are willing to open new stores in other cities.

August 5, 2008
Source: The Statesman

Delays plague supply of mall space

A report by international property consultants Cushman & Wakefield points to a paradoxical situation. There is demand for retail space in malls across major cities but nearly a fifth of the space lies vacant. The rentals, though, are stable and holding in specific markets. Despite major mall projects, the supply of space is likely to be low over the next two years as projects are being delayed due to various reasons.

The second quarter of 2008 saw the launch of just about a third of the planned launches in major cities. There was a supply of over 2 million sq.ft of mall space in major urban centres against a planned launch of 6 million sq.ft.

Most of the space during the second quarter has been created in the NCR, Mumbai and Kolkata, with nothing happening in Chennai, Hyderabad and Pune. The second and third quarters could see the supply of over 12 million sq.ft, according to a report by Cushman & Wakefield. The report, quoting Mr Rajneesh Mahajan, Director, Retail Services, Cushman & Wakefield, says that despite the low supply, nearly a fifth of the 40 million sq.ft of mall space is vacant. This is primarily because the businesses are targeting the same catchments resulting in oversupply within local markets. The focus is essentially on premium high streets.

Increasing input costs and global cash crunch have resulted in developers rescheduling project completion. New projects are also being held back in most cities in this quarter.

While quite a few planned mall projects are not likely to hit the market during the next year or two, the pressure for space on existing and emerging high streets will support rentals in prime high streets and prominent mall developments, according to the report.

In the next quarter Bangalore could see the supply of over 5.45 lakh sq.ft of mall space.

There is a pressure for space on the existing and emerging high streets in the city, which will continue to support the rents. Mall rentals have largely been stable across the markets, though some the traditional areas such as Commercial Street and Brigade have witnessed a 10 per cent appreciation in rents.

Mall rentals in Chennai are likely to strengthen because of poor supply. Major malls like Ampa and Coramandal which were to enter the market this year are more likely to start operations next year. Some of the planned mall space is likely to start in 2010. There is a clear dearth of quality real-estate solution to cater to the retailers' needs. "The prime cause for most of these delays is the hold on approvals coupled with construction delays. Indi mall, with approximately 170,000 sq.ft on Nelson Manickam Road, is the only mall expected to be operational during Q3 this year," says the report.

Hyderabad has not seen fresh supply of mall space during the second quarter. Rentals in select established main streets stabilised at the first quarter levels due to near-saturation in retail real-estate activity and absence of significant transactions. Most of the addition to the mall space has happened in the West and the North with Ahmedabad witnessing the launch of 3.50 lakh sq.ft mall on SG Highway. Retail development is happening actively on the western part of the city.

In Kolkata there has been a 50 per cent escalation in mall rentals over the last quarter at Rajarhat because of the lower price points vis-a-vis other areas and the potential development in the residential and commercial space in the vicinity. More than three-fourths of the addition to mall space is anticipated in Rajarhat. Over 3.70 lakh sq.ft of mall space has been added during the second quarter, the report said.

Mumbai will see the addition of 1.7 million sq.ft of mall space over the next six months across central suburban markets and Navi Mumbai.

Over 5.6 lakh sq.ft of mall space was added during the second quarter, when rentals remained stable with no change over the first quarter. In the NCR, mall space was primarily added in Faridabad and Gurgaon during the quarter when over 6.25 lakh sq.ft space was added. Mall and main street rentals have increased by over 24 per cent compared to the first quarter.

August 3, 2008
Source: Hindu Business Line

High mall rentals haunt retailers

The heat is on. If the downturn in the residential sector was not enough, real estate developers are now fighting a losing battle to retain their retail clients in malls. High rentals, coupled with low conversion ratio, have forced retailers to issue a red card warning to mall developers — “either reduce the rentals or we are on our way out.” According to reports with SundayET, at least 20-25 retailers have asked their mall developers to look at other options for their survival.

”The dynamics of the mall segment have changed in the last few years, as there is an oversupply of retail space in the country. With a fall in footfalls, the retailers are finding it tough to drive in customers to their malls,” explains Anuj Puri, chairman of Jones Lang LaSalle Meghraj (JLLM).

The year saw the opening of a few mega projects that had been awaited eagerly by retailers and industry alike. Some of these projects had been able to justify the expectations of the retailers and customers, but by and large, most of them have not been able to deliver on the promises of high conversion ratios and revenues. High rental rates have put tremendous pressure on the topline and bottomline of most retailers, who had aggressively expanded into multiple stores in the same catchments, banking on the high growth rate of the economy.

According to Mr Kishore Biyani, CEO of the Future Group, due to the above factors, the group has changed its retail strategy for malls. “We are now operating on a revenue-sharing model in the malls. Earlier, we had issues with real estate developers, but now things have been sorted out. Productivity is a key factor for any retailer to operate efficiently in a mall, in case of a leased deal,” he said.

With most malls offering lease terms of six to nine years and retailers being locked in for two to three years, with high initial investments and rental costs, the operational break-even has been stretched to the lock-in period for most of them. This combined with high inflation rates and strong undercurrents of imminent correction in the rentals have made the expansion plans of most of the retailers quite conservative and limited in the next four to six months.

Says Rajneesh Mahajan, director (retail) of Cushman & Wakefield India: “Most retailers want to wait and watch rather than commit to seemingly inflated rental rates even if it is at the risk of further increase in the rentals due to high land and project costs. Overall, the demand for retail real estate continues to remain strong with the influx of many international retailers and growing urbanisation in the country. However, this is focused on premium high streets and promising developments.”

Interestingly, even as there is an oversupply in most of the micro markets, the supply of desired quality is limited to a handful of projects only and this has led to differentiated rentals being commanded by projects in the same micro market. The malls are getting the footfalls in, but conversion is seen mainly for entertainment, F&B and value brands. There are a few exceptions that have been able to offer a more sustainable rental model to retailers along with buoyant footfalls and sales.

August 3, 2008
Source: Economic Times

Inflation a blessing in disguise for retailers

Everyone loves a good discount. And it comes in as an incentive especially during times of inflation. For apparel discount retailers, inflation has proved to be a blessing. Arvind's branded discount retail chain Megamart has seen an improvement in walk-ins of 15% in the past few weeks.

"During inflation, customers always prefer to shop in a value retail outlet," says KE Venkatachalapathy, business head of Megamart. The increased footfall is reflecting in the sales figure of Megamart as well. While he refuses to divulge exact numbers, Venkatachalapathy says there has been a 20% increase in sales compared to the corresponding period last year. Discounts here vary from 10% to 30%.

"Inflation and discount retailing are directly proportional. Customers normally tend to flock to value retail stores where they are assured of good quality at reasonable prices," says Raghunath Narayanan, MD of Chennai discount retailer Europa.

Discount retailing, a post World War II phenomenon, is an established market practice in countries like the US. This concept is now picking in India, which is a price sensitive market. Discounts have always worked well with apparel and factory outlets in the suburbs of many Indian cities and shopping hubs like Fashion Street in Mumbai and Marathalli in Bangalore which acquired sobriquets as an export market bear testimony to this. Now inflation has come to the aid of retail majors.

The Loot, a discount chain, has seen footfalls increase by at least 10% in the last few weeks across its 35 stores in 15 cities. "In Mumbai alone, our footfalls are up by 17% in the last three weeks. In the first quarter, we had sales of Rs 15 crore. In the next quarter , we expect this to climb upto Rs 25 crore," says Jay Gupta, MD of The Loot.

In apparel, children's wear seem to be the biggest beneficiary. "As children, especially toddlers, normally outgrow their clothes pretty fast, parents are flocking to discount stores such as ours more than ever before," says Narayanan. While the discount offered by the apparel and luggage chain is between 25 and 30%, in kids wear it's 30%- 40%.

The consumer base is also widening. "From a largely middle class audience, I now see people getting out of cars like Honda Accord and Mercedes Benz outside our stores," says Gupta.

The rush to such outlets is also due to the fact that regular apparel retailers and multi-brand outlets mostly offer off season sale only twice in a year. "But in times of inflation and continued price rise, the consumer is looking to cut spends across categories on a daily basis," says Venkatachalapathy.

Brand Factory too has seen a 5%-7 % increase in our sales over the past few months. "While we cannot say that entirely due to inflation, we cannot rule out that it has played a role," says Vishnu Prasad, CEO of Brand Factory.

July 31, 2008
Source: Economic Times

Big players - plans and investments

Spencer’s to roll out Ladybird in India soon

Spencer’s, the Rs 800-crore retail arm of the RPG Group, is set to roll out the international Ladybird range of children’s wear, owned by the British high-street retail chain Woolworths in India in the next two weeks.

Spencer’s has entered into a tie-up with the $6-billion UK retailer Woolworths to exclusively sell its select products through its nation-wide chain in the country. The Indian retailer has a slew of private labels in the garment segment that include Island Monks and Mark Nicolas in the men’s and women casual/formal wear, Puddles for infants and Little Devils for kids below 14 years.

“We expect to have the Ladybird range of kids’ wear in our outlets in the next ten to 15 days,” Mr Harsh Goenka, Chairman of the RPG Group, told Business Line. This is part of Spencer’s move to increase focus on the apparel segment, which is domestically growing at a brisk pace.

Spencer’s has also tied up with Woolworths for exclusive distribution rights of the UK retailer’s international toy brand, Chad Valley. Initially, the company will be displaying Chad Valley toys in its hyper stores and in the next two months, the essential range would be available at the convenience stores.

Mr Goenka said the company has recently tied up with the US bakery café, Au Bon Pain, to unroll a chain of standalone outlets in the country. “This will be introduced by the end of this year,” he said.

Spencer’s has formed a joint venture called Novel Confectioners, which will be the master franchiser of Au Bon Pain (which means the place of good bread) in India. The Boston-based casual dining and bakery chain has more than 225 outlets fanned out across the US, South Korea, Taiwan and Thailand. The joint venture will set up 100 stores in the next 18-24 months with an outlay of Rs 50 crore, the first being planned in Bangalore over a 2,000- sq ft area by December this year. The stores will serve an assortment of breakfast and lunches such as soups, stews, sandwiches, sales, bread & bakery items, confectionaries and beverages.

Spencer’s currently has 400 stores across India with a total retail space of 14.27 lakh sq ft. It plans to increase the number of stores to 1,000 with a total retail space of 30- lakh sq ft by the end of the current fiscal, involving an investment of Rs 1,500 crore.

A company official said the focus would be more on large format stores. “Currently, we have 15 hyper stores and 12 supers, which are to go up to 45 and 30 respectively by the end of this fiscal. In terms of turnover, we are currently at Rs 800 crore and planning to touch the Rs 2,000-crore mark by this fiscal,” he said

Spencer’s will be sharpening its focus on private labels this year. In the private label programme, the retailer sources directly from the manufacturers and sells through its stores, which enables him to offer the products at lower price points. “We plan to increase the share of private label contribution from 25 per cent to 40 per cent in the next two years,” the official said.

August 5, 2008
Source: Hindu Business Line

Spencer's to shut 40 & open 300 outlets

RPG Group company Spencer’s Retail has decided to close down at least 40 unviable outlets and open another 300 in the next 12 months. The company is also looking at developing the Old Mint building on Strand Road where it intends to put up a mall to begin with.

Talking to reporters on the sidelines of the 30th AGM of CESC, Sanjiv Goenka said: “At least 10% of our existing Spencer’s outlets are loss-making and we have decided to close them down. Currently, there are about 410 outlets nationally and the exact number of loss-making stores will be mapped and a decision on closing them down will be taken soon. Stores that have turned unprofitable are mainly due to very high rents, bad hinterland and poor sales. Parallely, we intend to open 300 new stores in the next 12 months.” Mr Goenka, however, declined to disclose details of locales which will see shutdown of outlets.

Interestingly, CESC through its 100% subsidiary—CESC Properties Ltd—has also bid for developing the Old Mint building in consortium with Bengal Silver Spring Projects. “We intend to put up a mall and ‘much more’, but I am unable to share the details now,” he said. Mr Goenka added: “The building will offer about 3 lakh sqft of space that can be developed.”

July 31, 2008
Source: Economic Times

Regional News

NCR mall rentals surged up to 50% in one year

The mall space rentals in the National Capital Region have jumped by up to 50 per cent over the past one year, but are likely to witness correction due to increased supply in the long run, says a study.

According to a latest report on rentals of mall spaces by global real estate consultant C B Richard Ellis (CBRE), in the last one year, mall space rentals across the NCR have witnessed an increase between 30 per cent and 50 per cent.

"However, in the current quarter some locations witnessed a slight decline as compared to previous quarter values. The primary reason for this is the relaxation in demand for retail space at prevailing rentals and the financial viability of the retailers in the recently operational malls," it added.

The malls and stores in locations, like MG Road, Gurgaon, South Delhi and other prime high streets, would continue to report high conversions and sales and as such rentals in these locations are expected to remain stable in the short-to-medium term, CBRE said. It added that, however, "the supply may take over demand in these locations in the long run and this will lead to a slight correction in values".

"A situation of over-supply and saturation resulting in subsequent correction of rentals may occur in certain pockets and micro-markets in the short to medium term," CBRE Chairman and Managing Director Anshuman Magazine said.

He, however, added that there was significant demand to cater to well planned malls in established locations which were not likely to see change in demand or values in the near future.

August 5, 2008
Source: Economic Times

Reliance Fresh returns to Kolkata amidst police security

The Mukesh Ambani-owned food mart Reliance Fresh, which left West Bengal last year following stringent political resistance, has re-started business here under police security.

Reliance Fresh opened three stores in the city - at New Town, Budge Budge and heritage park Swabhumi - quietly and without any fanfare Aug 1. But employees at the Swabhumi store told IANS that they still feared resistance from Left parties.

"On Sunday afternoon, around 50 men armed with sticks came to protest outside the store. We had to pull the shutters down with customers inside for 20 minutes. This sudden protest triggered panic among the customers," one employee said.

The situation came under control after the police reached the spot.

Incidentally, the store experienced the maximum footfall Sunday before the protesters assembled. Forward Bloc, a Left Front partner is resisting the opening of food marts, forcing Reliance Fresh to fold up business in the state last year. The party says retail stores owned by big corporate houses would hamper the livelihood of vegetable sellers.

"Not only Reliance, all these retail food outlets are illegal and we are conveying the message to the state government," the Forward Bloc-controlled state agricultural marketing board chairman Naren Chatterjee told IANS. Reliance Fresh staff said the stores are presently stocking fruits but no raw vegetables. "But very shortly we will begin stocking vegetables also," they said.

The 4,500 square feet Swabhumi store is also awaiting the launch of a non-vegetarian section adjacent to the main outlet very soon, the staff said. The non-vegetarian section is named Delight, designed in a shop-in-shop format. Reliance plans to open a few more stores in the coming months, including a hyper mart in Kolkata's Bagha Jatin neighbourhood.

Reliance Fresh has tied up with Jayshree Tea and the Goodricke Group for a select range of packet teas. The store stocks cereals, pulses, fruits, packed foods, frozen foods, cosmetics, toiletry, utensils and crockery among a host of daily use goods.

August 4, 2008
Source: Economic Times

International

THAI spa products maker to start retail operations in India

THAI spa body product manufacturer Spa Siam will soon be setting shop in India in association with Franchise India Holding Ltd. The deal marks the entry of FIHL - which traditionally has interests in providing franchise networking solutions for entrepreneurs and businesses - in the retail sector.

"After franchising, the time has come for us to take the next big step and expand into specialty retailing," FIHL president Gaurav Marya said. "We plan to enter various specialty formats and we are starting this process with our entry into the beauty and wellness vertical where we are partnering with Spa Siam," he said.

The company plans to open 120 Spa Siam stores in the country during the next five years with an initial investment of Rs.200 million. "After spreading our footprints in all major metros, we will target mini metros, which are equally growing markets for these kind of products and service," Marya said.

FIHL has estimated revenue to the tune of Rs.500 million annually after three-five years, he said. The nature of the deal and the revenue sharing model between the two companies has not been disclosed.

August 5, 2008
Source: Economic Times

HR News

Retail downturn: Senior execs receive pink slips

Senior executives who drove India’s retail juggernaut in the past two years of boom are finding their shelf life reduced in times of a downturn. With the focus shifting from driving topline growth to protecting the quickly depleting margins, retailers have put their managers on notice. Many have already started to prune manpower from the top. Over the past 48 hours, realty major India Bulls, which acquired Pyramid Retail, has sacked 15 of its middle and senior-level executives.

When contacted, IndiaBulls’ CEO Gagan Banga told ET that the sackings had nothing to do with costs. Only those employees who could not perform were asked to go. “Yes, it is true that 15 managers have been asked to leave but that is because they were non-performers. One should appreciate that we had taken over a loss-making business and we are trying to turn it around.”

Mr Banga claims that he has also been hiring an equal number of people at the same time. In the past 6-8 months, prices of consumer goods have increased dramatically. While consumer spend has been dipping, manufacturers have been putting pressure on retailers to increase sales while keeping margins at bare minimum.

Most retailers — yet to recover their investments — have resorted to severe cost cutting at their end to remain afloat. Acquisition of new space — buyout, rental or lease —have been put on hold. Pruning staff is yet another strategy.

While the smaller retailers have stopped hiring and have cut staff at frequent intervals, unconfirmed reports of layoffs are coming from big retailers like Reliance Retail.

However, the company’s spokesperson “strongly denied the information”. According to industry experts, it is for the first time that the middle and senior-level executives are being laid off. This seems like a deviation from the norm wherein junior-level staff is the first to be shown the pink slip, he said.

Future Group chief executive Kishore Biyani says: “Yes, there have been some issues in the retail industry. But we, as an organisation, are trying to shift employees from one department to another rather than laying them off.

August 2, 2008
Source: Economic Times

M&S Reliance starts filling top key mgt positions

Gearing up for roll-out of its chain of stores across the country, retail company Marks and Spencer Reliance India Ltd has started filling in top key management positions, while it is still scouting for a marketing head.

"We have already filled the positions of Chief Financial Officer, heads of human resources, buying and retail. We are looking out for a local person to head marketing," Marks and Spencer Reliance India Chief Executive Officer Mark Ashman told PTI.

The JV, in which the UK's retail company M&S has 51 per cent and the rest is with Reliance Retail, has roped in Jatin Luthra as the CFO. "Also we have two expats from M&S Adam Colton and Spencer Sheen who will be heading buying and retail portfolios respectively," Ashman said. Shalini Naggar will be the HR head of the JV that plans to pump in 29 million pounds (about Rs 230 crore) in the Indian market over the next five years and set up 50 stores.

He said the company is still looking out for a local person to head its marketing team.

"In the long run we are looking at local talent to head the respective teams," he added.

Ashman said in the initial year the company would have a strength of about 40 executives, which is likely to grow to about 55 next year.

Under its current franchise agreement with Planet Retail, M&S has 14 stores with about 250 people overall. "When we reach the number to 50 stores in the next five years it is likely to grow many folds," he added

July 31, 2008
Source: Economic Times

Support Services

Wipro Info bags 5-year Spencer’s deal

As retailers ramp up their store count in the country, they are hiring IT companies for quick and cost-effective rollouts. This is offering huge opportunities for tech companies in the vertical that is currently growing faster than the industry average of 20-22%.

A week after Infosys launched ShoppingTrip360, a platform that enables retailers and consumer product manufacturers to get real-time information on shoppers’ buying behaviour, Wipro Infotech has bagged a five-year IT outsourcing deal from Spencer’s Retail Ltd. Wipro Infotech offers services like integrated outsourcing, point solution, infrastructure management and managed services to its retail clients.

“Most of retailers are increasing number of stores and they are looking for IT partners to transform and handle their growth,” Anil Jain, VP - corporate business, Wipro Infotech, said.

Wipro would be providing infrastructure management services to Spencer’s, he said. The retailer’s application management and data centre operations is being handled by its in-house IT team.

“Spencer’s will be rolling out 600 stores in the next six months. Our services will help them in expediting the process and would also translate into cost savings in the long run,” Jain said.  Spencer’s CIO Amit Mukerjee said that over a period of time, implementation of IT solution would result in cost savings for them.

Currently, Rs 1,000-crore Spencer’s operates 400 stores in 66 cities. It has launched a massive expansion drive under which it is planning to roll out 1,000 stores by March 2009.

Jain said Wipro’s retail vertical was growing at a significant pace. Last year, Infosys earned 11.8% of its total revenues from retail. In 2006-07, it was 10%

August 5, 2008
Source: DNA

Luxury & Lifestyle Retail

Gitanjali to open 150 stores in Tier-II cities

Gitanjali Gems Ltd, part of the Gitanjali Group of companies promoted by Mehul Choksi, is contemplating setting up 150 branded retail stores in Tier-II cities in the next two years. Gitanjali feels that these cities contribute 60% to the sales.

During the period, the company is also planning to expand point of sale for various brands from 840 to 1,500. For the retail expansion plans, it is planning to pump in $50 million, Anuj Rakyan, vice-president (jewellery division), Gitanjali Gems Ltd, said. The company has also roped Bollywood actress Katrina Kaif as its new brand ambassador for its popular jewellery brand, Nakshatra, replacing Aishwarya Rai, who was its brand ambassador since 2004.
Currently, Gitanjali Group sells its branded diamond and other jewellery products under brands, Nakshatra, Asmi, Gili, D’Damas, Sangini, Collection G, Gold Expressions and Vivaha Gold through 840 outlets.

Addressing a press conference, Rakyan said, “Katrina lends a refreshing look to the brand and is currently the reigning queen of Bollywood. We strongly feel that Katrina epitomises what Nakshatra stands for.” Company sources added that the endorsement agreement with Katrina Kaif has been signed for about 18 months.
Commenting on the occasion, Kaif added, “I am delighted to be associated with a brand like Nakshatra that has garnered immense popularity not only in India but also worldwide. I hope this association is amiable and mutually profitable.” The Nakshatra collection has floral designs with multiple diamonds encircling a single large diamond to signify the constellation effect.

August 5, 2008
Source: Financial Express

Apparel & Accessories

Koutons to invest Rs 300 cr to open 200 more family stores

Apparel and fashion-wear major Koutons Retail will invest Rs 300 crore for expanding its new family stores along with outlets for its casual-wear brand 'Charlie Outlaw'.

The company will open 200 new large format Koutons Family stores apart from adding another 1,400 stores of Charlie Outlaw, over the existing 605 stores of the brand in the next 18 months.

On the back of these expansions, the firm is aiming to more than double its annual turnover by end of 2009-10 fiscal to Rs 1,800 crore by 2009-10.

"We have presently 60 Koutons Family Stores and 605 Charlie Outlaw outlets. By end of 2009-10 fiscal, we would be expanding in both the categories and add 200 more Family Stores and 1,400 Charlie Outlaw stores," Koutons Retail Chairman D P S Kohli said. The expansion would entail an investment of close to Rs 300 crore on the part of the company, he added.

"We have sufficient funds left from the IPO we went for in late 2007 where we raised Rs 140 crore. Besides, our debt equity ratio is also comfortable for securing funds from banks in case of need," Kohli said.

August 3, 2008
Source: Economic Times