A rapid shift in the mall culture can be observed off lately with a number of malls coming up at the same catchment, a term generally explained as Mall Clustering. Mall clustering situation in India has got a mixed reaction where some industry experts believe that it can be nurtured as a ‘Destination’ while some feel that it is nothing more than uncalled for ‘Competition’. So what will decide the future of the malls in a cluster?
Mall clustering has become a common phenomenon and is generally defined as a situation where a number of shopping centres come up in the same catchment. It is not very different from “hotel clustering” or “retail clustering” which again is a common phenomenon across the world. According to Pushpa Bector, vice president & mall head, DLF Promenade, “When there are 2-3 malls or more in one area giving rise to a larger magnet for shopping, mall clusters become a reality. It depicts the new face of retail in India.”
While some believe that mall clustering reflects the growing economy of India, some believe it to be sheer ego of the developers and unhealthy competition. Rajiv Malla, centre director, Phoenix Marketcity (Pune) says, “Mall clustering indicates that a city has evolved over a period of time and the retail market has matured due to increase in disposable income in the hands of the customers.” Bector too agreed saying that new-age consumer enjoys the mall culture and appreciates good options. However Kishore Bhatija, CEO, Inorbit Malls feels, “Mall clustering leads to heightened competition amongst developers and only the strongest survive eventually. This would be an economic waste unless there is a sufficient catchment and consumption to support the malls.” Amit Bagaria, chairman, Asipac says that the most important reason behind mall cluster and heightened competition is developers’ ego, with each developer assuming that his mall will do better than the other – and this is the reason for the development of most mall clusters in India, even in those places where land availability had some minor impact. Shashank Pathak, director-marketing & leasing, Plaza Centers, India feels that mall clustering is by accident, not bydesign. “The situation arises when all the developers have the same view of the potential area being evaluated. With reports of the potential of a certain catchments in the city being put ahead of other areas, clustering happens due to a limited vision of future growth of the city. The growing pattern of every city is more or less in a particular direction and every potential developer looks at giving the best mixed-use development project targeting a specific segment – which usually is a common knowledge in the area which leads to clustering.”
High profile mall cluster zone
In India mall clustering has become very visible now. The trend started in Gurgaon but failed to survive for long. However, there are several other areas which have become the topic of discussion because of the presence of too many high profile malls at the same place. Saket & Vasant Kunj in Delhi, Thane & Vashi in Mumbai, Whitefield & Hebbal in Bangalore are some of the best known mall cluster zones. Recently, Nagar Road in Pune has created a kind of a record with seven malls on the same street. Given in the next page is the table of the famous mall clustering zone: Apart from the five citiesmentioned above, there are a number of other places quickly catching up with the trend including Noida, Bhandup-Mulund & Malad West in Mumbai, Hadapsar area of Pune and the SG Road – Satellite – Vastrapur area of Ahmedabad. Apart from the top 10 cities, it is also happening in many tier-II and tier-III cities.
Factors contributing to and affecting mall cluster
There are various factors contributng to and affecting mall clusters in India. Catchment profile is considered to be the major reason behind mall clustering by most of the industry experts. According to Bhatija, “Catchment profile decides the size of the mall, the brands within, the positioning of the mall, mall styling / theme and therefore the investment into the mall and finally the footfalls. At Inorbit, we have a scientific research driven approach to mall feasibility.” JP Biswas, VP- marketing & leasing, Vivacity adds, “The total size of the market and the composition of that market gives a sense of the kind of footfalls that a mall is likely to generate. If the catchment is big and has the money to spend then there is a case for more malls being planned.” Dinaz Madhukar, VP- mall management, DLF Emporio agrees that being in an upmarket area definitely adds to the comfort and security of the customers besides being good for business. On the contrary, Pathak says, “Catchment profile is important but with increasing infrastructure, the radius of your catchment varies and grows from time to time. Profiling is a very subjective termas it never shows the buying trends or fashion quotient of the catchment – as the catchment never had the opportunity to buy something fashionable though they had all the money to buy the same.” Malla also believes that the catchment profile does play a key role in tier I cities but in case of tier II cities, almost the whole city is the catchment. “For instance, in cities like Pune- even Baner and Aundh is our catchment but in cities like Mumbai & Delhi, its not applicable.”
Second most important factor playing a vital role in a cluster is investment. According to Pathak, “Investment is related to the level of mall one plans to construct. It can be a cheap and no frills mall or a good mall with best offacilities for tenants and customers – the variation can be as high as 45-50 per cent above a normal box type format.” Malla adds, “Good investment is required to create a beautiful mall structure and to have the wow effect, the infrastructure should be convenient for customers. It is also important to focus on minutest things to give an experience which may not be expensive but classy and customers become emotional about it.” Biswas says that with the construction cost remaining more or less the same, the biggest factor that makes a mall project feasible is the land cost. If the cost of the project is high compared to the projected returns then one would not plan the project in the first place.
Availability of land is another big factor that drives mall developers towards or away from a particular catchment. There is no question of another mall if there is no land available. According to Bagaria, “In the case of land availability or zoning, it is the government or the city development authority that forces clustering. Vasant Kunj cluster of three malls (DLF Emporio, DLF Promenade and Ambience Mall) is a prime example of this sort of clustering. Another reason is availability of land parcels large enough to develop malls. The clustered developments in Ahmedabad, Pune & Hebbal in Bangalore are mainly because of this.”
Footfall is also important but most of the developers feel that it is a very ambiguous term to define the success of a mall in the clusteror alone. According to Bhatija, “It makes sense when we look at the complete relationship between footfalls, conversion percentage of this footfall and what was the cash spending of the percentage converted. I saw a mall in South India, which used to have huge footfalls in afternoon as the neighbourhood catchments used to come to the mall just to enjoy air conditioner.” For a luxury mall like DLF Emporio, the quality of footfalls is more critical than the quantity of footfalls but for the premium and other upmarket/mixed malls, the quantity of footfalls is generally a measure of success.
Bagaria maintains that developers ego is the biggest factor contributing to and affecting mall cluster. The biggest example is MG Road, Gurgaon where each developer assumed that his mall will do better than the others. It is also the reason behind the unhealthy clustering situation in Pune, Kukatpally (Hyderabad) and Whitefield (Bangalore).”
Any competition, any business, across any category has only one mantra – survival of the fittest. According to Pathak, “It cannot be predicted in a formatted manner but the end customer decides which mall to patronise due to its comfortable approachability and the brand mix it provides. As the market matures and initial curiosity factor fades away – the buyer settles with one or two malls in the catchment depending on their requirement.” Madhukar feels that variety plays a crucial role in making business out of a mall cluster situation. ” When mall clustering is across categories, it enhances business. But if they are of the same category and many times even the brands are similar, they defeat the purpose and become competitive. This could be detrimental in the long run. In the case of DLF Emporio and DLF Promenade, we have consciously kept the categories distinctly separate, adding to the attractiveness of the destination.” she adds.
Bagaria agrees that if different malls in the cluster have different offerings, then it will benefit all malls. On the other hand, if all malls in the same cluster are more or less the same, all of them are likely to suffer, or one will emerge successful and the rest might fail. Explaining the Thane phenomenon in Mumbai, Biswas says, “In Thane Vivacity is a much larger mall with a much superior tenant mix compared to Korum and R Mall. Though initially Korum and R Mall may find the goings a little difficult, in due course they too will stabilise with their tenants settling down. Overall the cluster will gain. In the long run the business of a mall should increase provided all other factors like, design, tenant mix, parking, upkeep and maintenance have been taken care of properly.”
Talking about maintaining the standard of the mall in a cluster, Bhatija says, “It all depends upon equivalent excellence in operation standards, leasing strategy that is in sync with the catchment profile, unique marketing and promotion based events, innovative operation & marketing, community building and consumer connect. As long as your brand achieves this, business will be healthy. If you let your guard down on any one of these then clustering will get to you.”
Bector opines that if positioned rightly, there is enough room in the market for co-existence; especially with FDI likely to open up in the near future. Malla also sounds positive in terms of mall business in a cluster as he says, “With mall clusters increasing in the city, the share of shopping will change in the long run. Experiential and innovation driven ideas, events and activities along with continued novelty offerings will become the benchmarks, creating challenges for mall clusters. The share of high streets and unorganised markets will reduce, while the share of organised shopping from malls would increase which will thereby increase business at malls.”Amongst all this, Pathak gives a word of caution. “Malls are expected to do business by defining the experience they would provide to the end customer. Usually all facilities/utilities are at its best at opening of the mall, but as the mall gets older – the performance goes down and this needs to be avoided. Business happens, when the customer of our tenant is at ease and enjoys as a visitor especially in a cluster where the competition level is very high.”
Importance of Brands
Mall is basically all about shoppingfor the consumers. The brands act as the biggest differentiating factor and the tenant mix plays a key role in differentiating a mall from others and helping them to stand out in clusters.
Talking about the condition of a brand in a mall cluster situation, BS Nagesh, VC & CCA, Shoppers Stop said at India Shopping Centre Forum, 2011, “In a particular catchment, the developer will have only one mall but there are retailers who are taking positions in multiple malls. We talked of having reached a stage of truism, good partnership, but now we are not talking marriage, we are talking bigamy, two three wives around, you don’t know how will it actually go.”
Three factors influence a brands choice of a mall. This includes – Infrastructure (especially the number of parking spaces), design and the strategic location. Other deciding factor for brands is the overall positioning and tenant mix of the mall along with past relations of a brand with the developer. According to Pathak, “The percentage of the category decides the number of brands which are required in each category. Based on the positioning of the mall, a brand bouquet is proposed by the leasing team. On that basis a brand is categorised and locationed in at least six to seven parameters to ensure proper zoning.” He calls this entire process as a science, which comes from experience and experimentation.
Presence of a certain category of a brand in a mall decides whether it is a luxury mall, a premium mall or a budget/mixed mall. Citing an example of Vasant Kunj, Pushpa said, “In Vasant Kunj, each property has a unique and different position. DLF Promenade is a high-street, premium fashion mall catering essentially to twenty plus women. We have fashion brands, like Zara and Marks and Spencer as our anchors. DLF Emporio is a luxury mall, which caters to a totally different customer base. Hence they have Set’z as their anchor store with the mall having no multiplex. As far as Ambience Mall is concerned, it caters to the mass with anchors, like Big Bazaar, Shoppers Stop, Lifestyle, etc. The entire arrangement reflects the success of the mall culture as a whole.”
Biswas re-emphasizes the importance of brand positioning by saying that if the mall is positioned as a mid segment mall then some super premium brands may not be interested in taking up space in the mall. If the positioning is same then the overall tenant mix becomes the deciding factor. If both positioning and tenant mix are comparable then the brands may choose to be present in both the malls. Presence of PVR in both Koregaon Park Plaza and Phoenix Marketcity in Nagar Road, Pune proves the point made by Biswas.
Malla opines that brands make their choice based not only on the economic drivers but also based on the profile of the mall.“This might be the reason why Diesel chose Phoenix Marketcity over Inorbit in Nagar Road, Pune because the latter is viewed as more of a masses mall than the former, though Phoenix also has a healthy brand mix.” However, there’s an agreement on the point that although brand draw the customers individually, the mall should always be a brand by itself and marketed as such. Both Madhukar and Bector assert that brand encroachment can occur only when the mall’s brand identity is unclear and in a cluster like Vasant Kunj with three key differently positioned properties no encroachment has been seen.
Gurgaon and Pune scenario
As mentioned earlier, the mall cluster phenomenon was first observed in Gurgaon and has been taken to a new height by the developers in Pune. While some developers feel that Gurgaon failed to emerge as a shopping destination, some are of the opinionthat it worked pretty well. “Increase in population and opening up of newer industries were the primary reasons why we saw mall clustering in Gurgaon in the first place – the logic being that there was enough business for everybody. Foreseeing great future ahead, mall developers at Gurgaon put their best foot forward to gratify even the minutest need of the shoppers,” says Malla.
According to Bagaria, “The mall clustering situation in Gurgaon affected the business of all malls there quite adversely.” He cited a similar story in Noida where The Great India Place – being much larger – upstaged the much smaller CentreStage mall and in Rajouri Garden (Delhi), where almost all the malls suffered. Dinaz added, “The initial euphoria around mall clustering in Gurgaon attracted the customers as they had a larger choice. However, since there was no clear identity and the brands were duplicated, it actually over the time, lead to the decline. Today, Gurgaon does not have the same sheen and attraction it initially boasted of while Vasant Kunj or Saket as destinations, are preferred as they offer brands across distinct segments.” Bhatija too added, “Clustering works best in catchments where the patrons are mall ready. Which means they frequent mall to shop and have diverse needs. You will therefore realise that this is the reason why clustering works best in Delhi when compared to the other locations like Gurgaon.”
However Biswas feels otherwise as he says, “Gurgaon has a large affluent population with very little offering in the unorganised sector. The city has been built from scratch and the mom & pop stores were nearly non-existent. This can be one reason why the mall cluster has done well there. But same is not the case with Pune. The size and affluence of the population of Pune cannot be compared with that of Gurgaon. For the malls to survive they will have to take away business from the existing retail agglomerations.”
Bagaria too finds Pune micro market situation worrisome and feels that it should have been avoided at any cost. As per Asipac’s Mall Space Demand-Supply Report published recently in SCN, if all the upcoming malls (planned till 2014) come up in Pune, it will still face an under supply of 35 percent. However, if seven malls on hold also come up, Pune will reach an equilibrium situation. The worst affected areas in Pune will be Koregaon Park, Kalyani Nagar, Viman Nagar and Hadapsar which are headed for a disastrous oversupply situation. Against an estimated demand for 2.5 million sq ft in these areas by end-2011, the confirmed supply is 5.2 million sq ft (72 per cent of the total supply in Pune).
Giving an insight for the success of the mall in the Pune cluster, Pathak says, “All the six to seven malls will be catering to the same catchment area – so cannibalization is for real. Malls need to identify the strength they offer to the catchment and highlight their USPs which were considered at the time of designing. If any mall makes an error of compromising on the utilities or facilities offered to the end user – that mall will be first to loose the preferred status.”
The rental model has always been a topic of discussion between the retailers and the developers with both trying to gain maximum from the arrangement. The model becomes all the more important for he developers in a cluster as they eed to make money and also don’t ant to loose a retailer to the other alls in the same vicinity. Most of the developers zeroed in on a ental model of minimum guarantee r revenue share. According to Pathak, “A rental model of minimum guarantee or revenue share – which ever is higher is the best option. One can also adopt the step up rental with step down revenue share model – which helps both the mall developer as well as the brand immensely.”
Biswas further explains, “A minimum guarantee or revenue share whichever is higher works in the interest of the developer as well as the retailer provided the minimum guarantees are not looked at by the developer as maximum guarantee. The essence of the term minimum guarantee is that the developer is looking for a certain minimum amount as rent so that he can de-risk himself. When a developer gets into a “minimum guarantee or revenue share whichever is higher” kind of rental model it is assumed that the developer is willing to take a bit of a risk of the retailer and is willing to sacrifice a bit on the fixed rental in lieu of higher returns by way of revenue share.” Shantanu Samudra, GM – marketing & business development informs that at Pulse Mall, Pune, they have incentive schemes depending on the profile and suitability of the tenant.
Bagaria feels that the only correct way to get the best out of this situation is not to get into the situation at all. If one is already stuck in it, the “fixed rent” model is the only model that may help in saving mall owners from near certain disaster. Nagesh too raised the issue at ISCF 2011 when he said, “ If you have gone into revenue share then the moment the mall comes within 100 metres, there is a possibility that some of us are going to take a hit on the revenue. There is a possibility that both retailers and developers are going to grow up because that street is becoming a destination. But caution: earlier we thought the whole Gurgaon was going to become a destination for Delhi, it didn’t become. Today, we don’t know whether the whole street in Pune with seven malls coming up on a single street will become a destination.”Even Biswas felt that if the market size is not big enough as in the case of Pune, where all the malls and the retailers are unable to get sustainable levels of business then some of the malls in that street are sure to see tough times. There will be exits from the mall, there may be rent re-negotiations and other repercussions.
In the Indian context, the number of parking spaces, the trade mix, the design, the anchors, the management and the marketing of the mall to consumers are the mantra of success. But in a cluster, the malls have to be extra alert when it comes to their strategy to woo the consumers. Mall clustering can only be healthy if each of the malls in the cluster have a distinct trade mix offering and therefore cater to different needs of the customers. For Phoenix Marketcity, Pune, the whole strategy is about developing its USP. According to Pathak, “Malls will have to develop a USP of (for) the customers – try new marketing strategies which give customer a pleasant experience. It will be important for all malls to race against each-other in catching the recall value, seamless operations, comfortable and memorable experience to the customer.”
Biswas adds, ” If the mall has got its positioning and tenant mix right and has got the requisite parking, then it will only depend on ease of access that will drive the initial footfalls and the way the mall is managed that will sustain those footfalls”
For Madhukar, it is all about promoting the mall cluster zone as a destination as she says, “When malls, particularly cutting across various segments, are placed together, they become larger than an individual unit and transform into a destination. In India, ours is still a very family oriented culture and holidays are meant for family time. Destinations therefore draw people as they can spend an entire day here combining shopping, dining, entertainment and beauty/health together with something for everybody.”
The parameters to measure the success of a mall has also evolved as it is not about growth and size anymore, it’s also about enriching the content mix of the mall, including entertainment options that engage the customer across a spectrum of interests. All this depends upon the mall management which is an art to run a public place at its best. Marketing and promotions are also recipe for a successful mall and according to Madhukar, “Every event held or promotion done should be in keeping with the mall’s positioning which will ensure the brands wanting a foothold in the mall and willing to wait for space rather than settling for another location.” This will also translate into the right footfalls and the revenue earned per square foot. Inorbit sounded confident on this front as Bhatija says, “To Inorbit, which has a legacy of successful malls across Mumbai, Vashi and Hyderabad, it is critical that we get differentiation of the category and experience of the consumers right. As long we put our strategy into place effectively, we have no doubt that we will achieve our targeted numbers.” The developers also believe that it is important that the Government also promotes local & international tourism and shopping to enhance the mall cluster culture and improve retail economy.
While the retail real estate community may feel apprehensive about mall clusters, the fact cannot be denied that the format has worked well in some parts of India and abroad. An excellent example of this can be Siam Square in Bangkok and Vasant Kunj and Saket in New Delhi. Clustering of three malls in Bangkok namely CentralWorld, Siam Paragon and MBK is an excellent example of how mall clustering done properly adds to the business of all malls, and therefore enhances the performance of the brands which are tenants in these malls. According to Bagaria, “Each of the three malls in the Ratchoprasong –Siam Square area offer a completely different merchandise mix, with Siam Paragon offering luxury shopping, MBK offering discount shopping and CentralWorld catering to the midmarket/premium customers. As Bangkok caters to a huge volume of shopping tourists, these tourists often buy different products from all three malls.” Orchard Road in Singapore is another example with a number of shopping malls on the same street like Ngee Ann City, The paragon, Orchard Central, The Centrepoint and many other and almost all doing well. Dubai Mall, Oasis Mall and Mall of the Emirates in Dubai are also well within half an hour and each has a different proposition and creates choices for the consumer, which means that none of the malls become stale as far as customer experience goes. These international clusters are tourism destination where people from all over the world just go to shop.
India too, is emerging on this front with some of the clusters like Vasant Kunj and Saket in Delhi and Goregaon and Malad in Mumbai working well. According to Rajiv Malla,”Vasant Kunj mall cluster has grown at a tremendous rate with the DDA auctioning some land for the construction of malls, making it a major commercial and retail hub. There are three major malls situated here with some of the classiest shopping spaces in the city offering ample shopping options to the customers.” “Vasant Kunj is the latest example which is in the middle of no defined catchments but still gets decent footfalls in their mall from South Delhi as well as from Gurgaon.” adds Shashank Pathak. Looking at the brighter prospects of the cluster situation, Pushpa Bector says, “Essentially, there is enough room for most players in the industry, if each mall is positioned differently. It is important to note that only the good ones who address needs of the consumer will survive as competition will be acute.” However, Shantanu Samudra says, “Like Bangkok, Dubai and Singapore, Indian mall developers too should get together and work out a strategy to market the whole area as “shopping and entertainment district.”
Food for thought
With so many pros and cons in becoming a part of the cluster, the competition between the mallsis natural and the malls too have to evolve innovative methods to cope up with this competition. Bagaria advices that the developers should not become a part of a cluster. “If they must, they should either build a much larger mall than the others (like Ambience Mall, Gurgaon) and attract several anchors, or build a completely different mall than the others, with a distinctly different trade mix. Out of seven mall projects being currently handled at Asipac, three of them are in developing clusters. We have ensured the success of all these three malls by making them distinctly different than all the other malls coming up in those clusters,” he adds.
Pathak, whose mall in Pune is sorrounded by six other malls feels the same when he says, “Fan out, bet your money somewhere else – it’s going to be tough for everyone’s survival. Avoid being honey trapped and work on your mall rather than getting pushed by lucrative commercial deals – it’s the best strategy for long term positioning of the brand.” Citing an example from West Delhi, Shashank Pathak says, “Clustering was like mushrooming but some of the malls eventually suffered. When the mall developers in Delhi were clustering in the same area – one individual took an initiative to develop the Pacific Mall in West Delhi – therebyensuring a total coverage of its catchment – all to themselves. India is a huge country and we need to span out – at least from now on – as huge investments are at risk for all the parties equally.”
Bhatija feels that research and innovation are the only solution of the mall clustering problem.”Be it a mall developer or a retail brand, the advice is – research, research & research. Research the partner, research the location, pay heed to findings and look at past history when you look at partners. The other one is to innovate and differentiate constantly amongst your competitors.” Brands’ relationship with the developer also is of prime importance as it decides the consistency of one brand with a mall in a cluster. “I think in the next five to 10 years, we are going to see a very different kind of relationship that is going to develop but the good part is that both the parties are talking. The good part is that both parties have realised the pain points and are using a lot of ointment to relieve the pain, while earlier we were actually pressing the pain points,” said BS Nagesh at ISCF 2011. Malla too sounds positive saying that whether it is a necessity of high-end brands or the immediate need of theme specific products, these malls are fast becoming a perfect shopping destination to visit. Being the ideal one-stop shopping destinations, these shopping malls save money and time. If this progress steadily remains on track for the next few years, the entire retail bustle will definitely undergo a remarkable change.