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Making Of A Successful Mall
A few questions need to be answered before one starts to build a mall. It is imperative to understand and answer these if one hopes to launch a successful, long-running shopping centre.
Why do you want to build a mall?
The mother of all questions – Why A Mall? There can be various answers to this question - and to be fair, all of them could be correct. These answers point to the motive for building a shopping centre, which would suggest the way forward:
- It’s time that Malls have been offering very good returns. The fi rst few shopping centres in the country have yielded excellent returns, giving the industry a model of high to yield returns. Low land costs and high rentals used to offer good returns
to any investor. Should this be theShould this be the primary motive, there could be two possible ways to move forward.
Sell the mall as soon as it is leased, because a Sale model offers quicker returns and doesn’t make you hold the property for a long term Or, build a mall on strong fundamentals after answering all the questions below. This would mean develop a shopping centre which can stand the test of time and can give healthy returns to all the key stakeholders.
The project I’m involved with (large, mixed use, 100 acres+) needs a compo-quesnent of retail for convenience to the inhabitants. To add a dash of retail to a large
mixed use development is a great idea, though the components of this retail may vary according to the needs of the consumer. However, it is not always necessary
to develop a large shopping center when you are developing a large township. A
mid sized convenio-retail format can also do the magic. Understanding the needs
and fulfi lling them is the key.
- This neighborhood has great potential, with families who are longing for a good shopping/entertainment outlet. If the fundamentals suggest that the neighborhood has the potential to sustain a shopping center and there is a market gap which can be exploited, it offers the best possible rationale to develop a shopping centre. The fundamental success factor for any shopping centre is the catchment and the customer base. If they keep coming back for more, you have tasted success.
Who is going to shop here?
As already discussed, once the objective of developing the centre is ascertained, it
is important to understand the end customer. Indeed - who will come to shop here? Who they are? What are their income levels? What do they like to shop for? These are the basic questions that need to be answered. A shopping centre is not built for the developer or the investor or the retailer, but for the customer who will come and shop there. Understanding them from a socio-economic perspective and expense pattern is the key.
What are the alternatives this consumer has?
Understanding the existing markets and where people shop is critical. If one is to
develop a new market, it should get the buy-in from the customers. Thus, it is important
to know where they like to shop and what do they like to shop for. Understanding
the current and future competition in the marketplace/micro market is extremely important.
What is the market gap and where is it?
Going forward from the previous two questions, one has to ascertain the gaps in the market. What does this consumer need and want, and what is available to him in the existing markets? What are the products/categories, for which the catchment has to reach beyond their regular marketplace? What is the upcoming competition offering, and what are the gaps that still remain in the market? These questions give you a clear understanding of the product mix, which is absolutely essential for developing a centre that will witness immediate buy-in from customers. It also helps us answer the question of how large a shopping center should be.Unfortunately, we often decide on the size of the shopping center based on the size of the land parcel and the FSI/ FAR available on the land. This route may or may not give us an accurate assessment of the right size for a shopping centre that a neighborhood requires.
Why will the consumer come to my mall? How will I differentiate this project from other?
A very pertinent question. When there are existing marketplaces that the consumers
are already used to and comfortable with, why would they come to a new project? The aforesaid three quesnenttions should give the fundamental building blocks for this answer. If one knows the consumer and what they need and desire, and one knows what is available to them comfortably and what is not, it is easy for them to identify the tenants and trade categories that will differentiate this centre from the others. If the customer comes to the center for one of these needs, it is relatively simple for to make them come back for other things as well, providing that one has covered the fundamentals of the customer’s needs and desires. The differentiation for a center can not only be from the perspective of the mix, but could also be on a conceptual level, where a centre is planned differently and offers a similar mix in a different format/ environment that customers appreciate. However, the answer to this can only come post operations, though a good understanding of the customers can give a fair idea in advance.
Will this project be viable for retailers?
If one were to develop this centre and be able to differentiate it from competition, bringing in customers, how much business will retailers be able to do – and how much can they afford to pay to the developer for the real estate? This is a million dollar question. We often decide the rentals for a particular shopping centre before we do the math on how much revenue the retailer can generate from it. The reverse calculation makes more sense, since for the retailer, real estate is large cost and has a direct bearing on how much he can sell. Most retailers are more than happy to pay a fi xed percentage of sales as real estate cost, since it is that percentage that matters to their bottom lines. Even if the effective rental is higher than the current market rental, it is not an issue for them, as has been experienced by Prestige Group with their Forum Mall in Bangalore. If the rentals constitute a very high percentage of their sales, the viability of the store drops, and retailer may either walk out of the centre or try to renegotiate with the developer. Either ways, the one who is affected the most is the developer, who has to bear the brunt of losingretailers or renegotiating to lower rentals.
With the given answers, is this project viable for me?
Once we know what retailers can pay (not in terms of a generic number, but calculated separately for every trade category) the developer can go ahead and answer the biggest question - if this is the size of the development, this is the mix, this is what the retailers can pay this is, the perfect differentiator and this is the project cost - is this project viable?
Project viability can be evaluated at multiple levels and could be viewed in
short-term and long-term. However, the viability and profi tability levels vary among developers, and each has a different threshold.
How will I fund this project?
Project viability analysis gives us the basic fi nancials on raising capital for building the centre. It is important to be as transparent and realistic as one can while pursuing fi nancial institutions. The era of unrealistic valuations and fi - nancials is over, and the recent fi nancial turmoil has made institutions more careful about how and whom they fund. An unrealistic expectation might not fi nd many takers and can put a project at fi -
nancial risk. Evaluating different models for project fi nancing is important. Today, we can avail of equity from both local as well as foreign institutions and private HNIs. Preferred equity could be raised in the form of mezzanine capital from various
foreign institutional investors. Though there has been a crunch in the debt markets,
with further stringent measures being deployed by fi nancial institutions,
this situation will not prevail for long and will eventually become easier.
What are the fundamentals of design that need to be looked into?
Design is a very important part of the process. If there is haste or lags in the design, it can become almost impossible to rectify, and possibly it is very expensive. It is important for developers to look into the design of the shopping centre very closely. The sequence of events, which are often mixed up, are: Creating a concept (not architectural, but
conceptual) Creating a trade mix (a tenancy mix could be decided later, except for key anchors) Appointment of an appropriate architect – it is important to evaluate various architects before selecting one, primarily because of their past experience. There are a number of architects who are working ,in India today, but the relevance of their experience is important. Concept design - it is not important that every shopping centre have a huge glass façade or is 100% air-conditioned, or that it be enclosed. Based on the concept, intent and catchment, these could vary.
Schematic design
Detailed design, at which stage it is important to look at the softer issues of design
as well. The softer issues would be palate, colours, rest rooms, waiting areas, seating,
mother’s room, pantries, driver’s lounge, mall management offi ce, help desks, etc.
These soft issues are hygiene factors in any development, and if missed could
have a negative impact on the customers’ experience. It is very important to
understand that once the design falters, it is very diffi cult and expensive to rectify
it. Spending time on planning is not time wasted, but time well invested.
How do I ensure this project has longevity?
While one is busy planning the overall development and ensuring capital procurement
and construction schedules, it is important to fi nd answers to this very
important question. Given that one can build in a good mix and plan the project
well, what can one do to ensure that the project is successful in the long run? The
answer is effective mall management. Mall management involves many functions,
including housekeeping, parking management, tenant coordination, marketing
management, regular improvements and upliftment of the centre. Creating
a good centre is a good fi rst step, but only effective mall management can
ensure sustained customer fl ow into the project.
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