Domestic retailers lose out in high-end malls

By: | Updated: March 7, 2016 2:40 AM

Homegrown retail brands are facing tough times in retaining their spots in top performing malls as a host of international brands make a pitch for quality real estate.

Online fashion retail, Online retail, Online fashion retail India, ecommerce, ecommerce fashion business, fashion business, fashion business india, Online fashion retail 2020At Oberoi Mall, Burger King ousted Bombay Blues while Nike was allotted the collective space occupied by Neckties & More and Bombay High, both apparel brands. (Reuters)

Homegrown retail brands are facing tough times in retaining their spots in top performing malls as a host of international brands make a pitch for quality real estate.

The latest development which underlines this growing trend is the sealing of a deal which will see Hennes & Mauritz (H&M) finally setting shop in what used to be Big Bazaar, owned by Future Retail in Mumbai’s leading mall (by trading density), Pheonix Mills.

Sources told FE that the deal was finalised after active negotiations which lasted for more than a year.

Across the courtyard, a 35,000 sq ft shop floor, now owned by Aditya Birla Group’s Pantaloons is also expected to change hands as Zara wants to move into the space. Incidentally, Zara already anchors Palladium, which is a component of Pheonix Mills but Pantaloons’ spot is more than double the space and allows for better visibility for the brand.

In the past one year, retail malls have had to jostle brands extensively in order to accommodate big ticket players such as H&M, GAP, etc. Most of the times, mall developers has had to relocate or resize stores of local brands who were ertswhile anchors. In some cases, a more productive brand has ousted its competitor, such as, GAP is believed to have taken up the space that was earlier occupied by Canadian shoes and accessory store, ALDO. Pheonix Mills, however did not confirm these developments.

In the past one year, a slew of relocation have taken place, with mall developers ushering in a foreign label to replace or relocate a local brand. Armani replaced Satya Paul in Palladium, Adidas moved in where Reynolds once used to be. At the R-City mall, Globus made way for Hamleys.

At Oberoi Mall, Burger King ousted Bombay Blues while Nike was allotted the collective space occupied by Neckties & More and Bombay High, both apparel brands. Earlier, H&M relocated Pantaloons and Food Bazaar in Delhi’s Select City Walk mall, GAP & H&M were ushered in to replace Jumbo Electronics and Benetton among others in Ambience Mall.

“The same customer who used to be a shopper at a Lifestyle, Westside or Pantaloons now shops at Forever 21, Mango and Zara, and malls have to upgrade along with the customer,” said Rajneesh Mahajan, COO at Inorbit Malls.

More developers said that they have to keep their establishments relevant to the growing aspirations of the consumers. Affordability, foray of brands like Zara and Forever 21 in the mid-2000s and more recently, the online e-tail have exposed consumers to an array of options that are better in style, cut and customer service and Indian departmental stores could not keep pace. “Ultimately, Zara and H&M can pull the numbers in terms of footfalls,” said Arvind Singhal, managing director at Technopak. To be sure, if the new brand of international anchors can drive footfalls, there is a spill-over to other stores as well, which bodes well with the mall business in general, Singhal added.

Mall developers realise that the retail business is poised for more dynamic change than they can imagine in the forseeable future. Uniqlo, Zara Homes, Massimo Dutti, Ikea etc have articulated plans to set up shop in India. This demand will be compounded by the expansion plan of Zara, H&M, Forever 21, GAP etc. It is hard to exactly ascertain the exact real estate potential these exhaustive expansion plans can throw up. For now, malls are signing brands for shorter tenures so that re-working terms can be easier.

Moreover, there are specific performance clauses. On an average, 20% of malls in India are vacant, putting immense pressure on retail real estate. Moreover, with the economy in a slowdown mode and competition from online rivals, malls are under pressure to remain viable too. “Long-term agreements with tenants might have worked a decade back but now they will limit a mall’s capability to innovate,” said Nirzar Jain, vice president at Oberoi Mall in Mumbai. Accordingly, the length of anchor tenant agreements, market watchers say, has halved from 18-21 years in the early 2000s to 9-10 years, but there have been cuts for other occupants too. As Pankaj Renjhen, MD, retail services, JLL India, says tenures for vanilla brands have been shortened from 9-10 years to anywhere between 2 and 3 years.

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