April 9, 2011
When Noaman and Irfan Razack began developing commercial properties
in the early 1980s in Bangalore, they realised that most land
owners did not have the skills to run the malls once they were
built. Often, a developer only knew the basics collecting
common area maintenance charges and administering the security
without paying any attention to consumer and tenant-retention
skills. We decided to build this skill into our business.
Now, every large developer offers this service, says Noaman
Razack, director of the Rs 1,000-crore Prestige Group in Bangalore.
Four malls and a decade later, mall management is becoming a profit
centre for the real estate company.
Large malls such as Mumbais Phoenix Mills and Inorbit and
Bangalores Mantri Square (500,000-1.5 million sq. ft in
size and with average annual revenue of Rs 1,000 crore) are creating
the blue print for mall operations in India. The Mantri Group,
for example, has set up a subsidiary, PropCare, for precisely
In 2011, when the Royal Meenakshi Mall was built in Bangalore,
PropCare took over as its sole manager. The mall was built
by someone else, but we won the mandate to run it for the developer,
says Jonathan Yach, CEO of PropCare and Mantri Square. This new
business has branched off into branding the mall and building
customer relationships, too. Mall managers not only undertake
maintenance and security, but also run promotions within the mall
to drive traffic into the stores a boon for retailers.
Though only a few companies see mall management as a separate
entity at present, it is only a matter of time before the business
booms. The total number of malls across India has gone up to 240
in 2010 from just 20 in 2003, translating into 120 million sq.
ft of retail space. Though only 30 of these malls are run by mall
management companies, the number is expected to shoot up as organised
According to real estate consultancy Jones Lang LaSalle (JLL),
it is a Rs 24,000-crore business opportunity, which will double
in the next 10 years. Small wonder then that JLL along with other
consultant companies such as Knight Frank and CB Richard Ellis
are pitching for this business.
Among the bigger players to have recognised the opportunity are
Prestige Group, PropCare, Phoenix and Central (see Sharp
Aim). In fact, Future Groups Central was among the
first to explore the concept of keeping the owner of the property
and the developer in the background and letting the retailers
run the mall. Our business model works as a shop-in-shop
for brands. Central is a seamless retail space, says Sandeep
Mukim, the chief of operations at Central and Brand Factory. Central,
which currently manages 16 malls, monitors the operations and
tracks conversions for its tenants; security and maintenance are
outsourced. Central as a brand is all about property management,
says Mukim. The Future Group plans to open 24 Central malls in
the next two years.
The scope of mall management services has now been elevated
to shopping centre management. But very few companies have upgraded
their capabilities, says Ashutosh Beri, managing director
of property and asset management at JLL. He says clients now expect
complete shopping centre management a drastic shift from
the past. According to JLL, the Indian psyche is skewed towards
self-sufficiency and most mall owners saw mall management as a
simple function of managing facilities. But with increase in competition,
more developers have started outsourcing the overall management
of their malls to professional agencies. And this trend is likely
to catch on as the battle for footfalls gets tougher.
An Evolving Field
The business model for a mall management company depends on which
state the mall is in. Scientific models are available by
which common area maintenance (CAM) charges can be predicted with
a fair degree of accuracy prior to the launch of a mall,
says Beri of JLL. CAM is dependent on energy costs (both state-supplied
and captive energy sources) and also on minimum wages, which again
vary from one state to the other. Another factor is the architecture
of plants and equipment, which should be in consonance with the
usage pattern of the mall.
A mall management company makes money on the collections on behalf
of the developer. So, say, the mall management company collects
98 per cent of the total cost (including water, electricity, rent
and other CAM costs such as security and cleaning), it will be
paid 3 per cent on the collections as fee. This may seem high
but the job is tough. Mall managers not only spend a considerable
amount of time chasing payments from retailers and choosing the
right anchor tenants to increase footfalls in the mall, but they
also have to spend a lot on promotions.
Every property that you manage is different because of
the catchment and the kind of promotions that you run with it,
says Rajendra Kalkar, the centre director for Phoenix Mills, which
plans to open malls in four more cities by the end of the next
financial year. A mall manager has to run the business based on
what retailers and customers want. Take, for example, luxury malls.
The challenge for a mall management company is to provide synergy
to competing compatible brands targeting affluent buyers. It must
provide a unique gateway to the luxury marketplace. Achieving
this is a fine art, combining the most evolved concepts of human
psychology, aesthetics and marketing strategy, says Shubhranshu
Pani, managing director of retail services at JLL.
At present, however, most mall developers in India continue to
run the mall themselves because they feel there arent sufficient
mall management companies. It is great for developers to
hive off this business in the future. At present, there are not
many skilled people who can brand and run malls at the same time,
says Kishore Bhatija, CEO of Inorbit Mall in Mumbai. He adds that
since people no longer want to travel long distances to shop,
for developers it is a business where one has to understand catchment
marketing and then build the mall management business.
In India, developers control the zoning, leasing, finance
and marketing in the mall. In developed markets, even these functions
are managed by specialist companies and not developers,
says Nirzar Jain, CEO of Oberoi Mall in Mumbai.
Where Is It Heading
With most mall developers spending approximately Rs 200 crore
on 500,000 sq. ft of retail space, advice on running the mall
successfully can make all the difference. Some Indian malls are
turning to malls abroad and taking regular inputs from them. For
example, the Mantri Mall in Bangalore works with a South African
mall, Cresta Shopping Centre in Johannesburg, on operations and
collections. There is a need for mall management to pick
up as developers will need advice on how organised retailing works,
says Pinakiranjan Mishra, national leader for consumer practice
at Ernst & Young.
As part of their responsibilities, mall managers are required
to determine the correct mix of entertainment, shopping and accommodation
that will help diversify the tenant mix and de-risk the developers
investment. It also allows the developers to better utilise the
floor-space index and location.
Service standards are judged the moment people enter a
mall. It is more like hospitality business, says Yach of
PropCare. High service standards help in adding value to retailers
and also allows people to shop better, he feels.
The ultimate aim of all such exercises is to generate income for
the retailers as well as the developers. Many developers are now
giving sharing revenue options to retailers. Several malls that
became operational during the slowdown opted for a combination
of minimum guarantee and revenue sharing, which ensured floor
earnings for the developer. Mall management companies use such
data to predict the success of the retailer and collect revenues.
With better mall management practices being adopted, steps that
will increase transparency in revenue recognition are expected
to find more takers. Industry experts add that this will also
give developers more confidence to introduce innovative rental
sharing arrangements with retailers.
There are still relatively few developers who are comfortable
with the idea of not just developing the building, but also operating
and nurturing the mall as a retail environment, says Devangshu
Dutta, CEO of Third Eyesight, a retail consultancy in Delhi. He
adds that those developers who see this as a 25-30 year business
income rather than a capital gains income opportunity will survive.
Developers view their role as limited to looking after things
like maintenance, utilities, housekeeping and security, whereas
successful shopping centre management companies take full charge
of managing the tenant mix and the customer footfall. According
to Third Eyesight, of the projects being discussed in early-2005,
less than 10 per cent would truly succeed as malls about
a third would get converted into offices or alternative uses,
and the balance would never take off.
The proof is in the pudding. Indian real estate developers who
have built up retail experience will start pitching for malls
that are built by developers who have no experience in retailing.
The success of this business will entirely depend on whether the
customer returns to a mall regularly, or not.
(This article originally appeared in the Businessworld
issue dated 18 April 2011.)