Naushad PanjwaniKnight Frank India
Retail business has been thriving for centuries in various forms such as bazaars, haaths, mandis. Over last 100 years, large formats made their appearance in the western countries. Shopping centers, departmental stores, large format single brand outlets and others saw success. India has seen the advent of malls as late as in the nineties when Spencers in Chennai, Ansal Plaza in Delhi and Piramyd in Mumbai opened to see very encouraging response. However, the High Streets continue to thrive and command a captive interest from retailers and consumers.
The malls and the high streets each have their merits and shortcomings. Before getting into the comparative of investment opportunity let’s examine the characteristics of both the businesses.
Advantage High Street:• Visibility and convenience of timesaving is a big plus for shops on high street. A well-known brand in a mall is not visible to a passerby. Entry and exit into a mall is time consuming particularly when you want to buy just a specific item from a specific store which could be located on a higher floor. The branding on a high street store serves a dual purpose of attracting a customer in and creating a brand recall for the passerby. At times the store becomes a landmark for directions on the street. Very high brand recall.• In malls, apart from the rental, the retailer has to pay common area maintenance (CAM) charges which are very high; in smaller centers, at times almost as much as the rentals. The high street store has no or negligible CAM charges. In a mall one has no flexibility on the usage of heating, ventilation and air conditioning (HVAC) too, which in the case of a standalone store, they may regulate the HVAC according to their convenience and even switch off during non-peak hours. In a mall you are required to pay CAM even if you do not occupy the store.• A high street affords exclusivity to a premium brand which is lost in a multi-tenant mall. Services like valet parking, drop-off at the door step, privacy apart from quick access may not be possible in a mall.• While a mall may give you a lot of footfall, conversions are higher on a high street.• Some brands need exclusivity so that the customer that is drawn by one brand is not cannibalized by another competitor. That is why many fine-dines and company flagship stores prefer high streets.• Then there are some brands whose business model is to own stores and not lease. Most successful malls do not do strata sales and only lease. Hence many brands, particularly proprietary brands prefer high streets.• Lastly the success of a brand in a mall is dependent on many external factors like:o Location of the mall; its catchment and accessibilityo The developer’s ability to market the mall well, attract footfalls, his vision to maintain the mall, his ability to sustain when vacancy goes high etc.o For a retailer to succeed in a mall, the success of all brands individually and the mall collectively is important. It is rare for a single mall to succeed when other brands are fledging or worse when bulk of the shops in the mall are closed or unoccupied. The same may not be a case on a high street.o High profile malls make for easy targets by terrorists (the Ansal Plaza siege for example) hence emphasis on safety and security is high in malls. This has its own responsibility, costs and inconvenience. On a high street safety from thefts and dacoity maybe the only concern.
Advantage Malls:
• Malls afford a more family experience while a high street is more convenient for individual shopping. With cinemas, entertainment activities, F&B, events etc., Malls have also become centers of family outing apart from shopping.• Malls offer you the convenience of parking which is very difficult on a high street.• Most successful malls have mastered the art of zoning which makes it very easy for customers to shop across brands in the same category. At the same time it results in creation of markets for the retailers which promotes cross selling across categories and brands.• Impulse buy is higher in mall than on a high street.• On a high street, marketing is an individual effort and could be costly and /or ineffective as it is unorganized. Malls have events around festivals, occasions and themes. Many a brands, movies, products have their promotions and launches in a mall, many a times with celebrities. Malls spend money are able to create an environment and ambience that is a magnet. These along with neighborhood advertising attract a lot of footfalls.• Most malls have anchor tenants who take up large spaces and also which attracts a lot of customers. Hypermarkets or departmental stores too find it easy to operate from malls for the relatively lower cost of rentals and the availability of large sizes which are impossible to get on high streets• Apart from that rentals on a good high street are prohibitively expensive and there too the availability of space is limited. Malls have relatively cheaper rentals and can accommodate many brands. Additionally malls have flexible rental models like revenue sharing which is a plus for the retailer.• Malls also have most permits available so an individual retailer is spared the headache and hassles.• Many a high street stores are tenanted properties which preclude them from sub-letting hence they ask for a franchisee model which all brands may not be comfortable with.• Lastly, getting staff to work in a store in a mall is easier than on a high street for the conveniences and amenities that a mall provides. Toilets, change rooms, food courts and the safety are important to staff.
Keeping all these factors in mind let us examine which of the two is a better investment option from a rental yield perspective.
As has been seen above, the successful malls are developer driven and hence these are not available for sale on a piecemeal basis. Many a failed malls or run down malls have shops available for sale, either through the developer or an investor. Even though the rental yields maybe higher than high streets (primarily because the capital values are low) the ability to lease them is very low. Secondly the pedigree of the lessee may not be the best as high end brands may not be amiable to open shop here. Plus irrespective of whether your shop is occupied or not, you are liable to pay the CAM charges. The only exception is to buy a shop in a small sized departmental store or shopping center with very small shops and which is located in on a high street or in a very dense locality. Such stores end up being specialty stores for a category like electronics, garments, etc. and can command very high rentals too.
As against that, high streets offer the option to buy shops. The capital value will be high, the yields maybe low (as low as 4%-6%) but the chances of letting out are high, you can choose the pedigree too, big brands will be open to take up space. There is no cost of vacancy. In a mall situation, the fortunes can change in relatively short time due to factors like a new mall coming up next door or the maintenance going down or an anchor moving out. On the other hand, a high street would have a larger longevity. The chances of appreciation on a good high street are very high.
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