Whose Headache It Is

Whose Headache it is? …Customer retention in a Shopping Mall – Indian Outlook India is the most attractive retail industry in the world. With the startling Year on Year growth rates, Indian retail industry is the 5th largest retail destination globally. Retail in India used to fall largely into the unorganized category. However, recently there has been the emergence of organized sector within retail owing to the establishment of supermarkets, hypermarkets, shopping malls etc. The number of shopping malls is expected to grow to 715 with the retail space of 350 million sq. ft. by 2015 as compare to 315 shopping malls with 47.4 million sq. ft. of space in year 2007. The shift from unorganized to the organized retail is largely because of the overall shopping experience and excitement that the malls provide as compare to mere transaction based purchase in ‘mom and pop’ stores. More retail space is a necessity to handle and cater to new retail brands (global as well as national brands) that are coming into the market. This supports the idea that adequate retail space could be the missing link for prosperous retail industry. However, the actual examination of the influences and impacts of these new shopping malls opening up at the ‘arm’s distance’ has been less documented. In India, according to industry experts, only 10‐12 percent of operational shopping malls have been successful. These are numbers available with various retail and real estate analysts. Shopping malls in tier II cities are still far from the kind of competition of retaining the customer to its own mall than the shopping malls of big cities like Mumbai, NCR or Bangalore. The success rate of mere 10%, is a powerful indicator that the initial excitement about shopping in the malls is already on decline and the consumers are reverting to their traditional shopping‐destinations. Therefore, it becomes a marketing challenge to retain customers and encourage repeat purchase. It is a well known fact that repeat customers spend more than the average customers. India is the land of diversity; researchers have found that Indian customer prefers cross‐shopping until or unless she gets some ‘extra’ benefit for re-buying that product or the brand from the same place. This is mainly because, in the Indian market, almost every retailer is trying to delight his customers. On the basis of these findings, it can be said that loyalty is not easy to build among Indian customers.

Customer loyalty refers to the feelings or attitudes that incline a customer either to return to a company, shop or outlet to purchase there again, or else to re‐purchase a particular product, service or brand. A problem is often raised that some proportion of customers will still defect to competitors, even if they are satisfied with the brand. This is the biggest challenge shopping malls are going to face in the near future; especially in metros and big cities, where shopping malls are very close to each other. Actually, the similarity in the experience provided by every shopping mall due to the uniformity in the features (interiors, exteriors, brands & services) as well as the close proximity has reduced the excitement in customers’ mind, making customer retention a major concern. Missing local flavor and existing space crunch in shopping malls are adding up to the problem. But the question here is who should be more concerned about this issue? The mall developer or the tenants (brands)?? If you say it’s the tenants, you are right in a way. But retention from their perspective would be customer retention for the brand not for the shopping mall. For example if Adidas makes efforts for customer retention, for them it doesn’t matter if sales come from one shopping mall or the other or from their own outlet. It makes clear that the responsibility of retaining customers to a particular shopping mall lies with the mall developers, but are they doing it? Almost every Mall owner is originally a real estate group which has diversified themselves into retail real estate after seeing this vibrant growth in Indian organized retail market. K RAHEJA CORP. is one of the leaders in Real Estate Development, having diverse interests in Retailing & Hospitality businesses. Today, they are the proud owners of Inorbit Malls, HyperCITY, Shoppers’ Stop and Crossword shops. They are the pioneers in organized retail by taking a first giant step to successfully establish "Shopper's Stop". The Prestige Group is one of South India’s most successful developers of real estate. It is the owner of Forum Malls in India. The group is about to expand its presence in mall business by opening up malls in major South Indian cities like Hyderabad, Cochin etc. These are only some of the real estate groups becoming mall owners. Initially, these mall developers were simply attracted by the huge scope of lease and tenancy receipts. However, with the growing concern of customer loyalty/retention for a particular shopping mall, mall developers have initiated some efforts to attract potential customers and retain them. Music shows &

competitions, art shops (portrait making, pottery painting etc.), product displays, concept tenants (Scary House in Garuda Mall), seating facility and sign boards for convenience etc. are some of the measures adopted by them. As the number of working ladies is increasing in India and in cities particularly, a new concept of Baby care corners has come up in shopping malls and big department stores. Shopping Malls have a corner, where mothers of new born, who need any assistance they will get it from the personnel or if they want to do shopping they can leave their babies in that baby care with baby sitters and do their shopping without worrying about their children. This concept actually target new mothers and by giving them the feeling of care, malls are trying to make them loyal. If we carefully observe, all these measures offer intangible benefits to an Indian customer, whose actual characteristic inclination is towards the tangible gains (discounts, freebies etc.). Indian mall developers do not focus on marketing strategies for their shopping malls. Thus, measures involving mere asset creation may not be very powerful. These measures are not sufficient alone for customer retention and given the fact, that only 10-12% of Indian shopping malls are successful, it should not surprise us if tenants are moving back from the malls and the developers lose out on their rentals as well. Other than these customer experience focused facilities, shopping malls are not doing much to retain the customers or to build loyalty among customers. Mainly, because most of the Mall owners are in the business of real estate so they consider these malls in very constricted sense. Like constructing a mall, getting fixed rentals from the retail stores and be happy with the rentals which retail stores are paying for the retail space provided to them. Operating and developing malls need certain kind of expertise and real estate owners alone cannot tackle this situation, they need people who are experts in ‘Mall Management’. They should adopt measures like revenue-sharing model and loyalty card. The former will build trust with the tenants while the latter will help in providing tangible value to the customers. Revenue Sharing Model The revenue sharing model, under which retailers share a percentage of their sales with mall developer/owner, is seen as a fair way of sharing risks between the two stakeholders. The model increases the responsibility of the developer to bring in footfalls in the mall by providing good upkeep of the infrastructure. It is

sustainable during the downturn as the retailers do not have to take the hit alone. From the developers’ side low sales mean low rentals, which they want to avoid. Thus, the model is mutually beneficial. According to industry experts, only about 10% of the stores are under revenue sharing model in the organized retail industry, implying a huge scope for the model’s materialization. However, the applicability of such a model should not be standardized to a fixed cut. The percentage of revenues should depend upon the format and the product category of the retailer. Current trends reflect 1.5% to 25% of net sales from the tenants. Generally, Mobile retailers pay between 1-1.5%, whereas fashion apparel, food and beverages retailers pay between 12-25%. Shopping Mall Loyalty Card In India, the market has been full of loyalty cards and customers also expect loyalty cards and their tangible benefits. The call of the hour for shopping malls is not to develop yet another me‐too card, but some different offerings or totally different concept of loyalty card. Differentiation is the only key available with the shopping malls to build customer loyalty. One concept could be an introduction of Shopping Mall Loyalty Card with the coalition of tenants like Adidas, Sony etc. and service provider like Visa, MasterCard. Under this concept, customers will get the bills separately from each retail stores as usual. They will earn some points based on their shopping in that particular mall in total, but the customer has to redeem certain % of earned points on the store where he had shopped and rest of the points he can redeem on other stores of the shopping malls. The system will tell the information about the point’s status for each customer as well as particular stores. For example: I shop from an Adidas store in Garuda Mall for 1000 Rs. and I earned let’s say 200 points. Now as per the loyalty program rules, I can spend 120 points in that Adidas store only and rest 80 points in other shops of that mall. As customer loyalty is becoming more crucial, differentiation in the consumption chain and customer experience alone can help in building the desired loyal customer base to fight against the nearby shopping mall.