Retail Detail 2013

The Endangered India retail - Endangered Species?

"A successful man is one who can lay a firm foundation with the bricks others have thrown at him"

Look around your city and you’re sure to find at least one, and probably more, nearly vacant mall build in early 20's struggling in its boundaries. Even the Santa this year looked tired. He was pretty skinny. And his helper elf had crutches. That’s not exactly festive. Thriving place in past but today, dying. Its movie theater may remains busy, but the mall itself? The empty storefronts far outnumber the remaining holdouts.

Is it over for retail real estate ?

The death of the mall has been proclaimed over and over. Many thought it couldn’t weather the recession or would crumble from limited number of retail brands or over supply of retail space.  However, to say the mall will die is to underestimate that consumers are resilient, the mall is adaptable and people love to shop. Malls in India remain highly-valued fortress-like assets. Even now, Mall real estate developers  are able to draw equity from top institutional investors attracted to stable cash flows from long-term leases. Normally the new store in mall settle down in  three or four years but in many malls  there are headwinds to keep the consumer from bailing out the big stores opened in early 20's and is the reason old malls are finding it difficult to breath easily this winter. I don’t think we’re overbuilt, I think we’re under-demolished.  Because many  big box store model is broken on which half of the malls were filled  and anchored to secure shoppers consistently.
Lets look at 2013 through crystal ball :

There are several factors anchoring my thinking as to how 2013 will play out for the retail real estate market. I look at the market trends that have shaped and are continuing to shape the industry, the economic climate domestically and abroad, here’s my outlook for retail real estate in 2013, and what I think retailers and investors will have on their radar this year:

1. Retail development will continue to be slow. This naturally will be driven by the continued stagnancy of overall market. However, we can expect to see some small developments as the reforms continue its recovery.

2. The supply/demand equation will strengthen for landlords. Not many new developments and, strong retailers are still looking to strategically grow their footprints and store counts. It’s a matter of finding optimal locations to support these growth plans. From what I have seen, urban areas and first-ring suburbs are hot on retailers’ radar, due to their high density and established demographics. As retailers expand, available inventory will of course shrink, and the supply and demand equation will strengthen for landlords.

3. Investments outside of the India will help diversify risk and balance stability. Although the Indian reforms continue to recover slowly, India remains a safe for investments.

4. E-commerce will play an increasingly important role in retail business strategy. Thanks to online retail and changing shopping patterns, many retailers see e-commerce as a complementary component to their overall business strategy to increase sales and drive foot traffic. Developers will be increasingly working with their retailers to drive customers to their stores through e-commerce as well as social media and other technologies, and maximize their multi-channel strategies.

5. Small retailers will begin to stabilize their businesses The most widespread new strategy adopted by Big retail houses in India is shrinking the size of stores (and number of non performing stores) to bolster profitability. Many mom-and-pop shops continue to face a challenging competitive landscape against their larger competitors; however, some small retailers will begin to stabilize their businesses in 2013 even at high streets.

6. Retail real estate prices in 2013 will continue to be discriminating. We’ll continue to see higher quality properties demanding premium prices this year. This will mainly be driven by the sluggish market, combined with fear and uncertainty

7. Interest rates will remain high. Although I hate making predictions about interest rates, I’d be remiss not to include this point in our 2012 outlook. Interest rates are going to remain high for the foreseeable future, but we all know they only have one place to go — up. It’s just a question of when. So it is especially important to carefully underwrite acquisition opportunities to avoid overpaying for properties.

8. Factors outside of the industry could hamper a steep growth. It will be macroeconomic events, rather than real estate fundamentals, that have the potential to hinder the growth.

9. Small, service-oriented retailers will continue to grow. We’re seeing retail growth bent toward small, personal, service-oriented retailers will have to get very creative to slice and dice all the leftover space,. This includes smaller spas, gyms. These trends are hitting the market capitalizations of most of the largest owners of retail real estate

10. Strategic promotions will drive consumer spending in 2013. Consumers will continue to be cost conscious in 2013, and spending will be moderate. However, strategic promotions will draw consumers out of their shell over time. This of course makes it increasingly important for landlords to position their centers with strong retailers that are gaining a share of the consumer’s disposable Rups. Strong retailers will be those focused on good, old-fashioned retail operating skills to shore up their business.

10. The growth vehicles of the last two decades in Hyper market / dept stores which carry the widest selection for specific interest groups, are a threatened species This declining retailer health is directly impacting malls and shopping centers in the form of very high vacancy rates and sluggish rents—exactly what you’d expect to see where supply exceeds demand. Both factors deteriorated quickly during the economic crisis of 2008-09, but they’ve shown virtually no improvement since in spite of improved economic conditions. The recession was the catalyst, but competition from online retailers can only be the continued driver. The mall business isn’t very healthy either.

11. Some big retailers May to reduce their footprints. Like For some retailers, online has proved to be a better channel to sell certain products. As a result, these retailers are reducing their physical footprints to focus resources on their online channels. Taken together, we believe these factors portend a sturdy year for retail real estate.

12. Meanwhile, enterprising mall developers who can effectively exploit the possibilities of Situation of weal malls by weak developers are thriving and their numbers growing.