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Mall developers turn franchisee partners

Monday, 23 December 2013 - 9:56am IST | Place: Mumbai | Agency: DNA
Move a strategy to ensure resident brands don't exit, footfalls continue and revenues remain protected.

For over a year now, mall developers and the brands they house in their retail spaces have been struggling with slowing sales and decreasing footfalls.

As if that was not a big enough problem, mall promoters now have to contend with floundering brands seeking an exit to survive in cheaper locations.

That could prove a double whammy. Not only would exiting brands hurt rent revenues; they would further squeeze dwindling footfalls. After all, traditionally, brands have been the crowd-pullers.

So, in order to stop the brand exodus, developers are assuming a new avatar – that of franchisee partners. Stated differently, brands and mall developers now tango together.

Surjit Singh Rajpurohit, CEO of Neptune Magnet Mall at Bhandup, a northeastern suburb of Mumbai, says the franchisee option is being explored. “Going ahead, this format will become integral to a mall’s growth story.”

Other mall developers agree. Many of them believe that new malls as well as the ones that haven’t managed to attract good footfalls of late, will likely be left with no choice but to invest in the retail business themselves.

For mall developers, this would mean additional cost in terms of investment. That is not all. Revenue from rents would fall as they would end up with unoccupied retail spaces.

But, developers feel this strategy is worth the trouble. For, developers’ own presence, they believe, could help persuade brands to stay on, thereby keeping the mall an attractive destination for the consumer.

Rajpurohit said, “It is still better than letting the brand go. Developers take a lot of time to develop the mall. So, keeping the space empty makes no sense. Even if you have to invest in the partnership, the cost is still lower than leaving the space empty.”

There are other calculations. If the brand does well, then the developer’s investment would generate a neat return, just as in the case of conventional franchisee business.

Nirzar Jain, vice-president, Oberoi Malls, said developers of even untroubled malls are actively exploring this option to get higher returns. “If you are a profitable mall and you take on the franchise of an attractive brand that boasts good footfalls, then, even if you are investing in assets and letting go of rent, you can still make money just on sales. Therefore, some mall developers are exploring this option from a position of strength.”

Industry players say prominent mall developers like DLF and HDIL have been working on this option.

Gaurav Marya, president of Franchisee India, said franchisee strategy also helps in bringing in a good mix of retailers to a mall. “Brands in the entertainment or the food space mostly work on the franchisee model. Apart from fashion, you need a good mix of dining and entertainment options as they are good crowd-pullers. And since they are mainly in the franchisee model, in order to retain them, at times malls end up becoming their partners.”

Real estate developers and industry players point out that the slowdown in the consumer business, and the huge mismatch between demand and supply, have led mall owners to try new options.

Slowdown blues
Many mall developers believe that new malls as well as the ones that haven’t managed to attract good footfalls of late, will be left with no choice but to invest in the retail business themselves. This would entail additional investments.

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