How Retail Real Estate Business is Transforming

The pandemic has changed the way consumers shop. And to match their changing expectations, retailers are introducing many new technological innovations.
How Retail Real Estate Business is Transforming

With the second Covid wave subsiding slowly, shopping malls have started recovering faster than the first wave supported by a rapid easing of restrictions and also pent-up demand.

“Retail is getting back to normal, and business is bouncing back. Almost 70-80 percent of it is back,” says Abhinav C Ajmera, President (Leasing), Omaxe Ltd.

Resonating the same thoughts, Prashant Gaurav Gupta, Vice President & Head Luxury Malls, DLF Limited states, “We at DLF Emporio and Chanakya, have recorded the highest footfall in the last 13 years. The sales for most of our partners have increased from 50-300 percent, depending on the brands you look at. In the current scenario, the consumer is ready, and you have a dearth of products to sell now; this could also be because of the shift in the consumption pattern. Earlier, people who were shopping for luxury items used to prefer either Dubai, Singapore, London, or Paris, these being the top four destinations apart from shopping domestically. Today, due to travel restrictions, they don't have that comfort and they have to buy everything within the country. It could be different for different segments, but as far as luxury is concerned, it is performing exceedingly well post the second lockdown.”

Changing Consumer Behavior

Retailers have observed that there is confidence in the consumer's behavior which is finally turning to a purchasing decision.

“Pre-pandemic, the fashion industry was optimistic in 2019. We thought 2020 would be a good year for us because the entire inventory and cost planning was done, but when we entered the pandemic, everything went to a standstill. We were under tremendous cost pressure; 2021 has given us a sigh of relief. At the same time, if you look at the recovery from 2019, which unfortunately is an industrial benchmark for performance but in terms of cost, you cannot use 2019 as a benchmark for your sales because, for me, my input cost, fabric cost, workforce, logistics, rentals are of 2021. We are facing challenges in recalibrating the business, but from a recovery perspective, I see hope, unlike 2020. We are at 70-80 percent, but there's a long way to go,” asserts Vivek Srivastava, Head Of Business Development, Benetton Group.

The effect of the pandemic has been severe on all the categories of brand and all sides of retail; both developers and leaders have undergone tremendous losses.

“I think we are on the road to recovery, and there are a few things we need to keep in mind; first, whether we like it or not, we have to embrace technology in terms of apps, tech shopping as all of these things have become part of our lives, and they are here to stay. Second, the last few weeks have been bright in terms of footfall, sales, in fact, about an average some brands are up to 80-90 percent. The road to recovery will take another 6 to 8 months. At the same time, things will not be back to normal the way it was pre-COVID. Customers' expectations and experience in the mall or individual stores have changed, the way they will consume, the categories in which they are going to spend, and the wallet share per category have also changed; these changes are here to stay,” shares Rehan Huck, VP Retail, The ILC Group, Co-founder & CEO, Propel - A Venture of ILC Group of Companies.

How Tier II and Tier III Cities are Evolving?

According to a few reports, it was predicted in 2019 that the retail mall supply is expected to go to around 65 million square feet by the end of 2020 and the aspirational Tier II and Tier III cities will be flocking more to these types of shopping destinations. 

Cementing his beliefs in the predictions, Gupta states, “I think these expectations will still hold true. According to research by one of the reputed firms, by 2030, around 40 Tier II and Tier III cities of India would alone account for $1.5 trillion of the economy. If that kind of growth comes from Tier II and Tier III cities, then there is no way retail is going to be left behind. We had a bump due to the pandemic, but both will co-exist as far as online and offline sales are concerned. Whether organized retail or large companies, everyone is looking at the omnichannel way of doing business where you have a seamless transition from online to offline and how a hybrid model can work.”

“The focus on Tier II and Tier III cities was started even before the COVID. The transition had already begun, and the chief reasons are occupancy cost and the profitability per store. Rent in metro cities is skyrocketing, and it is growing exponentially every year. Therefore, most brands realized while doing their numbers that their stores in Tier II and Tier III cities have comparatively low operational storage costs because the salaries are much lower, electricity cost is much lower. Therefore, the rental is less, which is an essential component of the profitability of the store. As a result, Tier II and Tier III stores are more profitable, although the numbers will be drastically different in terms of the top line which any particular store is doing. During the pandemic, the metros were worst hit with the curfews and lockdowns. The Tier II and Tier III cities were able to recover and bounce back a little quicker than the metros. There are many Tier II and Tier III cities that are unexplored, and 80 percent of brands that have premium to mass appeal are viewing Tier II and Tier III strategies seriously,” adds Huck.

“The aspirations are much higher in Tier II and Tier III cities. We, as a developer, have a lot of stakes in Tier II and Tier III cities than metros because we see more potential there,” Ajmera adds further.

Consumer psyche, purchasing behavior, occupancy cost, and overall commercial profile change dramatically as we go from metros to Tier II and Tier III cities. So, if any mall has to come up anywhere where it is metro or Tier-2 and Tier-3, it has to stand for some differentiation. The USP has to come out clearly.

Integrating Technology

The pandemic has changed the way consumers shop. And to match their changing expectations, retailers are introducing many new technological innovations.

“As far as technology is concerned, a lot of brands have changed the way they work. AR and VR have become an integral part of brand strategy. DIOR, for instance, released a B27 sneaker on Instagram with a filter where you could try the sneaker through Instagram and buy it. There are now spring-summer fashion shows happening on platforms like Twitch which is the first time that luxury brands are doing online fashion shows. Even both the edition of FDCI, couture as well as fashion shows were online. I was reading a report which said that globally if 30 percent of people are comfortable shopping online, that percentage in India is 57 percent. So, I feel that while technological progress will be made on all fronts, there will be a hybrid model; one way could be that retail stores could become fulfillment centers or other hybrid models. Technology will keep on advancing, but both will coexist,” states Gupta.

“None of the models can completely kill the other model. Theoretically speaking, if you have an online presence, your brick-and-mortar will become only a fulfillment center, but what we are missing out here is the shopping experience. Experience of eating out, going shopping, experiencing the entire store, the ambiance of the mall, so expertise plays an important role. There is no brand or developer or any side of real estate that does not embrace technology or artificial intelligence or upgrade the entire experience. Both of these will coexist profitably and peacefully,” adds Huck. 

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