3 Strategies to Reduce Operational Cost for Mall Developers

Among the operational malls, there would be hardly 10% malls that can be called successful. Though, there are various factors which can impede the success of mall; among many, operational cost is one.
mall

Shopping malls are increasing becoming quite essential part of top city dwellers. There is a incremental rise in the demand of quality malls, but if we can trace back last decade, the growth of malls has been hampered, primarily due to high cost of real estate and construction, poor infrastructure, a non-conducive policy framework, and the unavailability of professional expertise in mall development and management. As the repercussions, the number of undifferentiated malls with high occupancy levels, and reduced profitability for tenants and malls is increasing.  Conceptualisation, positioning, zoning, deciding the tenant mix, promotional activities and marketing are few important aspect of mall management which collectively ensures that mall drives the right footfall to make the establishment successful.

As per ANAROCK research, till date top 7 Indian cities currently have 105 operational malls sprawling over 50 mn sq. ft area while Tier 2 & 3 cities have nearly 30 operational malls spread over nearly 13 mn sq. ft. space.  The average vacancy in top 7 cities is currently around 14%.  NCR is one of the most expensive markets across the top 7 cities in India with average rentals in malls in the range of INR 200-350/sq. ft.  Among the operational malls, there would be hardly 10% malls that can be called successful. There are various factors which can impede the success of mall; among many, operational cost is one.

On an average, a mall has bear GST, property Tax, water, electricity, hoarding and other utility bills along with staff training in order to remain operational. Therefore, managing ROI has become the herculean task for mall heads.  Speaking on same, Arjun Gehlot, Director, Ambience Malls, said, " Mall management is a more of a hospitality business now. Our focus is on customer experience and staying relevant to the customer. ROI will come if the customer is happy.The industry is always evolving and malls must see challenges as an opportunity to collaborate with digital platforms to make the retail experience dynamic and consumer-centric for our patrons. At Ambience, we use technology proactively to engage with brands and customers. By merging the power of technology with the infrastructural facilities of physical retail, we are able to provide our patrons with a tangible, engaging and personalized shopping experience. 

Following are few parameters which can help in mitigating operational challenges to developers.

Leasing over Selling

Speaking over same, Mukesh Kumar, CEO, Infiniti Mall said, “In India, maximum malls work on sell model where retail space is sold to various investors while construction is going on. Such exercise lessens the control of mall management over tenant mix which leads to mall degradation. Therefore, mall developers should focus on leasing over selling.”

Transparency in Common Area Maintenance (CAM)

Time and again, retailers alleged that malls fix CAM rate in an ambiguous manner and raise it as per their liberty. Averagely, CAM charges are generally in the range of Rs. 30-35 per Sq.ft  per month. There could be a variation in CAM costs by upto +/- 10%, depending on the developer. A CAM is a maintenance fees charged on top of base rent. Mall developers should work collectively to bring uniformity in CAM charges.

Advanced Analytics

With the advent of e-commerce, ‘Experience’ has started becoming prime factor over products. Many developers do not pay heed when it comes to using advanced analytics. They don’t know how to optimize consumers’ data to optimize better results. By the virtue of advanced analytics many areas of mall business can be revotionalised including, experience, talent sales and optimizing category performance.  Many developers go by the intuition in this area; hence, miss the opportunity.

 

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