Do anchor tenants make or break a mall?

Centrally air-conditioned environment with soothing music, high-speed lifts and escalators, an entertainment arcade, multi-cuisine restaurants, adequate parking space, and a mlange of national and international brands shopping malls offer a large variation under one roof to the consumer and ensure the perfect shopping experience. In India, the mall culture picked up momentum a few years ago with the setting up of malls like Metropolitan and City Centre in Gurgaon near Delhi, Spencer Plaza in Chennai, Forum in Bangalore and Crossroads in Mumbai, to name a few. While Delhi leads the rest of the country, followed by Mumbai and then metros like Chennai, Kolkata, Hyderabad, Bangalore and Ahmedabad. Cities like Pune, Coimbatore, Ludhiana, Lucknow and Kochi are also quickening their pace to cash in on the mall revolution in the retail sector. This mall revolution seen in the recent years across the country can be largely attributed to the increasing spending power of the middle class.

The presence of anchor tenants
Shopping malls incorporate an arrangement of co-positioned retail outlets in a widespread area. A typical mall has one or more anchor stores and a variety of smaller stores. An anchor tenant being the largest retail outlet in the mall, is chosen on the basis of its potential to attract customers to the shopping centre in general. Usually department stores act as anchors in regional and super-regional malls, while supermarkets are typical anchors in community centres. In a number of cases, multiplexes serve as the perfect anchor tenants. The most popular choices for anchor tenants include multiplexes, retail outlets and food and beverage outlets like, McDonald's, Shoppers Stop, Globus, Pantaloon, Lifestyle and hypermarkets like Big Bazaar and Giant, to name a few.
An anchor store implies a store that is a large entity in terms of size or square footage. It caters to the needs of people across all ages. It usually has a large variety of sellable items ranging from clothes to household items from different brands, says Mr Pushpendra N Sharma, founder and CEO, Mantra Consultants.
Most retailers assert that consumers across the world are lured to malls because of the presence of well-known anchor stores. These tenants largely become the unique selling proposition (USP) of the mall as they are usually taken as the center point for creating the identity of the mall.
It is important that an anchor is made a part of a mall, as this will be one of the USP of the mall. An anchor store might not neccesarily be a large format store, in fact, there are some retailers who, in spite of being of moderate size, that is approximately 3,000 to 7,000 sq.ft, can also be called the anchors of a mall, elaborates Mr Kekoo Colah, executive director, Knight Frank India. Further, the entry of an anchor tenant in a mall encourages other retailers to join the mall. Says Mr Ashok Bansal, director, Suncity Projects (P) Ltd, Today the market is realistic and every retailer is guided by his own business plan irrespective of the size of his outlet. Finalising the deal with the anchor at the early stages helps in ensuring that the project is sold much faster. The moment a large anchor tenant takes up space in a mall, the mall catches the attention of other smaller tenants. And to reap maximum benefits a number of these retailers want to get positioned next to the anchor to ensure footfalls and visibility. As a result, they are ready to work in a certain price band of rentals.
Says Mr Colah, Anchor tenants get the first mover advantage in a mall, since they are amongst the first to sign the deal. Their lease period is usually lesser than that of other retailers. An anchor tenant get these advantages mainly due to two reasons, the first being that they take up a large amount of space in the mall in terms of sq.ft and because they are the crowd pullers and the footfalls of a mall largely depend on how strong the anchor is.
On the basis of the advantages that accrue to a developer because of the anchor store, they are offered a number of benefits in return. Ideally, a smaller retailer should take this fact into consideration and should clearly outline the pros and cons of being a part of a mall before taking a decision to invest or not.

Anchor tenants make a mall
Anchors play a very important role in the making of a mall because the stronger and bigger is the anchor's product mix in terms of total value that a customer would get, the better chance a mall would stand to get that customer at its door. Strong anchors attract more than 30 per cent of the total footfall, says Mr Bansal.
An anchor tenant's role, in fact its very presence in the mall is pivotal; smaller retailers invest in a mall usually after assessing the footfalls that the anchor tenant would attract. Also, an anchor tenant is usually taken as the basis for positioning a mall. An anchor store inhabiting a large area, provides a landmark for reference, it adds worth in terms of consumer perception of the entire area. It also results in a greater inflow of utilities and conveniences. Says Mr Shubhranshu Pani, retail head, western region, Trammel Crow Meghraj Property Consultants Pvt. Ltd, elaborates, Anchors in a mall define the project because of their product pricing, their ambience and the quality of their products and services. They attract a specific quality of consumers for shopping and usually the smaller retailers take this into consideration before investing in the mall. Smaller stores are assured of better footfalls and business owing to the presence of mall anchors. If a particular mall anchor is able to draw more footfalls this will reflect in better business for other stores in the mall.
On the other hand, it is essential for smaller retailers to understand that just the presence of a large anchor does not ensure better sales for them as well. Elaborates Mr Kishore Biyani, MD, Pantaloon Retail (India) Ltd, A retailer should take the decision to invest in a mall on the basis of his own research, product offering and expectations. We, as an anchor tenant, do not promise any footfall or conversion rate, we generate footfall but this is only because of what we offer and we do not take it as our responsibility to generate profits for others. It is ultimately in the hands of an individual retailer to be successful or fail.
The mall developer finds it easier to sign up other retailers once an anchor has signed up in a particular mall, as this gives other retailers more confidence in the mall development.
Other retailers who sell impulse products are dependent on the anchor to drive more potential consumers into the mall. These retailers are not footfall generates, instead they are dependent on the footfall generated by the anchor and the mall. Therefore, it is because of anchor tenant that the mall gains the footfall and initial popularity, says Mr Colah.

Impact of an anchor
tenant leaving the mall
An important factor that smaller retailers who invest in a mall because of the anchor tenant should keep in mind is that if the anchor tenant opts out of the mall, what would be the impact on their returns?
In case an anchor does opt out of a mall, it is likely to have a negative impact on the mall as well as the individual retailers existing in the mall. It would largely affect the footfalls and the smaller retailers would also lose confidence in the mall or the developer, explains Mr Colah.
Besides affecting the footfalls, even the rentals of the mall would drop drastically if the anchor tenant decides to opt out. Says Mr Sharma, A classic example is that of MGF Plaza Mall, where Arcus shut shop and the other retailers had no choice but to start re-negotiating rents with the landlord. At times, it becomes difficult for the landlord to find a tenant for the vacant space unless the rents are rock-bottom or governed by the interested retailer or anchor tenant.
The anchor tenant might also have to pay a heavy price in case he decides to opt out of a mall. At the same time, this does not justify the impact that it can have on the remaining retailers.
Says Mr Sharma, In case an anchor decides to vacate there is an extreme penalty clause, where the anchor has to pay a pre decided compensation to the landlord. In most cases, there is a lock-in period, for a minimum for one to three years, before which an anchor store cannot vacate the mall premises.
On the other hand, it is also a possibility that if the mall is functioning well and is well established, the impact of an anchor tenant opting out of the mall might not effect the functioning and the sales of other retailers. There are usually two aspects to the whole event. In the first case, if the location is an established one with good business, then, there is an immediate alternate occupier who moves in. There is a temporary drop in sales for others, but the functioning and sales return to normalcy quite quickly.. In the second case, if the location is not providing good business to the retailers, the anchor deciding to opt out is usually preceded by various smaller retailers moving out. Such malls then get down graded and the property prices in these malls falls drastically. Although there is always a price at which some category of retailer would be interested but in the long run malls have to be redesigned or repositioned to ensure profits for the existing retailers, elaborates Mr Pani.
Presenting the entire scenario in a new light, says Mr Ashok Bingani, president, Fort Projects, In the event of an anchor tenant moving out of the mall, the whole system of the mall gets affected. Yet, the functioning of the mall does not stop, it goes on. For the retailers, mall developers and even for the shoppers, it should be business as usual.
At the same time, it is essential for a mall owner to ensure that the chances of an anchor tenant opting out of the mall are close to negligible. To achieve this, at the time of preparing the lease agreement, the legal counsel would have to draft the strategies very prudently. It would be essential to communicate the consequences of the anchor shutting shop at the mall, clearly to the anchor tenant, so as to ensure that both the parties are in complete agreement. Elaborates Mr Sharma, The legal counsel generally reach a consensus with the landlord before signing the lease agreement. There are generally two basic strategies these include, a defined lock-in period and a hefty penalty in the form of monitory repayment incase of breach of contract by the party."
On the other hand, Mr Colah, believes that the situation can be saved with proper management. He says, If the developer has a good mall management team in place this situation should not arise. A mall developer must ensure that due respect is given to the anchor tenant. At the same time, this does not mean that individual retailers are treated badly or unfairly. It would be essential to maintain a balance to ensure proper and profitable functioning of the mall.
Ensuring that the tenant mix is such that most of the needs of consumers can be met, even if the anchor tenant opts out, the mall developer can ensure that the footfall is not affected as badly. Essentially, it is quite obvious that if an anchor tenant decides to shut shop at a mall, it would definitely effect the image and the functioning of the mall. At the same time, if the mall developer has a proper mall management team in place, the situation can definitely be salvaged and the negative impact can be minimised.