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Delhi retailers prefer franchising

INVESTORS find retail options the most attractive investments as compared to the office option in the current real estate situation. Investors prefer the secure returns of an anchor in shopping malls since they pay the highest rent and have the longest lock-in periods.

We have employed the services of noted real estate specialist, Pushpendra N. Sharma, of CB Richard Ellis, to bring to you the property situation in the capital city of Delhi.

Delhi, a constantly developing city, dominated by the business community, bureaucrats and politicians with huge disposable incomes, is witnessing an exponential growth of malls, shopping complexes, multiplexes and family entertainment centres. Organised retailing is changing the shopping pattern of customers.

The National Capital Region or NCR is the interstate region consisting of the National Capital Territory (NCT) Delhi and delineated areas from the surrounding states of Uttar Pradesh, Haryana, Rajasthan and Punjab, spanning a total area of about 30,240 sq. km.

The concept of the NCR is outlined by the goal of ‘deflection of urban population and hazardous industries from NCT Delhi to surrounding areas. The objective, of course, is to reduce population pressure on the capital city and achieve a more balanced development of the entire region through selective dispersion and relocation of economic activities.

Experts have proposed a new zone, the Highway Corridor Zone, for RP-2021. It recommends planned development along the highways under which all national and state highways located in the NCR, outside the urban areas, are to be designated as part of the zone. Depending on the local situation, residential activities may be permitted in a planned manner, the experts have held.

It has also been suggested that the NCR area should not be extended until 2021 in order to sustain the ongoing NCR expansion and for better coping with the already scarce financial resources.

Prime retailing areas
Delhi has a host of prominent retail markets which can be classified into traditional, contemporary and emerging markets.

Traditional Markets: These are the old markets of Delhi, including Chandini Chowk, Sadar Bazaar and Daryaganj.

Contemporary Markets: These markets cater to the current needs of the end-users, retailers, etc. These include Connaught Place, South Extension I & II, Defence Colony, Greater Kailash I & II, Basant Lok, Noida (Sector 18), Khan Market, Saket and Karol Bagh.

Emerging Markets: Prime retailing areas Delhi has a host of prominent retail markets which can be classified into traditional, contemporary and emerging markets.

Traditional Markets: These are the old markets of Delhi, including Chandini Chowk, Sadar Bazaar and Daryaganj. Contemporary Markets: These markets cater to the current needs of the end-users, retailers, etc. These include Connaught Place, South Extension I & II, Defence Colony, Greater Kailash I & II, Basant Lok, Noida (Sector 18), Khan Market, Saket and Karol Bagh.

Emerging Markets: These markets are planned for the future requirements with large formats, areas, etc. These markets are Gurgaon, Greater Noida, Faridabad and Ghaziabad.

The prime-selling commercial real estate areas, which also make up the main shopping places, are as follows:

These are mostly high-street retail markets. None of these areas have a dedicated shopping mall except for TDI Mall in Lajpat Nagar.

Work on at least three new malls in Delhi has already commenced and though the users are poised for an enchanting experience, the operators could face stiff competition amongst themselves.

While south Delhi is a saturated market, the north-east, and especially the west, are the upcoming markets offering immense potential.

The main shopping malls are TDI Mall and Ansal Plaza, which are functional. There are other formats of malls which are essentially multiplexes and which have some area dedicated for shopping, like M2K. Proposed malls are: Satyam, Janak Place and Satyam, Nehru Place.

Since hypermarkets and strip malls require extremely large floor plates there is not enough space available for such kind of stores in the city, therefore, such formats are looking aggressively at Noida (including Greater Noida) and Gurgaon.

Footfalls and formats
According to Pushpendra Sharma, on an average, the main malls get a daily footfall of nothing less than 6,000 persons each per day, and on weekends it goes as high as 15,000 (in Ansal Plaza). Footfalls depend upon the following:

Kind of retail format that exists in the mall
Any discount being offered by these formats
Whether it houses cineplex or multiplex
Availability of parking space
Convenient shopping layout with a congenial ambience.

Retail formats that exist are in the following category:

Pushpendra Sharma adds that there is no thumb rule for such kinds of models; it depends entirely upon the developer and his business model and his short- and long-term objectives, i.e., whether to retain ownership of the property or to sell out his stake and move on.

Covered area, rent and catchment area
The different covered areas available in the retail format are:

The rent or sale price is calculated on the basis of the super area. There is a certain loading, which is done on the covered area, and this varies from developer to developer, i.e., 20 to 35 per cent extra could be charged on the covered area.
The catchment area is calculated on the basis of a drive time radius from where customers are expected to come. The immediate catchment is the immediate surrounding neighbourhood, whereas the drive time catchment is approximately within a radius of 3 km.

In Delhi, almost all kinds of formats and retail segments are seeking expansion, i.e., apparel, cosmetics, pharmacy, department stores, F&B, cafes and multiplexes.

The franchising concept
Franchising, today, is the buzzword with plenty of options available in the market in numerous formats and retail segments (apparel, food or even entertainment). As mentioned earlier, all retailers are seeking to adopt the franchise models in order to reduce the risks and also expand nationally and globally.
Elaborating on the acceptability of the franchise concept, Pushpendra Sharma comments: “Real estate is largely available as long as the ROI is lucrative and the investor or potential franchisee recovers his investment soon and can make money in a short duration of time.

“Food as a franchise model is generally considered extremely lucrative and it brings ample publicity. If the format is really exceptional, the rewards are enormous. This is my personal view point; however, there are a few drawbacks in this as well, e.g., shelf-life of products, quality control, service, etc., have to be top of the line or else the store/outlet may get phased out.

“Retailers prefer to take space on lease and with the increase in competition they have started giving out franchises. Though the exact percentage of the retailers’ preference for franchises is not available, it is definitely higher than 40 per cent if a general trend is observed amongst the known retailers.
“Both leasing and franchising will be the models for retail expansion. However, we predict that franchising or the investment route has an edge as most known retailers/brands are seeking to franchise or use the investment model JV route.
“In the investment model JV route, the intending landlord has to make some investment on the interiors rather than the retailer. In such a case, the landlord shares the risk along with the retailer and reduces the capital expenditure of the prospective tenant/retailer. In this way, both landlord and retailer benefit, since the landlord can give his space out on rent to a brand he prefers and the retailer opens a store at a much lower price since the interiors’ expenses are taken care of.” These markets are planned for the future requirements with large formats, areas, etc. These markets are Gurgaon, Greater Noida, Faridabad and Ghaziabad.