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MAKING DELHI INDIA’S RETAIL CAPITAL – OPPORTUNITIES AND CHALLENGES

A CII and CBRE Report

An exhilarating and eventful tenure of two years has just passed for me as the head of the Delhi State Council of the Confederation of Indian Industry (CII). During these two years we organized a host of events that showcased the national capital and issues and policies that were relevant to it. This period also coincided when New Delhi crossed the important milestone of a 100 years of its existence. Therefore, this period had a special significance for the government, business and the citizens. In all our activities, we had the fullest support of the Chief Minister Mrs. Sheila Dikshit, Lt. Governor Mr. Tejendra Khanna and officials of other important government bodies.

The city has now expanded to include what is broadly called the National Capital Region that has also the adjoining satellite cities of Gurgaon and Noida. In the post liberalization phase, specially in the last one decade, New Delhi has acquired greater importance as one of the emerging cities of the world and the second largest metropolis in India. Its traditional role and importance as the administrative and political capital of the nation has only been enhanced. In recent years, the city landscape has undergone far-reaching changes. Today, it has also emerged as one of the important business hubs in the country with unprecedented infrastructure developments. It was in this context that as we organize the Annual General Meeting 2013 we decided on the theme of “Making Delhi, India’s Retail Capital.”

My colleague Mr. Pranay Sinha who is the Conference Chairman, CII Delhi State Council members and Secretariat have worked tirelessly to make this a success. I believe that this report prepared by our Knowledge Partner, CBRE, will give you rich insights into the opportunities and challenges of making Delhi the country’s retail capital.

Foreword

Virat BhatiaChairmanCII Delhi State Council

Ever since one of the first malls came up in Delhi in 1999, the national capital’s retail landscape has undergone a dramatic transformation. This change has been fuelled in recent years with a host of other developments: the growth of retail infrastructure, the coming in of big global brands to India, the evolution of the homegrown Indian brands and formats and policy changes over the years, and the recent policy allowing 100 per cent foreign equity into single brand retailing. Along the way, retail hubs have sprung up across all parts of the National Capital Region (NCR). The growth of tourism in North India has also propelled the retail market. There is an increasing surge in the fashion and luxury market with recent estimates suggesting that Delhi now constitutes for about half the luxury market in India. However, these developments and opportunities do not hide the myriad challenges of realising the full potential of Delhi’s retail market. Clearly, if the government and business are able to harness energies together, we can make Delhi, India’s Retail Capital.

It was in this context that we chose the theme of this Conference; to deliberate on this vision and prepare a road map for the future. We have put together a series of sessions that I hope will throw up rich ideas and insights. As a backdrop to these deliberations, we invited one of the global real estate consulting firms in India, CBRE to partner with us to prepare this knowledge paper. I believe that this is an excellent resource that gives an understanding of Delhi’s retail canvas and draws on global case studies that give us indicators on how we may progress in our path to achieve the grand vision. We hope you find this document useful and have good deliberations during the Conference.

Pranay SinhaConference Chairman

Preface

Foreword 1

Preface 2

Executive Summary 4

1 India Retail Market 6•Evolution of Retail in India•Current Scenario

2 Retail and Delhi – Economic Interlinks 10

3 Delhi – Retail Landscape of the City 12

4 What Impedes Delhi’s Retail Revolution? 15•Real Estate Constraints•Regulatory Constraints•Industry Constraints•Infrastructure and Urban Planning Constraints

5 Understanding Significance of Delhi as a Retail Market – CBRE Survey Findings 21

6 Delhi and its Global Counterparts – Key Learnings 27

7 Time to Tap Opportunities 31

8 Making Delhi India’s Retail Capital – Key Recommendations 33

9 Conclusion 36

About CII 37

About CBRE 38

Contents

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EXECUTIVE SUMMARY

A CII AND CBRE REPORT

Delhi is India’s political and administrative capital, and is also the country’s second largest metropolis. The city has evolved over the years as a hub for commercial office, retail and institutional activity, housing important government offices and residential areas. While historically retail activity was limited to high street formats in Connaught Place, Khan Market and along Malcha Marg, however with both the wholesale and retail consumer markets strongly established in the high street format, there was a lack of organized mall structures compared to other Asian markets. With an increased exposure to global markets coupled with favorable policies, retail culture underwent a massive modification in the late 90s. This led to development of the Ansal Plaza, the first mall development in the city in 1999. The auctioning of retail plots in locations such as Shivaji Place, Saket and Vasant Kunj led to growth in the retail stock in Delhi, with the city currently having retail stock to the tune of almost 8.85 million sq ft and a slew of global retailers across the entire value chain - ranging from a Dunkin Donuts to a Burberry present in Delhi.

Delhi Retail – Peppered with Challenges

While Delhi has evolved into one of the key retail destinations in the country, the city is still plagued by numerous issues across different verticals that are impeding the growth momentum that the city is capable of achieving. These issues stretch from real estate inefficiencies, infrastructure bottlenecks, regulatory impediments and industry constraints. Some of the key challenges are:•High real estate costs• Lack of quality real estate supply• Legislative controls • Lack of an industry regulator • Lack of professional mall management•Operational inefficiencies of mall developments• Lack of skilled manpower• Infrastructure bottlenecks and urban planning •Absence of large scale redevelopment/renewal of retail built environment

As the challenges spread across different domains, there is requirement of an integrated approach towards retail development in the city, with involvement of stakeholders such as the government, developers and the retail industry. What action these different sects can take to address these challenges has been discussed in detail in the report.

Executive Summary

… And Opportunities

While the report highlights the key challenges that the Delhi retail market poses, it also brings to light the fact that some of these challenges can actually also prove to be opportunities. For instance, a lagging infrastructure for retail provides foreign retailers an opportunity to invest in scaling up the cold chain of the country and reap benefits. Factors such as favorable demographics, growth in e-commerce, ease of credit availability and changes in legislations such as permitting foreign investment in multi brand and single brand retail are some of the key propellers of the India retail story which also have a strong bearing on Delhi’s retail infrastructure and retail built environment.

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EXECUTIVE SUMMARY


Delhi is a Key Destination for Retailers

While the plethora of retailers waiting to enter the Delhi market is indication enough towards the significance of the city as a retail destination, however in order to quantify the significance of Delhi as a retail destination; CBRE undertook research on 317 key global brands across segments and geographies to understand how significant Delhi was in their scheme of operations. Delhi emerged as the city with the most number of luxury brands, the preferred city of entry by retailers and the city with the maximum number of global brands. The survey not only quantifies the significance of Delhi as a retail destination but also highlights the gap that needs to be bridged for a much larger retailer concentration in the city. Delhi’s retail economy can achieve much more if key impediments to its growth are addressed in a time bound manner.

Drawing Comparisons – Global Counterparts

The development of organized retail in Delhi has been a market led phenomenon, with very little planned, proactive initiatives being undertaken by the development authorities. Retail development in the city has largely been scattered with numerous small shopping zones mushrooming all across the city. On the other hand, most of India’s global counterparts have adopted an integrated, planned approach towards developing large shopping districts. Three leading retail destinations - Singapore, London and Shanghai were studied to analyze how retail development in the cities was undertaken. Waterfront developments in all three cities – Marina Bay in Singapore, Canary Wharf in London and Pudong area in Shangai are mixed use developments that have assisted in uplifting the image of the respective city as a whole and have fuelled investments into the city and country. These were planned business districts that have a substantial retail component – not to support the commercial district but as an independent retail destination to attract tourists from within and outside the country. For instance, while Marina Bay remains a financial district, however government initiatives to create recreational facilities in and around it have made it the top destination for tourists visiting the country. New business districts in India can replicate these models – business districts need not be “ghost towns” with only commercial operations but can serve the dual purpose of being financial hubs and entertainment zones with retail and recreational facilities.

Key Action Points

The study of the retail market in Delhi indicates that while the city faces a number of challenges, these challenges can be overcome by syndicated efforts from all stakeholders i.e. the government, developers and the industry itself. Developers need to focus on planning malls efficiently and engaging in professional mall management to ensure that inefficiencies in operations does not lead to a failed retail mall – leading to wastage of retail space in an already supply constrained scenario. The industry at its end needs to invest in skilled personnel and supply chain infrastructure – both critical for the efficient functioning of the industry. The government on the other hand can act as the key enabler by making amends to legislations such as the Rent Control Act, APMC etc., while appointing a regulator for the industry to oversee and streamline the approval process. In case all recommendations are duly considered, the contribution that retail makes to the city’s economy can be greatly altered and Delhi can further consolidate its position as The Retail Capital of India.

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1 INDIA RETAIL MARKET


1.1. Evolution of Retail in India

Prior to the 1990s, the Indian retail market was largely unorganized and characterized by small family-run neighborhood retailers, otherwise known as Kirana or Mom & Pop stores. Organized retail was virtually non-existent aside from larger domestic fashion and footwear chains such as Raymond’s, Nalli’s and international footwear brand Bata. Following the economic reforms of 1991 a wave of liberalization and privatization gradually ushered in a new era of modern organized retail paving the way for the emergence of newer domestic fashion and apparel stores including Shopper’s Stop and Pantaloons. During this period the government also began to lure overseas investment in the sector by permitting 100% FDI in the cash and carry / wholesale segment in 1997.

The pace of development gathered pace in the late 1990s as shopping malls began to spring up across the country and hypermarkets made their debut. Crossroads, the first major shopping mall in the country, opened in Mumbai in 1999 quickly followed by Ansal Plaza in New Delhi. These new retail formats were embraced by India’s rapidly emerging middle and upper classes as they provided shoppers with a good ambience, clean and convenient layout, multiple dining options, recreational facilities and a single point of purchase for a wide variety of goods.

The positive response to India’s first shopping malls resulted in the construction of similar developments in the early to mid-2000s including the Forum Mall (Bangalore, 2004), Infinity mall (Mumbai, 2004) and Select City Walk (New Delhi, 2007). Starting from a handful of shopping malls in the year 2000 India now has more than 220 organized retail developments in leading cities across the country including New Delhi, Mumbai, Bangalore and Chennai.

India Retail Market1Organized retail was virtually non-existent aside from larger domestic fashion and footwear chains such as Raymond’s, Nalli’s and international footwear brand Bata

Organized retail was virtually non-existent aside from larger domestic fashion and footwear chains

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PERIOD OF INITIATION•Liberalisation of economy•51% FDI in Cash and Carry in 1997•New retail formats emerge•Crossroads in Mumbai, Ansal Plaza in Delhi

– first mall to get operational in 1999

Brands operational: Shoppers Stop, Benetton, Pantaloons Revlon, L’oreal, Marks and Spencers

LIMITED ACTIVITY•Shopping at

neighbourhood markets, shopping for readymade apparel not a norm

•Manufacturers such as Raymond’s, Bata, operate through exclusive outlets of franchisees

Brands operational: Bata, Raymond’s, Vimals

GAINING TRACTION•Period of heightened activity, malls mushroom

across the country, increased footfall due to novelty value

•Doubts over ‘malls are only for window shopping’ cleared, shoppers appreciate the concept of ‘ambience, recreation and shopping under one roof’

•2001–2003: DT Mall, MGF Mall, Sahara Mall (Gurgaon)

•2004: Forum Mall (Bangalore), Inorbit Mall (Mumbai)

Brands operational: Tommy Hilfiger, Nine West, Fossil, Aldo, MAC

WHAT’S NEXT?•100% FDI permitted in

single brand retail, 51% FDI in multi brand retail

•Brands such as GAP, IKEA, Topshop and Abercrombie and Fitch are some of the key brands waiting to tap the Indian retail market

SHOPPING IS AN “EXPERIENCE”•Large number of operational malls – developers adopt

differentiation to position their properties and stores•Some of India’s most successful malls commence operations

– Ambience Mall (2007), Select City Walk (2008) and DLF Promenade (2009)

•India’s first luxury mall ‘DLF Emporio’ becomes operational in Delhi in 2010

Brands operational: Promod, Mango, Debenhams, Charles and Keith, DKNY, FCUK, Inglot, Zara

EARLY 80’S AND 90’S 1991-2000 2001-2005 2005-2010 2011

ONWARDS

Source: CBRE Research

Timeline of Retail Development in India

1.2. The Current Scenario

In the run-up to the global financial crisis of 2008, around 300 new shopping centers were scheduled to be completed. However, this pipeline was decimated by the credit crunch, leading to a shortage of modern retail stock. In 2011 the development pipeline sprung back to life as construction work resumed on a number of projects. The year 2012 saw around 2 million sq. ft. of new retail space getting completed with about 12 million sq. ft. of new supply scheduled to come on stream in the next 8-10 months, the bulk of which is space in shopping malls. Further new retails schemes are scheduled for delivery in 2014 and 2015. The supply of modern retail space across the country’s seven largest cities currently stands at about 52 million sq. ft. Around 70% of this space is in Delhi - NCR, Mumbai and Bangalore.

Transaction activity and size are expected to increase on the back of increase in consumer spending and expanding mid-income purchasing power. Despite the scarcity of quality supply, most retail chains continue to launch their first Indian store in Delhi and Mumbai – usually in a street shop - before expanding elsewhere.New supply is steadily coming on stream in the National Capital Region (NCR) and will provide opportunities for retailers to operate in an organized retail environment. High street formats continued to dominate the retail landscape whilst most luxury retailers preferred to operate from five star hotels and premium malls.

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2007 2009 20112008 2010 20132012

2.7

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New Retail Supply – Pan India 2007-2013


In terms of completed retail stock, Delhi has close to 8.95 million sq ft of completed retail space. Delhi accounts for almost 17% of the total organized retail space in the country, with a significant proportion of supply in the pipeline as well.

Rents for prime retail space have recovered steadily after suffering a dip in 2008-2009 as supply has not kept up with demand. Although high streets such as Khan Market, Connaught Place in New Delhi, Linking Road in Mumbai and Brigade Road in Bangalore continue to command a premium due to their favorable locations, most international retailers desire larger floor plates, back-up power systems and a modern retail environment. As a result, there has been an increase in demand for space in shopping malls. While drawing a rental comparison, high streets in Delhi still fetch a considerable premium when compared to high streets across other cities. Khan Market, the upmarket destination for diplomats and expatriates is the most expensive high street location in the country. Comparing rentals across prime mall developments, average rentals in Mumbai were higher than that in Delhi; however premium mall developments such as The Emporio continue to quote rentals in the range of INR 750-800 /sq ft/month.


Del

hi

Bang

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Mum

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(mill

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sq f

t)

Supply Comparison of Top Seven Cities Organized Retail Stock Distribution

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3

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9

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ad

Pune

Delhi21%

Mumbai33%

Bangalore20%

Pune12%

Chennai8%

9

14

9

33

5

Hyderabad6%

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Jubilee Hills,Hyderabad

T nagar,Chennai

Park street,Kolkata

Brigade Road,Bangalore

Linking Road,Mumbai

Khan Market,Delhi

High Street Rentals Across Key Cities Rentals Across Prime Mall Developments

0 200 400 600 800 1000 1200

135

150

330

315

800

1150

hyderabad

Chennai

Kolkata

Bangalore

Mumbai

Delhi

0 100 200 300 400 500 600

65

160

180

287

350

510

INR/sq ft/month INR/sq ft/month


Despite a high rental spectrum, major cities in India including Delhi continue to witness gradual expansion by international luxury goods, apparel and F&B retailers. Recent quarters have also seen a number of well-established international mass market brands enter tier II locations, partly due to the lack of space options in tier I markets. Additional new entrants are likely in the coming months. International food and beverage outlets have continued to expand in 2012, both at the fast food and fine dining end of the market. Luxury retailers remain focused on Delhi and Mumbai but continue to refine their strategy and product offering for the Indian market, which in selected cases has seen them consolidate and reduce the size of some stores. Fashion remains a high growth sector and major apparel brands from the United States and Europe continue to seek opportunities to enter or expand in major markets across the country, including some tier II locations.

Luxury retailers remain focused on Delhi and Mumbai but continue to refine their strategy and product offering for the Indian market

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2 RETAIL AND DELHI – ECONOMIC INTERLINKS


Retail and Delhi – Economic Interlinks 2

Delhi is the biggest commercial and administrative hub of North India. The city has witnessed a huge quantum of office space supply, as well as substantial supply of retail stock of the country. The Delhi region is characterized by high work force participation ratio (‘WFPR’) of 32.84% as per Census of India, 2001. The increase in WFPR is a result of migration of people from neighboring states. With about 42.5% 1 of the population lying in the Socio Economic Classification (‘SEC’) of A and B in Delhi, both the income and expenditure propensities are at an all-time high indicating a higher paying capacity of the city residents as compared to average Indian cities. The city’s booming economy is also the main reason as to why so many people migrated to Delhi in recent years in search of better living conditions and employment. The retail sector in Delhi-NCR is dominated by unorganized retail, while the organized segment is concentrated in numerous retail malls and high street destinations across the region.

The last decade has observed an increase in the growth trajectory of Delhi with increasing purchasing power and consumption levels. While Delhi contributes to only 1.4% of the National population, it contributes about 3.8% to the National GDP. The services sector has emerged as the growth engine for the city, with services accounting for almost 82% of the total GDP of Delhi. The retail sector has acted as an active contributor to the GDP as the restaurants segment (sub set of services) particularly has seen considerable growth, registering a growth rate of almost 20% in 2011-12 when compared to 2010-11. The concept of food courts, fine dining and cafes has gained significant prominence over the past decade, thereby fuelling the growth of the services sector in the city.

1 Indicus Market Skyline of India, 2006

While Delhi contributes to only 1.4% of the National population, it contributes about 3.8% to the National GDP

Delhi GDP Break Up by Sector GDP Growth Rate

Agriculture 1%

Services82%

Manufacturing17%

0

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100000

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Delhi GSDP (INR Crores)

India GDP-Growth Rate

Delhi GDP-Growth Rate

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15

The growth in Net State domestic product (NSDP) of Delhi has been 11.3% in 2011-12 as compared to 2011-11

Source: MOSPI Source: Chapter 3 Demographic Profile

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2 RETAIL AND DELHI – ECONOMIC INTERLINKS


The below chart provides an insight into the per capita income and expenditure of different zones in Delhi. As can be observed below, the catchment of South Delhi has the maximum per capita income and expenditure thereby fuelling growth of nearby high streets and malls. The difference between the per capita income and expenditure of South Delhi and Central Delhi is the widest, with South Delhi having more than twice the income and expenditure levels. This impacts the retail profile of both zones considerably in terms of retailer mix, rental values and capital values.

As can be observed below, factors such as disposable income, consumer profile and urban population have a direct bearing on the retailer activity in the region. New Delhi, which has a high per capita income and urban population, has a higher presence of retailers when compared to cities such as Kolkata, Pune or Hyderabad all of which have a significantly lower per capita income.

Presence of Retailers Vis-a-Vis Income and Population

20%10%0% 30% 40% 50% 60% 70% 80% 90%

Per CapitaIncome (INR)

0

40,000

80,000

120,000

160,000

20,000

60,000

100,000

140,000

Mumbai Hyderabad Pune Kolkata NoidaNew Delhi

Note: The size of the bubble represents (in %) the share of retailers present in India for the particular citySource: CBRE Research

Per Capita Income and Expenditure in Delhi Zones

Central

83,699

62,804

114,344

82,434

158,616

111,786

143,782

102,408

192,623

134,339

INR

East North West South0

50,000

100,000

150,000

200,000

Per Capita Income Per Capita Expenditure

•Central: Sadar Bazaar, Paharganj, Sitaram Bazaar• East: Geeta Colony, Krishna Nagar, Shahdara•North: Pitampura, Ashok Vihar, Shastri Nagar•West: Patel Nagar, Nariana, Rajouri Garden• South: Greater Kailash, Haus Khas, Gulmohar Park

Source: Indicus, CBRE Research

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3 DELHI – RETAIL LANDSCAPE OF THE CITY


Delhi: Retail Landscape of the City3Delhi is India’s political and administrative capital, and is also the country’s second largest metropolis. The city holds offices of the Central and state governments and has also been an important center for trade and commerce. A high economic growth rate, rapid urbanization and huge influx of migrants from all parts of the country, has led to an expansion in the city’s urban limits.

The CBD of Delhi evolved over the years as a hub for commercial office, retail and institutional activity, housing important government offices and residential quarters. Retail activity was limited to high street formats in Connaught Place, Khan Market and along Malcha Marg. Due to restriction on redevelopment in Lutyens Delhi; traditional retail formats are still prevalent in the region (absence of investment grade developments). Traditional residential activity hubs emerged in proximity to the CBD of Delhi which was supported by unorganized retail developments predominantly comprising of shops on lower floors and residences on higher floors. These locations were characterized by dense development activity, increasing congestion and infrastructure inadequacies which led to ‘outward’ organic growth in all directions. This resulted in support retail activity emerging across various new residential hubs.

Traditional residential activity hubs emerged in proximity to the CBD of Delhi which was supported by unorganized retail developments predominantly comprising of shops on lower floors and residences on higher floors

NH-8

NH-2

NH-24

NH-10

NH-1

NORTH EAST DELHI

NORTH WEST DELHI

SOUTH WEST DELHI

CENTRAL DELHI

SOUTH DELHI

NORTH DELHI

EAST DELHI

ROHINI AND PITAMPURA: Predominantly housing mid-high income populace including entrepreneurs, tradersMalls: Metro Walk Mall, M2K Mall, D MallMajor Brands: Pantaloons, Reebok, Nike, etc

DISTRICT CENTRE AT SHIVAJI PLACE, RAJOURI GARDEN, SUBHASH NAGAR: Primarily unorganized / plotted residential developments housing middle to high income populace Malls: City Square Mall, TDI Mall, West Gate Mall, Pacific MallMajor Brands: Zara, Jack and Jones, Vero Moda , Promod, Alcott, CK Jeans etc

DISTRICT CENTRE AT VASANT KUNJ: Relatively superior development activity housing mid-high income populaceMalls: DLF Promenade, DLF Emporio, Ambience MallBrands Present: Louis Vuitton, Cartier, Zara, The Collectives, Thomas Pink, Brook Brothers etc

DISTRICT CENTRE AT SAKET: Predominantly high-end residential catchments ~ High income populaceMalls: Select City Walk, DLF Place, MGF Metropolitan MallMajor Brands: Zara,, FCUK, Aldo, Charles & Keith, Ed Hardy, Esprit, Lancôme, etc

SHAHADRA: ‘Spillover’ high density residential developments housing middle income populaceMalls: Cross River MallMajor Brands: Pantaloons, Haldiram, Fun Cinemas, etc

NETAJI SUBHASH PLACE DISTRICT CENTRE: Characterized by high density residential & industrial developments Malls: Pearls Omaxe Mall, North Square Mall, D MallMajor Brands: Haldiram, Nirulas, Kalpana, etc

Map not to scale, for representation purpose only

Delhi – Organized Retail

13


MAKING DELHI INDIA’S RETAIL CAPITAL – ISSUES AND OPPORTUNITIES

Delhi has been growing at a rapid pace because of increasing migration. The unprecedented growth of population especially in the 1980s and beyond and the consequent development imposed severe pressure on the infrastructure of the city. Following large scale events such as The Asian Games (1982) in the city, it was suggested through various planning exercises that serious consideration should be given for a planned decentralization of the city. Therefore, the authorities undertook several infrastructure and development initiatives primarily in the southern quadrant of the capital, which was often perceived as an extension of Lutyen’s Delhi owing to its proximity to the city center. All these factors led to the extension of the city areas towards the southern direction. Development of new residential colonies, influx of infrastructure growth and proximity to prominent work centers helped South Delhi emerge central to city’s retail economy. Over the past two decades we have witnessed the retail economy expanding its footprint across all leading zones in the city, particularly the West and the North West.

2007 2009 20112008 2010 20132012

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Retail Supply Trend in Delhi Over the Years

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Number of Malls


NH-8NH-2

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NORTH EAST DELHI

NORTH WEST DELHI

SOUTH WEST DELHI

CENTRAL DELHI

SOUTH DELHI

NORTH DELHI

EAST DELHI

KAROL BAGH: A popular destination for inhabitants of North Delhi, catchment with relatively high disposable incomeMajor Brands: McDonalds, Subway, KFC, Woodlands, Levi’s, Spykar Jeans, Raymonds, etc

RAJOURI GARDEN: Preferred shopping destination for the residents of West Delhi, despite the emergence of mall cultureMajor Brands: Golden Dragon, Moti Mahal, Subway, Aqua Lounge, Domino’s, Slice of Italy, etc

BASANT LOK: The market has faced stiff competition from high-end malls, and is less frequented by South Delhi inhabitants Major Brands: Gloria Jean’s Coffees, Le Marche Sugar And Spice, Barista etc

SOUTH EXTENSION: Evolved as a high street in Delhi with various brands’ flagship storesMajor Brands: Lacoste, Tommy Hilfiger, USPA, Nautica, Sony, Nokia etc

M BLOCK GREATER KAILASH: Attracts shoppers from all parts of Delhi , particularly from South DelhiMajor Brands: Espirit, Benetton, Coffee Bean and Tea, Pizza Hut, KFC etc

KHAN MARKET, PANDARA ROAD: A major lifestyle destination. Khan Market has been voted among the leading high streets in the worldMajor Brands: Hidesign, Benetton Tommy Hilfiger, L’occitane , Subway, etc

CONNAUGHT PLACE : Due to its central location the catchment is vast, with most retailers entering India vying for space on the high streetMajor Brands: Starbucks, Tissot, Tag Heuer, Costa Coffee, McDonald’s etc

Map not to scale, for representation purpose only

Delhi – High Streets

14



With both the wholesale and retail consumer markets strongly established in the high street format, there was a lack of organized mall structures gaining strong foothold compared to other Asian markets. However, with an increased exposure to global markets, retail culture underwent a massive modification in the late 90s. This led to development of the Ansal Plaza, the first mall development in the city in 1999. Retail destinations in Delhi have today evolved into centers of entertainment than mere shopping destinations. The city is home to some of the most sought after shopping destinations in the country, which are peppered all across the city in South, West and East Delhi. With improved connectivity coupled with increasing number of flyovers and bypasses, key retail catchments are now attracting consumers from distant locations. A new trend witnessed has been the integration of retail zones into large mixed use developments. Projects such as Select City Walk and DLF Courtyard in Saket are formats that have dedicated hospitality spaces alongside the mall. On the other hand, Unitech Group’s Metro Walk in Rohini has an integrated amusement park.

The Delhi mall market was slow to start as far as the stock of retail mall space was concerned as it was overtaken by Gurgaon and Noida in terms of development of mall space by 2003-2004. The auctioning of retail plots in locations such as Shivaji Place, Saket and Vasant Kunj led to growth in the retail stock in Delhi. The drive by the Municipal Corporation of Delhi (MCD) to clear commercial and retail activities from illegal high streets also led to a surge in demand for mall space from retailers. As a result, Delhi city, followed by Gurgaon and Noida has emerged as a pioneer in retail mall space evolution in the region.

The city is home to some of the most sought after shopping destinations in the country, which are peppered all across the city in South, West and East Delhi

15

4 WHAT IMPEDES DELHI’S RETAIL REVOLUTION?


What Impedes Delhi’s Retail Evolution?4

While Delhi has evolved into one of the key retail destinations in the country, the city still has a number of issues that are affecting the growth momentum. The issues are classified in four key categories i.e. real estate constraints, regulatory constraints, industry constraints and infrastructure constraints. All of these are discussed in detail below.

4.1. Real Estate Constraints

Lack of Quality Supply

The total organized retail mall space in Delhi city stands at close to 9 million sq ft, concentrated in about 50 shopping malls; almost 53% of the entire organized retail space in the National Capital Region (inclusive of Gurgaon and Noida). However, the quality of retail space in the city lags behind that in satellite towns of Gurgaon and Noida, with barely 41% of the overall retail space being concentrated in Grade A mall developments, compared to 70% and above for both Gurgaon and Noida. The quality supply deficit has led to an uneven retail development across different zones in the city, with most retailers preferring to occupy a couple of malls that already have high footfalls and are located in suitable target catchments. As can be observed from the graph below, majority of this quality supply (33%) is located in South Delhi, which houses majority of the Grade A malls in the city. This is one of the reasons why out of more than 50 malls located in the city, only a handful can be described as successful retail destinations. These include properties such as Select City Walk in Saket, DLF Promenade in Vasant Kunj and Pacific Mall in Subhash Nagar.

The Delhi Development Authority has identified about 5% of the city’s developable land to be allocated for retail development. Foreign retail giants, particularly hypermarkets prefer to be located in malls with lager floor plates, which is scarce in the city. For a city with the population in excess of 10 million and geographical spread as that of Delhi, it is extremely important to increase the share of retail in the overall land use and built environment of the city.

The Delhi Development Authority has

identified about 5% of the city’s

developable land to be allocated for retail development

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0

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Completed Retail Supply in NCR Zone Wise Break up of CompletedSupply in Delhi

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South Delhi33%

North Delhi23%

West Delhi24%

Total Supply

Grade A malls as a % of total supply

*Grade A malls as a % of total supply

8.95

41%

76%70%

6.16

1.72


High Real Estate Costs

Delhi comprises of some of the costliest retail zones such as Khan Market, which is a direct consequence of the rather uneven infrastructure development and inadequate quality retail supply in the city. While drawing a comparison between average retail rentals in Delhi and its suburbs, it emerged that retail developments in Delhi command a significant premium when compared to the suburbs. Average mall rentals in the Saket District Centre, which houses the popular Select City Walk and DLF Place are almost double than that of mall developments in Noida. High street locations such as Khan Market, Connaught Place, South Extension fetch considerably higher values when compared to the suburban high streets in Gurgaon and Noida. Such an expensive asset pricing usually exerts pressures on prominent retail brands to look for alternate districts in the city and also look for expansion in other parts of the country. The mismatch between supply availability and asset pricing leads to inflated real estate costs for tenants, which tends to deflate the attractiveness of Delhi as a retail destination.


Current Rental Values in Delhi and its Suburbs Key High Street Rentals

350

275

250

225

1150

650

250

650550

175

INR/sq ft/month

INR/sq ft/month

Sake

t D

istr

ict

Cen

tre

Vasa

nt K

unj

Noi

da

Kha

n M

arke

t

Sout

h Ex

tens

ion

Basa

nt L

ok

Con

nuag

ht P

lace

Gal

leri

a M

arke

t

Sect

or 1

8 M

arke

t

Gur

gaon

200

250

300

350

0

200

400

600

800

1000

1200

17



4.2. Regulatory Constraints

Legislation Issues

One of the biggest hurdles any retailer faces in India is the multiplicity of laws governing the sourcing, movement and sale of goods, especially agricultural produce. There is no mention of fund allocations for retail in the Delhi budget. Although various skill development schemes are highlighted in the city’s budget, however none pertain specifically for the development of the retail sector. Foreign direct investment is definitely not the only step needed towards creation of strong retail structure in the country. There is also a need to relook at some of the legislations that govern retail in Delhi.

APMC Act

Rent Control Act, 1958

Urban Land Ceiling & Regulation Act

• The Act has not been amended in Delhi and places numerous restrictions on farmers to sell their produce to retailers directly. The act gives monopoly to the Agricultural Produce Marketing Committee, (which typically is cartelized) thereby burdening the farmers with lower prices for their produce.

•Other states such as Andhra Pradesh, Punjab and Maharashtra have witnessed an amendment in the act thereby allowing for competitive wholesale markets. For instance, Andhra Pradesh has initiated a “Raythu Market” (farmers market) where farmers sell directly to consumers at select locations.

•On a positive note, initiatives such as a Model Draft to amend the APMC is already in place which will try to facilitate a direct relationship between retailers and farmers. The draft also provides for steps such as modernisation of the mandi and pushing for construction of peripheral roads a so that the farmers from surrounding areas of Delhi are able to reach the city easily.

• The Rent Control Act in Delhi, which dates back to 1958, is biased in favour of tenants thereby allowing some tenants to hold onto shops for decades as there is no clear grievance redressal mechanism for landlords.

• The Act has a provision for increasing rent by 10% once in three years, which is a very unrealistic provision considering the current inflationary trends in the country.

• There is a Delhi Rent Control Act, 1995 which tries to strike a balance between the interests of tenants and landlords but awaits notification.

• The Act was passed in 1976 and places a limit on the land available for development which meant that land was available but at a steep premium. When the land owners sold their land to construction companies, they charged abnormally high prices.

•The Central Government repealed this act in 1999 and a number of other states such as Punjab, Gujarat Haryana and more recently Maharashtra followed suit; however Delhi continues to follow the act; thereby resulting in high land values.

18



4.3. Industry Constraints

Absence of Professional Mall Management

The existing shortage of Grade A supply and an uneven concentration of the organized retail footprint in the city have led to low vacancy levels in the most prominent malls in the city. Majority of these developments are located in South Delhi and West Delhi districts, which also boast of affluent catchment base with brand consciousness, developed transport corridors and well managed retail centers. These developments do not concentrate only on rentals, but pay significant attention to factors such as location, architecture, anchor tenants, efficient shopping mix, a good food court, amongst other factors. Professional mall management entails providing quality services to customers, imbibing customer behavior with sales and facilities management. It is important to consider the entire shopping center as a single entity and work upon improving the footfalls and revenue streams for all zones and locations within the mall. An efficient mall management would mean regular understanding of shopping behavior, analysis of the variation of footfalls and revenues across the property, initiatives to attract business and improve the image and marketability of the property. Most retail developers in Delhi are still in the midst of the learning curve with respect to ensuring success in undertaking shopping center development. Many fail to realize that successful shopping mall management requires strong skills to bring retailers of different kinds together within an organized environment and create synergy between them.


0

100000

200000

300000

400000

500000

600000

AmbienceMall, VK

DLFPromenade

DLFPlace

DLFEmporio

MGFMetropolitan

CitySquare

TDIMall

Select CityWalk

PacificMall

Sale

able

Are

a

Saleable Area and Vacancy Levels of Leading Malls in Delhi

Vaca

ncy

leve

l %

0

2

6

4

8

10

12

Saleable Area Vacancy Levels

It is important to consider the entire shopping center as a single entity and work upon improving the footfalls and revenue streams for all zones and locations within the mall

Absence of a Regulatory Body

Unlike many other industry sectors in India, retail does not have a regulatory authority. In fact, the retail industry or for that matter the real estate sector has not been granted an industry status, thereby impacting numerous factors such as investment inflows, credit availability and incentives for the sector. In Delhi for instance, a retail store requires close to 30 licenses to initiate operations, which cause considerable delay and also builds upon the retailer costs. There is no nodal agency/state level agency that provides single window approvals/licenses specifically for retail. There is need for a regulator to oversee the functioning of the modern retail outfits and the constraints faced by them in their dealings for procurement of supplies, taxation structure faced, infrastructure inadequacies, etc. A proper licensing policy needs to be designed and licenses maybe granted on the basis of the category of retail outlet and based on population under a single municipality. Even in China, the retail operations are governed at a state level however the country follows a single window clearance policy to minimize the retailer effort on paperwork.

19



Operational Inefficiencies

Delhi already faces a supply constraint and limited scope for additional supply coming on stream due to land constraints. Compounding the problem is the fact that a large number of developers’ strata sell their shopping centres thereby resulting in an inefficient shopping mall on account of lack of control on tenant mix and trade mix. More than 3 million sq ft of retail space in Delhi is strata-sold, thereby impacting the tenant profile and success of the shopping mall as a whole.

Developers who strata-title their shopping centers in order to achieve short term capital gains, inevitably do so at the cost of sacrificing the long-term successful management of their malls. A case in point can be the malls of Vasant Kunj and Saket, all of which (expect the Metropolitan Mall in Saket) operate on a 100% lease model and are considered to be amongst the best performing malls in the country. It is extremely important to follow a ‘lease only’ model in a retail center as this helps developers control tenant positioning and manage common areas more effectively. The desire to sell a portion of the mall on a strata title basis means the builder does not maintain the facilities property and enables investors to resell their shops, which ends up ruining the tenant mix. As can be seen below, most Grade A (superior grade) malls operate on a higher percentage of lease, while the lesser successful inferior grade malls have a high percentage of sale.

0

20

40

60

80

100

Grade A Grade CGrade B

%

Grade Wise Sale and LeasePercentage of Delhi Malls

Lease and Sale Percentage of Malls in Delhi

Lease64%

Sale34%

66%

34%

41%

59%

22%

78%

Sale % Lease %

Source: CBRE ResearchGrade A signifies the most superior malls with larger floor plates, 100% power back up facilities, superior quality infrastructure and car parking

Lack of Skilled Manpower

The lack of skilled personnel is a key barrier to retail development in India. Retail is perceived to be a low skill, low paying sector in India with very little skill improvement initiatives undertaken by retailers to improve the quality of their workforce. As per estimates by the Retailers Association of India, organized retail in India would need an additional 5 lakh people over the coming five years. Lack of skilled manpower is forcing the retail industry to hire from the aviation and hospitality industries. Around 40% of the people hired for luxury retail in India are from front end hospitality, but most of this is a compromise. As per a survey by Luxury Connect, a marketing agency for luxury firms, close to 70% firm owners and top managers in India would want to hire professionals who are specifically trained for luxury and most of them are willing to invest in luxury training and education.

Around 40% of the people

hired for luxury retail in India are

from front end hospitality, but

most of this is a compromis

20



4.4. Infrastructure and Urban Planning Constraints

Infrastructure Bottlenecks and Need for Improved Urban Planning

To date, major urban centers in Delhi have not yet successfully used the mechanism of comprehensive urban planning to guide and control retail property development. This has led to over-development of shopping centers in certain major retailing hubs, with a number of major malls having recently been completed or being brought on stream without adequate consideration to the supportable scale, pedestrian flow management and the presence of necessary, complementary transportation facilities. For instance, In China, shopping centers built along metro lines with easier accessibility to mass rapid transit lines perform considerably better than those built in suburbs with inconvenient public transportation access. One of the key reasons behind the failure of the South China Mall in Dongguan, China (developed on the lines of the Mall of America, however the project failed to take off and ranks amongst the highest vacancy level malls with vacancy close to 70%) was its lack of ready access to convenient public transportation facilities. Indian planning authorities need to work in conjunction with developers to learn from their global counterparts and ensure that retail development is not sporadic but is planned in a manner that it emerges as an all-encompassing self-sustaining unit. In Delhi shopping malls built in close proximity to operational metro lines with easy accessibility witness more footfall than those built in suburbs with less comprehensive public transportation access.

Prospects for Large Scale Redevelopment / Renewal

In Delhi, a large number of retail markets such as Connaught Place, Khan Market and Basant Lok are old and characterized by poor structural condition, sub-optimal utilization of land, poor urban form, inadequate infrastructure services and lack of community facilities. Basant Lok, for instance is no longer considered as an ideal destination for leading retailers, in spite of its excellent location. A major factor that has impacted the previous popularity of the market has been lack of redevelopment (absence of quality renovation for a long time), and lack of infrastructure availability (broken walkways, blocked sewer lines; the entrance bears a worn out look). Safety also emerges as an issue as the market is thronged by unauthorized kiosks, with the area lacking in appropriate fire safety arrangements. The Delhi Master Plan for 2021 identified incentivized redevelopment of shopping centers with additional floor area ratio as a major element of city development. However, neither does the plan provide any concrete structure for the implementation of this proposal nor have we witnessed any large scale redevelopment activity in the recent past. This impacts the present retail built form comprising of a large number of old, dilapidated retail structures, which can be redeveloped into new shopping centers as per the prescribed norms and development controls.

21

5 UNDERSTANDING SIGNIFICANCE OF DELHI AS A RETAIL MARKET – CBRE SURVEY FINDINGS


Understanding the Significance of Delhi as a Retail Market in India5

Delhi is among the leading retail markets in the country and is also the top choice for retailers planning to make inroads in the country. In order to quantify the significance of Delhi as a retail destination, CBRE undertook research on 317 key global brands across segments and geographies to understand how significant Delhi was in their scheme of operations. Brands across segments were analyzed in the luxury, premium and high end categories and presence was judged on the basis of standalone stores in malls as well as high streets. As luxury brands in India also operate significantly through boutiques in five star hotels, hence stores in these hotels were also considered while arriving at the presence of a particular luxury retailer. Bulk of the international retailers included in the study opted to enter India by opening a store in a Delhi (80%) and then gradually expanding their footprint to other tier I locations including Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune. The chart provided below gives a break up of retailers already operating in India and their preferred cities of operation:

Source: CBRE Research*The bar refers to the percentage of retailers that are present in a city out of the total sample of 317 brands (which includes brands not present in India).

Global Retailers in India: Delhi is the Preferred City of Entry

New Delhi

% o

f To

tal B

rand

s Pr

esen

t in

Indi

a

Bangalore Chennai Gurgaon Ahmadabad Ludhiana Amritsar Lucknow Others0

10

20

30

40

50

60

70

80

% of retailers operating in India and present in a city

% of total retailers present in a city*

Still an untapped market: If we consider all brands that were a part of the research (including the ones that are not operational in India), the penetration levels give a different picture. As depicted above, when a sample of 317 leading global brands is considered to assess their presence in India, penetration levels drop significantly across cities. This implies that India continues to remain a largely untapped and unorganized retail market, as a large number of prominent global retailers are yet to establish their footprint in the Indian market. Delhi for instance, has 80% brand presence when only brands already operating in India are considered (a sample set of 196 brands), but the figure falls to 49% when the entire sample set of 317 global brands is considered.

Delhi has 80% brand presence

when only brands already

operating in India are considered

(a sample set of 196 brands), but the figure falls to

49% when the entire sample

set of 317 global brands is

considered

22



In order to assess the nationality of the brands which entered Delhi, brands from the United States accounted for the bulk of retailers in Delhi, comprising 29% of the total. The majority of American retailers were in the mass market F&B category, such as KFC, McDonald’s and Subway. Retailers from Italy and UK accounted for about 19% and 13% of the total market, the bulk of which were brands in the luxury segment such as Hermes, Chanel and Fendi.

Foreign Retailers in Delhi by Country of Origin

Japan2%

France3%

Others19%

Italy19%

US29%

UK13%

Germany7%

Switzerland5%

Spain3%



0

5

10

15

20

25

New Delhi BangaloreMumbai

%

Delhi has the Largest Concentration ofLuxury Brands in the Country

Segments of Brands Present in India

Luxury30%

High End35%

Premium14%

Mid End16%

11%

19%

24%

23



International retailers in the Luxury Goods sector initially preferred to situate themselves in five star hotels in selected major cities due to the low penetration of luxury goods in the country and the lack of dedicated luxury retail locations. Whilst some groups have expanded to shopping malls as the quality of retail property in India improves, the sector remains a niche market with brands continuing to be restricted to the tier I cities of New Delhi, Mumbai and Bangalore. Out of the total number of luxury brands considered for the survey, Delhi leads in terms of presence when compared to other cities; however Delhi also remains largely underpenetrated when compared to its global counterparts. Also, while these brands operate in the city, their presence (in terms of number of stores) and spread (presence across the city) is very limited as these brands generally restrict themselves to limited number of stores located in specific locations in the city.

While conducting an analysis on the presence of brands across cities, it emerged that leading metropolitan cities continue to be favored by most global retailers. As can be observed below, Delhi emerged as the most favored destination by retailers, followed closely by Mumbai and Bangalore. A good mix of retailers across segments is present in Delhi, with a wide spread of retailers in the fashion and accessories segment. As compared to its suburbs, high streets and malls in Delhi have a considerably higher retailer presence. Also, with the recent passage of the FDI legislations, more than 15 prominent global brands such as Dunkin Donuts, Thomas Pink, Brook Brothers, Sephora, Hamleys and Starbucks have entered the Delhi market in the past 6-8 months.

Retailer Density and Segmentation Across Cities

New

Del

hi

Num

ber

of B

rand

s Pr

esen

t

Noi

da

Bang

alor

e

Hyd

erab

ad

Kol

kata

Am

rits

ar

Ludh

iana

Ahm

edab

ad

Gur

gaon

Mum

bai

Che

nnai

Pune

Luck

now

Cha

ndig

arh

Jaip

ur

Sura

t

Oth

ers0

30

60

90

120

150

Accessories Beauty

Hypermarket Others

Cash and Carry Fashion, Apparel and Accessories


Delhi leads in terms of presence

when compared to other cities; but

remains largely underpenetrated when compared

to its global counterparts

24



Ranking of Cities as per Retailer Presence


CITY NUMBER OF RETAILERS

PRESENT ACROSS SEGMENTSCITY RANK AS PER RETAILER

PRESENCE

Delhi 155 1

Mumbai 135 2

Bangalore 102 3

Hyderabad 66 4

Chennai 62 5

Pune 60 6

Gurgaon 57 7

Kolkata 45 8

Chandigarh 30 9

Noida 25 10

Source: CBRE Research* The size of the bubble represents (in %) the share of global brands present in India for the particular city/region

Retail Presence of Brands Across Cities

2,000,000 6,000,000 10,000,000 14,000,000 18,000,000

Avg

Ren

t (IN

R/SF

T/M

onth

) in

2012

0

100

200

300

400

50

150

250

350

Mumbai

*The size of the bubble represents (in %) the share of global brands present in India for the particular city / region

Bangalore Pune Chennai

Retail Stock (sft)

HydrabadNCR

25



As indicated in the above chart, most global brands have preferred to enter the country by setting up base in a metropolitan city such as New Delhi and Mumbai, and gradually expand to other tier I locations (including Bangalore, Chennai, Pune, Hyderabad and in some cases Kolkata). These locations became prime destinations mainly due to the high purchasing power of the local population, which is indicative in the high per capita incomes, presence of a large chunk of working population and, in particular, a sizable share of households earning an annual income greater than INR 1 million.

Trends Across Segments

CBRE conducted extensive research across prominent foreign brands operational across various retail segments in Delhi. Comparisons were made between the average store size in Delhi and their global specifications in addition to an analysis of trends such as their preferred city of entry and the location of their stores across the country.

There is a considerable difference in the store size across categories, primarily in the F&B and luxury goods categories. In the first category most retailers, particularly quick service restaurants, tend to have smaller store sizes and take-away counters due to consumer preferences and the high cost of quality retail space in Delhi.

In the luxury goods sector the concept of flag ship stores or multi storey ‘built to suit’ stores has not yet caught on in the city, primarily due to the high cost of quality retail estate and comparatively lowers sales volumes. However, the market for such stores is expected to pick up once the luxury retail market in India matures.

Retailers in the fashion and apparel segment have been performing well in terms of sales and their shop formats have largely followed global trends. Hypermarkets and cash and carry outlets have had to adapt to the Indian consumer’s preference for convenient shopping and must be well-located as the Indian consumer is not willing to travel long distances to shop for even deep discounts.

Sector Trends in the Indian Retail Market

CATEGORY

AVERAGE INDIAN STORE SIZE (SQ FT)

AVERAGE GLOBAL STORE SIZE (SQ FT)

PROMINENT CITY OF ENTRY

KEY BRANDSPREFERRED FORMAT

Food and Beverage

450 - 3,000

750 - 2,000 for QSR’s café’s

DelhiSubway, KFC, McDonalds

Malls, High Streets

Cosmetics 350 - 800 500 - 1,000 DelhiThe Body Shop, Lush, M.A.C

High Streets, Malls

Luxury Products

1,000 - 3,000

flagship and standalone stores with an average size of above 10,000 sq ft

DelhiMont Blanc, Versace, Louis Vuitton

High Streets, Five Star Hotels

26



*Others include segments such as electronics. Note: 10 prominent brands per retail category have been analyzed for this reportSource: Company Website, CBRE Research

While Delhi is a Key Market, However…

The survey reveals that Delhi is a key retail market for retailers and will continue to remain vital for retailers planning to set us base in the city. However, for the city to “step up” and reach the next level of maturity, adequate support from all quarters i.e. from the Central Government, local authorities and the industry itself is imperative. The city is still a far cry from what its global counterparts have achieved (discussed below), primarily on account of legislative issues, lagging infrastructure and the passive role of the industry itself. For instance, while food and grocery has the largest share in the Indian retail market, hypermarkets and discount stores still remain the most underpenetrated segment, primarily on account of prior restrictions on FDI coupled with poor logistic infrastructure of the country. Syndicated efforts from all quarters to overcome the challenges that the Delhi retail market faces can have far reaching implications for the retail industry and the economy as a whole.

Fashion and Apparel

800 - 3,000

1,000 - 3,500 DelhiAldo, Jack & Jones, ONLY

Malls, High Street

Hyper- markets

35,000-60,000

80,000 - 90,000

Delhi, Bengaluru, Ludhiana, Mumbai

Auchan (Max hypermarket has partnered with French retail giant Auchan group recently), Easy Day Walmart (domestic brands such as Le Marche, Hypercity, Spencers are more popular)

Built-To-Suit, Malls

Cash and Carry

50,000 - 70,000

85,000 - 100,000

Delhi, Bengaluru, Amritsar

Carrefour, Best Price-Wal-Mart, Metro Cash and Carry

Built-To-Suit

Others*350 - 4,000

7,900 - 8,400Delhi, Bengaluru, Mumbai

Apple, Cannon, Cinepolis

Malls, High Street

CATEGORY

AVERAGE INDIAN STORE SIZE (SQ FT)

AVERAGE GLOBAL STORE SIZE (SQ FT)

PROMINENT CITY OF ENTRY

KEY BRANDSPREFERRED FORMAT

27

6 DELHI AND ITS GLOBAL COUNTERPARTS – KEY LEARNINGS


Delhi and its Global Counterparts: Key Learnings6

The development of organized retail in Delhi has been a market led phenomenon, with very little planned, proactive initiatives being undertaken by the development authorities. Retail development in the city has largely been scattered with numerous small shopping zones mushrooming all across the city. On the other hand, most of India’s global counterparts have adopted an integrated, planned approach towards developing large shopping districts. Most successful retail hot spots, primarily across developing Asia, have specifically designated areas with government thrust on development. Mixed use developments such as Marina Bay in Singapore or Pudong area in Shanghai have assisted in uplifting the image of the respective city as a whole and have fuelled investments into the city and country. While Marina Bay, Pudong and Canary Wharf are all business districts, these areas have a high volume of retail as well as recreational facilities; all of which assist these districts in functioning as self-sustaining units. Also, noteworthy is the fact that the retail spread in these districts does not serve as support retail but attracts tourists as well as the local population on account of the recreational facilities and shopping ambience these districts provide.

6.1. Singapore – Marina Bay

Urban planning policy has contributed significantly to retailing trends in the newly industrializing economy of Singapore. A concept plan is devised every 10 years with predefined focus and thrust areas. The focus of such concept plans has been the spatial distribution of retailing activities originally concentrated in the Central Area and the development of planned shopping centers. Such retail developments have simultaneously averted decline in the Central Area and promoted the growth of suburban retail centers. Singapore’s skyline is a result of careful sculpting in line with urban design guidelines to create a three-dimensional layered effect.

In planning for Marina Bay, much

attention has been given to

its urban form. It strikes a fine

balance between development

intensity and the desire for scale and proportion

28



Marina Bay is a strong example of planned mixed use development in the country. In planning for Marina Bay, much attention has been given to its urban form. It strikes a fine balance between development intensity, scale and proportion. The development is well supported by infrastructure such as comprehensive pedestrian network including water front promenade shady sidewalks, covered walkways, underground and second-storey links and seamless connectivity between developments and mass rapid transit stations. Within Greater Marina Bay, water taxis offer scenic rides while doubling up as a mode of transportation. The area has been planned keeping in mind that the area not only be developed as a business district but needs to have substantial retail and hospitality mix, thereby making Marina Bay the top tourist spot for tourists coming into Singapore. The Singapore government pumped in about USD 5.5 billion to build the infrastructural base for Marina Bay, which also includes the Gardens By the Bay, the Marina Barrage, a Rapid Transit System, The new Marina Promenade and Double Helix Bridge. Singapore is the second Asian country after Japan to implement a comprehensive Common Services Tunnel (CST) system to distribute various utility services to all developments in Marina Bay. The network houses water pipes, electrical and telecommunication cables and other utility services underground. CST not only improves reliability of services; it also has the capacity for expansion to meet changing utility needs.

Development initiatives of the government reaped benefits and global investors moved in quickly; the Marina Bay project has attracted some S$16.5 billion in private investments to date from investors and developers from the US, Hong Kong, Australia, Europe and the Middle East. It is one of the key examples of how waterfront business districts help in raising the international profile of the country while spurring growth and investment.

6.2. Shanghai – Pudong

Located east of the Huangpu River, Pudong is a booming area of Shanghai, China. The development of Pudong was initiated in the 1990’s, the same period during which investment framework in the country was liberalized. Pudong has grown rapidly since the 1990s and emerged as China’s financial and commercial hub. It was also planned as a mixed use development with a good mix of commercial, retail and hotels. Pudong is home to the Lujiazui Finance and Trade Zone and the Shanghai Stock Exchange and many of Shanghai’s best known buildings, such as the Shanghai IFC Mall, Oriental Pearl Tower, the Jin Mao Building and The Shanghai World Financial Center. The Shanghai IFC Mall is in the center of Pudong’s Lujiazui district providing customers with a choice of numerous international luxury brands. The six-floor shopping mall covers an area of around 110,000

The integrated development of Pudong has been on account of numerous initiatives by the government – a concentrated effort to make Pudong the engine of growth for Shanghai

29



square meters and houses close to 180 premium international retailers. The integrated development of Pudong has been on account of numerous initiatives by the government – a concentrated effort to make Pudong the engine of growth for Shanghai. In the first five years alone, the government poured RMB25 billion into ten major infrastructure projects: two bridges; a gas works, sewage treatment and water plant facilities; a harbor; a telecommunications project, and an inner ring road. An investor-friendly climate has helped attract money to Pudong New Area. For overseas investors, preferential policies are in place, along with lower land prices and other incentives if priority industries are involved. The government’s hands-off policy and assistance with business partnerships act as additional motivating factors for investors.

The development of organized retail in China was spurred post 1992, when China started loosening its strict development regulations. The State Council permitted foreign investment in retailing on a trial basis in Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, as well as the five Special Economic Zones of Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan. By 1997, numerous foreign-invested stores in China had been approved by the central government. China’s accession to the World Trade organization (WTO) in 2001 marked a new era for foreign investment in retail. Under the WTO’s Accession Protocol, the opening up of the retail sector was phased over a period of five years to December 2006. The framework of rules however, had certain loopholes in terms of clarity and transparency. With respect to ownership issues between the domestic retailer and the foreign investor, the Commercial Sector Measures brought out in April 2004 by the Chinese government were in contradiction with the Accession Protocol as well as the 2007 FDI Guidance Catalogue. However, in order to provide clarity, the Chinese government’s Administrative Measures for Foreign Enterprises or Individuals Establishing Partnership Enterprises (2009), permitted foreign investors to set up retail enterprises in partnership with entities in China.

The Chinese Ministry of Commerce has also been gradually delegating the authority to approve all foreign-invested retail businesses to provincial commerce branches, facilitating the expansion of foreign retail players within the country. However, the authority to approve retail businesses involving items controlled by the state remains centralized. With the onset of a liberalized framework for foreign investment in the retail sector, numerous brands that set up base in China are operating successfully.

6.3. London – Canary Wharf

Canary Wharf is a major business district located in Tower Hamlets, London, United Kingdom. Canary Wharf is located in the West India Docks on the Isle of Dogs in the Borough of Tower Hamlets in East London. After the docks were closed in 1980, the British Government adopted various policies to encourage the redevelopment of the area, including the creation of the London Docklands Development Corporation in 1981 and granting the Isle of Dogs an Enterprise Zone (EZ) status in 1982. In 1987 the Canadian company Olympia and York agreed to construct a major office and retail development on the Isle of Dogs, with construction commencing in 1988. Today the Canary Wharf has 14 milion sq ft of commercial and retail space with close to 25 buildings, five retail malls, connectivity to the city center via the Canary Wharf tube station and two Docklands Light Railway stations and 20 acres of landscaped open spaces. It also houses the Canary Wharf Ice Rink and the Reebok Sports Club, the largest health club in Europe.

Numerous factors were responsible for the development of Canary Wharf. A critical event in the development of Canary Wharf was the push from the government to complete the much-delayed start of work on the Jubilee Line, the underground tube network. Also all companies locating in the

30



district were provided with financial benefits such as low taxes due to the tax incentives of the EZ and also low rents in comparison to the city. According to all occupiers, proximity to retail, restaurants and bars is a major benefit at Canary Wharf today, in comparison to the city. The retail in the city was said to be much more scattered than in other locations in London and definitely not as accessible as at Canary Wharf. During surveys conducted on the occupiers in Canary Wharf, the environment, both externally and internally, was mentioned by all companies as one of the major benefits of the estate. The external environment is much cleaner with less pollution than in the city, as a result of less traffic within the area. Prior to development, the Docklands was derelict land, but a significant asset which, when developed, proved to be beneficial for London, as it provided a retail center for residents in East London.

Most successful retail hot spots, primarily across developing Asia, have specifically designated areas with government thrust on development

Today the Canary Wharf has 14 milion sqft of commercial and retail space with close to 25 buildings, five retail malls

31

7 TIME TO TAP OPPORTUNITIES


Time to tap Opportunities7The previous sections of the report brought out the challenges that the Delhi retail market is posed with, followed up with the fact that the importance of Delhi as a retail destination cannot be ignored. This brings attention to the point that the market needs to follow a two pronged approach to be able to match up to the standards set by its global counterparts - overcome the challenges and tap the opportunities to propel the growth of its retail sector. While demographic factors such as a rising urban population, expanding middle class are factors contributing to the retail growth story, other factors such as increased thrust on infrastructure development and increasing credit availability have provided a fillip to the retail trajectory of the country. Listed below are some of the key opportunities that are contributing to “The India retail story”.

7.1. Government focus on Infrastructure Development

The government and planning authorities are fully aware of the importance of infrastructure development for the growth of several key industries including retail. The Planning Commission has projected that investment in infrastructure would almost double at USD 1,025 billion in the Twelfth Five Year Plan (2012-17), compared to USD 514 billion in the Eleventh Plan. As has been observed across other countries, infrastructure development has been the key stimulator for development of retail. Marina Bay in Singapore and Canary Wharf in London are both examples where development of infrastructure such as metro connectivity was cited as a key factor for success of these destinations as retail destination. Even while looking at data for Delhi; it has been observed that the more successful mall clusters are located in areas that have lower traffic congestion, easy accessibility and support infrastructure. The impact that the Delhi Metro has had on connectivity and footfalls for retail developments (Saket and Shivaji Place district centers) and high streets (Connaught Place) is something that cannot be ignored. As a step towards enhancing infrastructure growth in the city, the union budget for 2013-14 allocated almost INR 700 crores to the JNNURM funds for Delhi (an increase of 27% over previous year); the city also received an allocation of INR 68.39 crores from the Ministry of Road Transport and Highways.

7.2. Positive Regulatory Moves

Parliamentary approval to the FDI legislation concerning multi brand retail has not only had a positive impact on the entry of retailers in India but also opened gates for greater investments in supply chain and logistic infrastructure across sectors, especially agriculture. Though India is the second largest producer of fruits and vegetables (> 220 million MT), it has a very limited integrated cold-chain infrastructure, having a total capacity of close to 24 million MT (it can only store 11% of the actual produce). The cold chain infrastructure in India is highly fragmented and hence, perishable

The Planning Commission has

projected that investment in infrastructure would almost

double at USD 1,025 billion in

the Twelfth Five Year Plan (2012-

17), compared to USD 514

billion in the Eleventh Plan

32

7 TIME TO TAP OPPORTUNITIES


horticultural commodities find it difficult to link to distant markets, including overseas markets, round the year. As a result, average percentage of wastage of fruits and vegetables is in the range of 5-18%, resulting in an estimated loss of 44,000 crore per annum. Though FDI is permitted in cold-chain to the extent of 100%, through the automatic route, in the absence of FDI in retailing; FDI flow to the sector has not been significant. India offers market potential for cold chain logistic solution providers, including refrigerated transport services. In addition, companies providing equipment and technology for pre-cooling, sorting, grading, packaging, and information management systems (for traceability and tracking) will have good prospects in India.

7.3. Easy Credit Availability

The availability of credit has been on the rise in India, primarily on account of easy availability of credit cards and loans. This has given a boost to the spending power of consumers, thereby having a direct bearing on the retail sales in the country. As per the Reserve Bank of India, the total outstanding amount on credit cards in November 2012 grew at 26% when compared to the same period in 2011. The growth in point of sale terminals as well as increasing presence of retailers accepting credit cards for payment is an opportunity which should be tapped for further growth of organized retail in the country.

7.4. Rise of E-Commerce

The increasing level of internet penetration across the country has given rise to the trend of online shopping. Data from Google Trends revealed that approximately 8 million people in India were shopping online in 2012, a growth of 128% as compared to previous year. The most popular categories emerged as electronics, apparel and accessories followed by beauty and personal care. A number of shopping websites such as Flipkart, Ebay have emerged over the past couple of years and have been met with a resounding response. Players are moving in to capture a share in this booming market and are applying tactics that suit the Indian populace. Adapting to the Indian customer sensibilities; Flipkart is out-competing the global giant Amazon, simply by tweaking the online advance-payment-by credit cards to the more acceptable cash-on delivery mode. It is anticipated that growth in the e-commerce industry will continue to bolster logistics infrastructure across the country and simultaneously generate demand for organized retail stock in leading cities.

7.5. Favorable Demographics

The real household disposable income in India has more than doubled since 1985. With the rise in income, consumption patterns have changed and a new middle class has emerged, which is growing at a fast pace. As per McKinsey Global Institute (MGI), spending in India is expected to increase about 2.5 times by 2025. The middle class population in India is expected to increase by about 12 times during 2005-2025, fuelling consumption demand. Disposable income for households is expected to increase by about three times by 2025, according to MGI. Growing urbanization, a young working-age population, higher income will result in increased spending leading to a consumption boom. Growing income and rising disposable income will result in the discretionary spending to increase from about 52% in 2005 to about 70% of the customer wallet by 2025, according to MGI. The growing discretionary spending will result in demand for appliances, communication and healthcare.

Data from Google Trends revealed that approximately 8 million people in India were shopping online in 2012, a growth of 128% as compared to previous year

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8 MAKING DELHI INDIA’S RETAIL CAPITAL – KEY RECOMMENDATIONS


Making Delhi the Retail Capital of India: Key Recommendations8

It can be observed in the above sections that the opportunities that Delhi can tap are far outnumbered by the challenges that the city faces. It is important that all stakeholders such as the developers, retailers as well as the planning authorities make concentrated efforts to provide the sector an opportunity to realize its potential.

According to Technopak’s “Opportunity India” report, India will require an annual supply of about 20 million sq. ft. of organized retail space in order to sustain growth in the sector. It is in this context that the role of global retail chains will be crucial. These retailers possess extensive experience of running successful retail stores and properties in markets such as the US, China, Europe, Middle East and South East Asia with local partners to create successful shopping formats. By utilizing this knowledge, they will be able to help usher in a revolution in the development of organized retail real estate in India. Below are some key recommendations that can assist India in coming up the learning curve and match up to the standards set by its global counterparts.

8.1. Recommendations for Developers

Planning and Design: Developers must conduct initial feasibility studies taking into consideration the demographics in their catchment area, the targeted consumers’ behavior and the prospective retailers’ preferences and expansion plans towards their proposed projects before they commit any investment funds. The macro-economic environment of a particular location, its prospective growth and purchasing power of key catchment zones must be studied before selecting the ideal location for development. The design must take into account circulation, store visibility and an understanding of the shopping behavior in the mall to structure the tenant mix accordingly.

Ownership Strategy: Developers should hold their projects in single ownership so as to pro-actively control their tenant mix and trade mix. It is extremely important to follow a ‘lease only’ model in a retail center as this helps developers control tenant positioning and manage common areas more effectively. Many developers tend to view malls as just real estate and as an investment from which they wish to achieve a short term profit. However, the desire to sell a portion of the mall on a strata title basis means the builder does not maintain the facilities property and enables investors to resell their shops, which ends up ruining the tenant mix. In order to achieve a more balanced and synergized trade and tenant mix developers require knowledge of shop alignment by industry or market positioning. Proactive tenancy leasing, screening and management are also essential.

Location and accessibility: Although no longer an exclusive success factor, location and catchment are of crucial importance to mall revenues. Shoppers in India are still willing to travel long distances to visit shopping malls offering them an attractive shopping experience but the mall should be positioned within or next to an appropriate catchment area for its target customers. In New Delhi

It is extremely important to

follow a ‘lease only’ model in a retail center

as this helps developers

control tenant positioning

and manage common areas

more effectively

34



shopping malls built in close proximity to operational metro lines with easy accessibility witness more footfall than those built in suburbs with less comprehensive public transportation access.

8.2. Recommendations for Retailers

Investing in HR skills: Developed retail economies such as the US, UK, Australia all offer numerous retail focused bachelor and post graduate programmes, which serves as a critical component for the successful functioning of their retail industry. The right talent assists in not only providing the customer an experience, it also assists in providing consumer insights which go a long way developing product strategies and customer attraction/retention strategies. There is not only a dearth of people enrolling for these courses, but also a dearth of experienced faculty that can train students in courses such as visual merchandise, store operations and supply chain management. Retailers in India, in conjunction with the government and education authorities should stress on providing training programmes and retail specific degrees (as done in the US with collaboration from leading retail companies). The availability of retail specific programmes and training institutes is critical in ensuring the availability of the right talent, thereby enhancing customer experience and footfalls.

Invest in Supply chain infrastructure: The retail sector is heavily dependent on the supply chain and logistics sector to allow it to run a smooth operation. The government allows for 100% foreign direct investment under the automatic route in the storage and warehousing sector. The Free Trade Warehousing Zone Scheme (the FTWZ Scheme) had been unveiled by the government to spur investments in this space. The FTWZ Scheme envisions the creation of infrastructure for warehousing of various products, as well as transportation and handing facilities to support the integrated zones as international trading hubs. Global hypermarkets bring along with them expertise in developing cold chain infrastructure. Development of an effective cold chain infrastructure can go a long way in benefiting the retail industry by cutting down losses and providing increased value to the customer. This will also help in narrowing down the gap that stands today between the prices of the local/open market and hypermarkets.

8.3. Recommendations for Planning Authorities

Establishing a direct buyer seller relation: A direct buyer-seller platform would be beneficial for both retailers as well as consumers – it would ensure that farmers are connected to the urban economy while buyers would be able to achieve better value for money. A case in point can be taken from Argentina, where the Competition Commission formulated a national regulation to closely regulate supermarkets and their relations with suppliers—if the retail, wholesale, processing, and farming sectors did not formulate and self-implement a private code of commercial conduct. Retailers and suppliers signed the Code of Good Commercial Practices in 2001, the first of its kind in Latin America.

Establishing local regulatory bodies: While a national regulator is of prime importance in India, local regulatory authorities can be of immense significance in supporting the development of local retail markets. For instance, in Japan, The Ministry of Economy, Trade and Industry (METI) designed Store Location Law (SLL) that gives local governments the primary responsibility for the regulation of large stores, subject to certain constraints. The focus of the new regime was to preserve the physical environment around new stores from the previous regulation that focused on protecting

35



small retailers. A new large stores law was introduced that gives powers to local authorities to regulate retail outlets that were in the range of 500 -1,500 square meters. The authorities have the power to determine the size of the store, working hours and even the number of holidays.

Reforms in real estate norms: Reforms in land use regulations, the Rent Control Act are needed to ensure that these acts are in tandem with the current market dynamics. Planning agencies must ensure an increase in the land allocation for retail development in the city and propose a structured mechanism for city level retail redevelopment/renewal. The Master Plan which currently allows for 5% land allocation for retail, exerts pressure on real estate capital values and rentals due to limited land availability. Factors such as high stamp duty also impact the budget outlays of retailers. Greater land allocations and rationalization in stamp duties can go a long way in providing an environment for a thriving retail sector.

The FTWZ Scheme envisions the creation of infrastructure for warehousing of various products, as well as transportation and handing facilities to support the integrated zones as international trading hubs

36

9 CONCLUSION


Conclusion: Recommendations can reap significant benefits9

While there is no doubt that organized retail in the city is poised for significant growth with factors such as favorable demographics, easing credit availability and increased exposure to global markets setting the stage for the industry’s success, however, the pace of this growth can be propelled by moving in to address the challenges that the industry currently faces. The government’s recent move to open the country’s retail sector to foreign supermarkets has been anticipated for some time and is regarded by many analysts as being crucial to re-launching the country’s flagging economy. Supporters of the new policy say the entry of international supermarket retailers will help bring down soaring prices, make the retail sector more competitive and help modernize the country’s ageing infrastructure and distribution systems. Small and medium sized family-run retailers will survive, they say, as they offer a valuable local service that large supermarkets are unsuited to provide.

The amendment to APMC Act in the form of Model Act includes various action points such as modernization of the Azadpur Mandi and numerous efforts to establish direct contact between farmers and consumers. The government, with such well punctuated moves can act as an enabler by providing a conducive environment for the industry’s functioning while retailers can move into play a more active role and drive initiatives at their end. A regular, well developed channel of communication needs to be developed between key retailers and the government in order to understand the requirements of modern retail. Developers will have to sacrifice short term gains and develop malls that meet global standards and consumer expectations. Engaging professional firms for their premise management will serve as an investment that will go a long way in generating returns and creating brand value.

With all push and pull factors working in the favor of the industry, it will not be long that retail woulddrive the city’s and the country’s growth.

37

ABOUT CII


The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India’s development process. Founded over 117 years ago, it is India’s premier business association, with a direct membership of over 7100 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 250 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few.

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Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244CII Helpline Toll free No: 1800-103-1244

38

ABOUT CBRE


CBRE Group, Inc.

CBRE Group, Inc. headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2012 revenue). We are a Fortune 500 and S&P 500 company with unparalleled intellectual capital, unmatched global capabilities, in depth local market knowledge, and a business platform built on leadership in every major market.

CBRE was the first International Real Estate Services firm to set up an office in India in 1994. Since then our operations have grown to include more than 2,800 professionals across 9 offices with a presence in over 25 cities in India. As the leading real estate services firm, we provide our clients with a wide range of real estate solutions including Strategic Consulting, Valuations/ Appraisals, Capital Markets, Agency Services, Asset Services and Project Management.

Our guiding principle at CBRE is to provide tactical and strategic solutions that make real estate holdings more productive and economically efficient. Every day, we partner with our clients to ensure that their real estate strategy is aligned with their business strategy. And our RISE values—Respect, Integrity, Service and Excellence—guide all our efforts. Our professionals are committed to providing the highest quality offerings to developers, investors and occupiers—throughout India and around the world.

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CBRE Research Team

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