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Commercialisation of Shopping Centres


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Commercialisation of Shopping Centres

  1. 1. 42 > Shopping Centre News > JANUARY-FEBRUARY 2010 cover story JANUARY-FEBRUARY 2010 > Shopping Centre News > 43 Non-Rental Income (NRI) or Commercialisation is one of the growth areas for the upcoming shopping centre industry in which the centre sells the right to have a presence in the mall to third party companies wishing to promote or sell their brand or product to the shoppers and providing valuable income streams. Types of NRI activities: Casual Mall Leasing • Retail Merchandising Units (RMU) • Fixed Kiosks • Temporary Storage Services • Pay phones • Gift cards • Information kiosks • Kiddy rides & amusement • Vending • Valet parking • Photo booths Advertising • Posters (internal, external and toilets) • Plasma screens, Digital Display Units & Video walls • Banners and danglers • Table tops and floor graphics Promotions • Mall promotions & Sales promotions Sponsorships & Alliances IT & Telecom Mall Commercialisation Non Rental Incomes By Vythnathan Mahalingam centre to centre – depending on the size of the scheme, shopper profile, geographical location and physical space availability – but predominantly fall into one of these categories: • Casual Mall Leasing • Services • Advertising • Promotions • Sponsorships & Alliances • IT & Telecom There are some grey areas where what might be core revenue (a retailer with a long-term leasing arrangement) for one centre, might be considered as a non- rental income stream for another. An example of this might be a food outlet operating from a kiosk but with a long lease. A crèche/ Recently, NRI has been a buzzword in the shopping centre industry worldwide. More and more brand managers and product managers are beginning to realise the value of promoting to a massive number of people in an environment that they have chosen to be in, as close to point of purchase (POP) as can be achieved. It is important that NRI activities promote or reflect the centre’s brand values. While such activities may differ from play centre might be partly or fully funded by one centre (and hence be a cost that the centre chooses to bear to increase dwell time or footfall), whereas, in another centre a childcare facility might generate revenue. In India, NRI or commercialisation is in a very nascent stage and is evolving into an industry in its own right, enhancing customer experience, supplementing marketing activities, contributing many thousands to operational expenses such as common area maintenance (CAM) and of course generating significant capital values to the property. Merits of Commercialisation • Creates value: Can create significant financial value in shopping centres and generates additional revenue from non-productive mall spaces. RMUs and kiosk retailers pay significant rent as well as it becomes a wonderful opportunity for the advertisers and brand promoters to display to a large segment of customers who visit the shopping centre. This can help in increasing the Net Rentable Income from an asset management perspective. • Adds variety and extends the retail mix offer: RMUs, kiosks, promotions, and commercialisation activities and services can create points of difference between centres and can counteract against excessive uniformity. Also, it can sell wares that complement the existing retail mix with seasonal offerings and products that appeal to the demographic profile of the centre. • Enhances shopping experience and promotes shopper interaction: Retailers and promoters operating within the open mall are more visible and able to engage passers-by more easily, and have closer interaction with customers. Exhibitors of children’s toys, for example, can demonstrate their products such that families can get involved in trying things out before they buy. Spring Fashion Show at the Oracle Mall in Reading, Berkshire, UK
  2. 2. 44 > Shopping Centre News > JANUARY-FEBRUARY 2010 cover story JANUARY-FEBRUARY 2010 > Shopping Centre News > 45 Business of commersialisation license holders like RMUs and kiosks should not interfere with sightlines of permanent retailers in the mall, and should not result in introduction of an external competitor into the centre. • Helps brew new retailers: RMUs and kiosks can serve as a catalyst for new start-ups. There is less risk to a retailer in taking a small kiosk on a short-term lease or license than in taking a long-term lease for a store. When the business has proved itself viable, the retailer can discuss with the management on the possibility of leasing a store. • Increases footfall and dwell time: Interactive promotions and children’s amusements may keep some members of a family occupied while others shop. Plasma screens showing a combination of information, entertainment and advertising can also increase dwell time and reduce stress amongst shoppers. Casual Mall Leasing Casual Mall Leasing refers to the short-term licenses given to RMU and kiosk operators. RMUs add interest, choice and vibrancy to the mall. These units need to be placed in an area where there will be sufficient passing traffic to sell to, without compromising the safety or look of the mall. Care needs to be taken that the presence of RMUs do not obscure the sight lines or access to the mall’s permanent retailers. Changing the product offer and positioning on a regular basis helps to create greater interest and increase sales. An operator with access to numerous product lines is likely to be experienced and easy to deal with, also capable of offering alternatives if a certain product does not work for a particular mall. For the upcoming shopping centres, the designers need to review their designs to give significant provision for the commercialisation opportunities especially the placement of kiosks, RMUs, arenas for promotional activities etc. A flat area is preferable with sprinkler protection. Each kiosk must have three metres of clear space around it to allow smooth flow of traffic. Also, avoid positioning too many RMUs side- by-side as this creates a barrier, and inhibits customer movement across the mall. Consider the products offered by existing retailers and whether there are any gaps or possibilities for complementary products. For example, a phone accessories stall outside a mobile phone shop could prompt customers to look for a new phone. Phone stores may also be unable to offer a wide range of accessories. Consult any retailers who might be affected by the introduction of a mall retailer offering a competing product or service. The centre management team should work with RMU and kiosk operators to ensure that the overall business succeeds. This includes communicating effectively and trying to ensure that their business model is viable. As per best practices for RMU operators and promoters, they are to be treated like customers and receive as good a service from centre management as permanent store retailers are given, including opportunities to advertise in a centre’s news letter or on the website. In terms of rentals, RMUs can be either flat rent or percentage rent with increased rate during the festive seasons like Diwali, Christmas, and New Year etc. It is wise to ask for a month’s deposit to maintain the presentation standards. Advertising Shopping centres prove to be the perfect location to present the products, right at the point of purchase and it is becoming common practice for the centre owners to work with third party media companies to provide advertising spaces in and around their centres. Before signing up any contracts, attention should be given to location of the media hardware, control of message, power and quality. Always, the priority needs to be given to the retailers and the centre signage. Advertising should be complimentary to it and should not clutter around it. A few important points must be taken into account when it comes to advertising in malls. For instance, do not overdo it as blank space also has value. It does not serve any constructive purpose to overwhelm customers by bombarding them with advertisements and other messages. Besides, there is also a risk of diluting the offering by excessive ‘back-of-door’ advertising. Also, the location must be given due thought such that plasma screens are positioned where you want people to congregate, and displays are put up where they can be seen without viewers obstructing other customers and without blocking store entrances. It is better to have large screens, showing a combination of news, advertising, local information and centre information. As with all commercialisation activities, sightlines should be maintained. It is a good strategy to combine external advertisements with advertisement products and promotions within the centre. Retailers want to be able to advertise within a centre at little or no additional cost. Thus, centre managers need to work out a reasonable compromise between advertisements to generate revenue for the centre and those to help retailers increase their own revenue. It is important to ensure that digital displays are in working condition and do not suffer from glare. Broken touch-screens or displays are counter-productive and irritate customers as well as advertisers. Displays that cannot be seen or read because of glare from natural or artificial lighting are also of little value. Some centres are attempting to send messages to customers carrying Bluetooth-enabled phones, such that they can access third party promotional offers and content linked to retail sites, and also access information about the shopping centre itself. Promotions and Alliances This fast emerging area of commercialisation brings together the aspiration of centre owners to generate revenue and create an attractive destination, with the wish of promoters to reach the many customers visiting a centre. There is scope for conflict if the promotion is perceived to have a detrimental impact on trade or creates problems due to crowd control or security. But the promotions tied to products sold in the centre work well. This could be a promotion for a skin care product, book launch or computer game. Experiential promotions which have appeal to a wide audience and so genuinely increase footfall – rather than simply capture customers who are already there – are also endorsed. There can be some overlap with marketing activities. For example, a fashion show which features clothes provided by retailers but does not generate revenue directly for the centre owners would be a marketing event, whereas one where retailers pay to exhibit would be considered commercialisation. Large scale promotions, such as a fashion show or a car launch, require a suitable promotion space with wide access. Not all centres have such space but the owners need to look into this aspect at the design stage itself. Permanent retailers, particularly like promotions which serve as tasters for products they sell, where free samples are handed out to customers with discount vouchers Placement of digital displays should ensure that they can be seen by viewers without obstructing other customers and without blocking store entrances.
  3. 3. 46 > Shopping Centre News > JANUARY-FEBRUARY 2010 cover story JANUARY-FEBRUARY 2010 > Shopping Centre News > 47 About the author: Vythnathan Mahalingam is an architect with Masters in Advanced Construction Management and has got a specialisation in Shopping Centre Management from British Council of Shopping Centres (BCSC, UK). With an industrial experience of over five years in building operations and property management, he is currently performing a national role with WT Retail Services - a JV between Pelorus Property Group (Australia) & Assetz Property Groups (Bengaluru) and is responsible for setting up business operations in India. Vythnathan is based out of Bengaluru and his current focus is implementation of best practices and intensive asset management services to shopping centres. to be redeemed in stores. If a promoter is also selling a product, this should not duplicate a product that is already sold in a store in the centre. For e.g. A centre manager agreed to a promotion for a major coffee brand assuming they would be handing out sachets, however, they were actually making cups of coffee to distribute free to customers at the mall, which had serious consequences for trade at the centre’s coffee shop. Allow retailers to get involved in relevant promotions by giving them sufficient notice of forthcoming events. Try to match the promotion with the demography and the positioning aspects of the centre. Some centres might be more appropriate for the launch of a Mercedes car, whereas a new mini Nano might be better launched elsewhere. Sponsorships and Media Partnerships Sponsorship is very different from the other areas of NRI in that it requires true partnership to be formed between the centre management and the third party brand, with clear objectives agreed upon and closely monitored. Sponsorship partners should hold some relevancy to the centre or the area being sponsored. Local media always have similar objectives as most common centre managers – for instance a radio station needs listeners like how a centre manager needs shoppers. commercialisation streams in a shopping centre. The policy must include the following: (a) A floor plan (a “commercialisation plan”) that clearly shows: (i) the mall areas within the shopping centre in respect of which casual mall leasing licences may be granted, and the size of those areas; (ii) The part of the mall area within the shopping centre designated as a centre court (if any), and the size of that area; (b) The number of sales periods for the shopping centre in each accounting period; Managing agents must avoid granting a casual mall license in respect of an area that is not included in a commercialisation plan, as in force, in respect of the shopping centre. Care must be taken to ensure that the business conducted by the holder of a commercialisation license in respect of a shopping centre does not substantially interfere with the sightlines to a permanent retailer’s shop front and also should not result in introduction of an external competitor into the centre. Steps Ahead It is essential to have a commercialisation strategy for each shopping centre to be able to decide what type of retail activity is to be included and when to say “No”. This strategy should provide a decision making framework and will not put the management in collision with mall’s permanent retailers or infuriate any shoppers. This strategy needs to be presented to the retailers in the tenant meetings and has to be upgraded based on their inputs. This will indeed help them to participate or sponsor any of the proposed activities. One of the important aspects should be to protect the sight lines and safeguard any pedestrian movements into stores. The strategy document should also emphasise the quality aspects of the products sold or the advertisements displayed. It is essential to measure the impact of commercialisation using some analytics like footfall data, shopper satisfaction index and fine tune the strategy on a periodical basis.  Adjustment of CAM Charges / Outgoings The owners or the managing agents must, before making an adjustment after the end of an accounting period in accordance with the provision of a retail shop lease, reduce the total amount of the non- specific outgoings or maintenance expenses to which lessees of retail shops in the retail shopping centre are liable to contribute in respect of the accounting period by an amount calculated in accordance with the following formula in relation to each casual mall licence granted, permitting trade in the casual mall licence area during the accounting period: R = (TO/ TLA x TD) X CMLA X CMLD Where, R= the amount of the reduction; TO = the total amount of the non-specific outgoings to which lessees of retail shops in the shopping centre are liable to contribute in respect of the accounting period; TLA = the total of the lettable areas of all the retail shops in the shopping centre in square metres; TD = the total number of days in the accounting period; CMLD = the number of days during which the person granted the casual mall licence was permitted to trade in the casual mall licence area during the accounting period; CMLA = the casual mall licence area in square metres The more the listeners, the more advertising revenue they can secure. So it is no surprise that local media see mutual benefit in working together. We might need to explore this opportunity as a potential brand building exercise as well as a source of NRI. The type of deal may vary such as “Diwali Lighting brought to you with Red FM!”, to more targeted activities like local newspaper sponsoring the centre’s customer service awards. Some media are looking for exclusive rights to be the sole media used inside the centre and become the main partner for any in-centre promotional activities. Title rights can also be a new area to explore, for example, a food court named as “Pepsi or Coca Cola-Food Joint”, may involve a specific customer service (a lounge facility – eg “Kingfisher Lounge”) etc. In return for the sponsorship payment, the third party will be looking for exposure of the brand in the centre and gain some form of exclusivity. Services Services such as amusement rides, vending machines, photo booths, gift cards etc – even if they do not bring much revenue – bring in some intangible benefits to the centre. Vending machines and other services have a useful role to play, and in fact, in smaller centres these forms of commercialisation are generally the main sources of revenue. The contracts can be on agreed terms based on royalties or can be a percentage of the products being purchased. The general consensus is that in larger centres, these services and activities should be kept away from the main mall area, and should be “offered to consumers, as part of the package, in an off-pitch way.” The positioning of equipment and services needs to be considered. It would be worthwhile to have an area in a centre dedicated to services such as gift wrapping, photo booths, and clothes alterations, key-cutting, shoe- mending, and possibly other services such as a post office. IT and Telecoms In addition to the IT infrastructure, telecom providers also can explore the advantage of advanced technology by introducing better location-based services to the consumers in the shopping centre. It includes customer hot spots, charging stations, internet access, Wi-Fi services and promotional information relevant to that location. Need for a Commercialisation Policy It is advisable to have a policy to have adequate control on the Mall design must account for suitable promotion space. Large scale promotions, such as a fashion show or a car launch require space with wide access. Promotions tied to products sold in the centre, eg promotions for a skin care product, work well.