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Traditionally, for the Indian retailer, real estate had been a family property and a sunk cost not factored into the business model. Operating without any overheads and with minimal assistance used to be the norm, from small villages to rich neighbourhoods in metropolises. But today in India , with growth of retail chains and large formats, location, size and price of real estate has become increasingly important. While it is a formidable component of the total investment required for retailing, the issues in respect of real estate are manifold and quite complicated. The biggest problem is that of finding suitable real estate in urban and semi-urban areas occupying prime positions. As the largest fixed cost element in the retail business plans, this is a critical factor for providing the ultimate customer various products at competitive prices and retailers viability.

In the western world, retailing has been mainly through large outlets and supported by large investments in terms of place, people, systems, technology and products. Bulk purchasing and large formats enabled retailers in the west to price their goods competitively. Lower prices complemented by a wider choice under one roof, provided a powerful value proposition to the customers and attracted the customers from a wider catchment area. The requirement to cater to a large number of customers at the same time made the real estate location and size a key success factor for the retailers.

A. Real-estate Costs in Retail Business Planning

Real estate forms approximately 5-18% of the overall business expenses across various formats, including supermarkets, departmental stores, hypermarkets and any normal apparel store. Lease deposits, which usually vary between the equivalent rentals for 3-6 months, form a substantially high percentage of the overall store opening costs, varying between 20-42%.

In case of large formats like hypermarkets, the real-estate expenses are lower as compared to departmental and apparel stores. One of the reasons for this is that they are able to get lower rentals due to the large size.

B. Location Analysis

Expansion to new and cities is the underlying strategy for most retail chains. Thus, location analysis selection of cities and location of new outlets within a city is a key issue to be addressed in the retailer's expansion plans. While a timely entry in the right location can have significant positive impact on market presence, branding and cash flowing, and getting the location become a ongoing drain of financial and management resources, while also diluting the brand.

Considering that new market entry/expansion requires significant investments in terms of capital and time, it has to be supported by detailed strategic and financial analysis. The immediate strategic and capital investment issues, and also the long-term factors impacting operating costs and business profitability, need to be addressed.. The actual location decision will depend on the desired speed of rollout for the retailer, i.e., number of and also the outcome of negotiations for specific .

The impact of different on the retailers revenues is driven by their proximity to, and suitability for, the target market, expected footfalls and conversions. The same can be assessed through market research and relevant market benchmarks. The cost impact of the is governed by both real-estate-specific factors (such as availability and cost of real estate) as well as non-real-estate factors (such as manpower costs and quality, availability of supporting infrastructure) around the location.

Location analysis typically comprises two stages. The first is the inter-city analysis, which helps in identifying the most suitable city/cities by comparing potential of various cities against specific parameters. Subsequently, a detailed intracity analysis is used to identify specific best suited for the retailer. Both real estate specific and other factors need to be analysed.

Location analysis across cities

Inter-city analysis is typically more critical for a new entrant to the market or to a single-store retailer planning to expand for the first time. At this stage, the key objective is to identify and prioritise the cities relevant for the proposed product mix. The critical issues involved are discussed here.

Market Potential

Assessment of the market size and addressable market in each city is defined by its demographic and socio-economic profile (for example, total population base, age profile, income profile). Some readily available information at a city level is the spending/ownership pattern and proportion of the population in various socio-economic classes (viz., SEC A, B, C). This enables a high-level assessment of the potential of various cities. For well-established categories such as F&B; and apparel, the category-level sales data can provide further proxy for the city attractiveness. The evolution of retailing formats also provides insights into market maturity and potential for a particular category. A key issue more pronounced in India on account of its ethnic and cultural diversity is that socio-economic profiling alone may not be a complete indicator of market potential for a category.

Competitive Intensity

The competitor analysis will include the presence (duration, location, formats) and performance of brands in the same category. Such analysis can provide powerful data points regarding both acceptance of the product and the potential market share that the retailer can target. Regulatory framework the state/city-level differences in the legal/regulatory framework for retail/entertainment/real-estate sectors need to be identified, and their impact on revenues/costs assessed. The differences may be in terms of sales/entertainment taxes, closing hours, ceiling on real-estate holdings, availability of real-estate options, and suchlike. Other ancillary issues like availability of manpower and law and order situation also need to be analyzed, as these have a direct impact on the cost structure. Availability of real estate of desired quality Real estate cost Supporting infrastructure (Approach road, parking, power back-up). The lease is a legal document signed by the landlord and the tenants that establishes the duties rights and responsibilities of each with respect to the use and possessions of real property. Ideally it contains definitions, economic provisions, uses and controls, tenant's obligations, landlord obligations, major situations and legal processes. It is equally significant for a retailer to focus on issues such as timings of operation, refurbishment, common areas maintenance, security deposits, lease term, exit strategies etc.

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If you have commercial properties & want to explore Franchise option then speak to us. Education Institutes, fitness centers, restaurants, all would do very well even on terraces, top floors or above ground floors.

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