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The retail industry is going through a disturbing phase: Rashmi Sen, Phoenix Mall

May 26, 2020

Arjun Sharma, Chairman, Select Group; Rashmi Sen, Group COO, Phoenix Mall; and Abhishek Bansal, ED, Pacific Mall talks about the problems that the malls have faced amid lockdown, rent waiver for the outlets and hope from the government among others during an exclusive interview with Swati Khandelwal, Zee Business. Arjun Sharma, Chairman, Select Group; Rashmi Sen, Group COO, Phoenix Mall; and Abhishek Bansal, ED, Pacific Mall talks about the problems that the malls have faced amid lockdown Written By: Jitesh Kumar Jha Updated: Tue, May 26, 2020 03:51 pm Arjun Sharma, Chairman, Select Group; Rashmi Sen, Group COO, Phoenix Mall; and Abhishek Bansal, ED, Pacific Mall talks about the problems that the malls have faced amid lockdown, rent waiver for the outlets and hope from the government among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts: Q: Every sector has faced problems due to lockdown, which is being lifted in a phased manner allowing them to resume activities but no decision, has been made on malls. So, let us about the kind of impact that lockdown has had on your business? Arjun: The virus has had its impact on every business but the shopping centres and retails’ have been the forefront of the damage. I would like to provide data that roughly about Rs 50,000 crore of capital is employed in shopping centres. And, approximately 1,650 shopping centres are available across the country, which doesn’t have any work for past two and a half month neither they are getting any rental nor income in any other form nor. This is mounting our liabilities. RBI has been very kind and has extended the moratorium to August 31, 2020, which is a relief for us but this is just a postponement. I would like to request the government to open the malls as the hi-streets have been opened. Safety and procedures are better at the malls. Our shopping centre association of India (SCAI), we are nodal to it, has created a 38-page document detailing the kind of air conditioning, sanitization, and social distancing at the malls. I feel malls should open first rather than hi-streets, however, they have opened the hi-streets. We would like to request it, the government, to open the malls before June 1, 2020. Currently, lakhs of people are without jobs. Roughly organized retail stands at just 11% of the complete retail industry. So, you can just imagine what people engaged in manufacturing and making garments and footwear’ will do if they are not able to sell them at the showrooms, we are the showrooms. So, the chain is going down right down to the manufacturing and some are saying that the chain is even going down to agriculture, for instance, cotton is not being purchased because that is needed by the mills. So, the chain is huge and that’s why the sooner they open the malls the better it is for the economy and the wheels of the economy. Rashmi: I think we are going through a very disturbing time, not just Phoenix, but the entire industry is facing an unprecedented scenario right now. As you would know that the retail industry employs 8% of the overall workforce. So, I think that the biggest issue at present is related to job losses. The employment and job losses turn up to be the biggest concern that comes out from this issue. For two months, the shopping centre industry has been shut down and the retailers, as well as the shopping malls, have been trying to contain the situation by holding their employees and their staff together by paying anything maybe after a wage cut. This means some salaries and wages are going out. But the industry, in recent future, is not going to be able to survive this any longer. It requires intervention from the central and state governments in making available no cost capital in deferring all the debt obligations. I think the second important thing is that we all know that this is Coronavirus and there is no immediate vaccination or cure of the disease. So, it is going to be with us for some time and we will just have to form a new normal way of living to deal with the coronavirus. Thus, we all will have to move out of our homes and will have to get on our normal lives whether it is our work or shopping malls or something else that we are talking about. You know slowly, other things are opening, like the commercial offices, airports, IT offices and hi-streets – and Arjun has rightly mentioned – have also started opening, which we welcome as there is some indication of the retail industry opening. But keeping just the shopping centre industry closed doesn’t make any logical sense and we have been requesting to both the centre and state government to open up this industry because if we don’t open it now than it is going to result in a lot of job losses and we are talking about millions of job losses. Abhishek: If quantified than I would like to talk just about the lease rental discounting (LRD) figure of the shopping centre than it runs between Rs 50,000 crore and Rs 75,000 crore that the banks have allocated to shopping centers in form of loan and advances. Now imagine if the shopping centres have been closed for the last 70 days than how they are serving the LRD and how they will be able to service the same. RBI has increased the moratorium but I would like to say that it is not a waiver but the payment has been rescheduled. But there is a need to understand that the closure of the shopping malls for past 60-70 days has resulted in zero income. So, the pressure of paying that money is going to be harsh for the shopping centres in days to come. So, opening the shopping malls at the earliest will reduce this pain while delaying it will create troubles in recovering. Paying the loans of the banks will become difficult, which is not good for the books of both, neither for the banks nor for the books of the shopping centre owners. This is towards the payment of loans that will be made to the banks. Besides, there are fixed expenses like property tax, advertisement tax and fixed demand charges among others. The government has helped us by deferring things but hasn’t waived anything. But if a waiver is not provided for days, when the shopping centres were closed and had zero income in the period, then paying these charges will increase the difficulties of the shopping centres and their owners. Q: There are talks related to waiver of the rent as many companies are not in a situation where they can pay the rentals. Do you think that negotiations have been started on it or will happen and also tell about the way it will hit your financials? Arjun: The dialogue has started with the retailers because we have a partnership with the retailers and they too have pain and we understand it. The problem only is, as Abhishek has said, that the government has not granted any waiver to us. It has just postponed things for us by 3 months or 6 months or till March 31, 2021. So, our problem at the moment is that waivers are very-very difficult for us to do. I think, what we are looking to do more is to see how to do some kind of relief on liquidity that your rent is due and you can pay it at a later stage. It will be similar to what the government has done with us. And, of course, the dialogue has started and the retailers are behaving very responsibly except few. The industry is working in a partnership and what we have always used a word that we will be reasonable. The pain has to be understood from both the sides and we will find workable solutions and we are very comfortable doing that. Q: New SOPs will be followed post opening of the malls. Do you think that a new set-up will be required to operate the malls, if yes, then talk about the vision that will be followed under the new structure including increasing the manpower and how are you gearing up for the same? Rashmi: This is a good question because I think it is all about the customers’ confidence at the end of the day and bringing their confidence back to return to malls. Your first question was that will it require the addition of the manpower then we will not have to increase the manpower at all, in fact, in some ways we may restrict the manpower because under the current corona environment, we want to restrict the footfalls to the malls, may it be a density of a mall level or store level. We want to restrict the footfall. The shopping centre industry has referred to all the benchmark practices being practised internationally because shopping malls are now open in many countries and they have framed detailed guidelines for opening the shopping centres amid COVID environment. Also, the Shopping Centers Association of India (SCAI) has had multiple discussions with the top shopping centre owners of the country and framed a detailed SOP, as it was mentioned by Arjun earlier. Few basic things should be followed and they are (i) temperature at the entry-level which is going to be followed by every mall, (ii) It will be mandatory for everyone to wear the mask while they are in the mall, (iii) on the mall part of course in terms of hygiene and sanitization, which is followed at Phoenix and other big malls of the country and they have strict protocols. In terms of hygiene and sanitization, they are 10/10 and have formed stricter norms now in light of the COVID environment. The other aspect is that lot of sanitizers are going to be placed across the malls for the customers to use. Also the communiqué of WHO in which it provides guidelines like 20-second hand washing. I think there are two-three things that should be followed like the social distancing, temperature checks, wearing the masks, hand sanitization and washing the hands for 20 seconds. So, there is no such big technical requirement that the customers or the malls will have to do. Secondly, the contactless payment is a new thing that all the shopping centres are encouraging their customers to use whether it is for payment of parking, food courts or the stores. So, it is a contactless payment. In terms of technology, I think, the malls were not so involved and we're evaluating a lot of options and now they have expedited that and all the malls are going get the facility of contact-less payment. Even our retail brands present in our malls are organized brands and detailed SOPs has been created for them as well and they will be following the SOPs. We understand that the Coronavirus is serious and we are very conscious and safety of our retail partners and customers is our top priority. I would also like to mention that there is a very misplaced perception of AHUs (Air Handling Units) at the shopping malls only. There are two-three points that I would like to add here (i) The WHO guidelines clearly say that COVID-19 is not an airborne disease but that is a debatable subject and (ii) The air conditioning system of the standalone stores, airports and large commercial and IT offices is very similar to the air conditioning systems of the shopping centres. So, this new misplaced perception that is going around saying that the shopping centres may not be permitted to open because they don’t want them to start their air conditioning system, which may hamper things in the current COVID environment. It is a misconception and ties to highlight the current guidelines. We have said that the frequency and quality of the air can be improved by increasing the air changes. They have said that the humidity should be maintained at 40% and temperature should be maintained between 26 degrees and 30 degrees. So, clear guidelines have been provided that under the ongoing COVID environment there are the guidelines that should be followed by the shopping centres. So, we would like to request to the government authorities and others who are spreading these misperceptions to not do so because these things are unnecessary complicating things further for these shopping centre industry. Q: Do you feel that you are receiving a prompt response from the government about the opening of the malls, if yes, what are they expecting from you in terms of sanitizing, managing social distancing and following the SOPs among others? Do you think that the malls will be opened by May 31 or soon after that? Abhishek: We are waiting with the hope that permission will be granted to us. I feel that the government will take some cue - from the local markets that have been opened earlier – to open other markets as it will not create difficulties. As my fellow panellist has also said that the malls are more equipped, in any case, to handle people. That’s why I think that the government has got what they need in terms f experience through an experiment of opening 50% hi-streets and I feel that soon we will get the message of opening the malls. I am hopeful that these permissions will be granted at the earliest. Q: Tell us about your assessment related to demand and footfalls after the malls are opened and all the SOPs are followed well as people may not like to come out and shop? Arjun: There is a very interesting statistics from the malls that have been opened in international markets like in Hong Kong, China and Dubai and there we have seen that in the first one week there is a different aspect as there has been a footfall between 30% and 50%. The sales are very encouraging especially in the markets like Singapore, Hong Kong and China. I would also like to provide statistics related to the hi-streets that has been opened in Delhi, Mumbai and Goa, where the sales throughput is already back between 50% and 70%. And, yes digital is a good option for the people but they have been locked up in their houses for two months and they want to go out and there are many things that you would like to see and touch yourself and feel garments, apparel, and makeup. These are the things that you will have to touch to have a feel. Even if you want to buy for example TV or a phone want to touch it and have a feel. So, I think that they want to come back to buy absolutely in a conventional way. It is not to say that the online will not work. I think the two segments are working together at the moment very well. Yes, there is a fear somewhere in the mind. As the RBI governor has said that the private consumption is coming down and people income have been affected but I think India is a land of savers and has always shown that it is a country that has good resilience. So, we are hoping that gradually may be in the next 2-3 months, we will be back to normal and especially by Diwali we will be completely back to normal. Q: Fixed cost is a big element in mall operation as well as an important component. How are you looking at it to reduce that in the coming future as the lean period is here to stay and the costs are too high to rent out? How are you restructuring the business plan and also update about the expansions that would have been lined up in the pre-COVID world? Rashmi: First would like to reply about the fixed costs and I don’t think that we will be able to bring down any of our fixed costs because at our shopping centres we provide a certain level of service and quality to our retail partners and customers and we can’t compromise on those factors. So, we will not be able to cut down our fixed costs but we can bring it down if we hear something from the RBI in which they provide some benefit to us in terms of servicing our loans, which may bring our cost down. Otherwise, the fixed costs in terms of running our centres can be marginally increased due to the SOPs that we will have towards the COVID environment but they are not coming down. When it comes to the retails brand partners who are looking forward to shutting down and how we are going to handle it. Then see that we have our malls and shopping centres in the country and the maximum of them have been operational for the last 8-10 years. And our retail brands understand that they have done good business with us in this period and will continue to do very good business for the next 20 years. The point that you made is very valid, the retail brand partners have unfortunately in the current scenario will have to decide to shut down some of their stores. Fortunately, such discussions are not happening with any of our retail brand partners, thus we are safe from that aspect. The second thing that you mentioned is related to our expansion plans and what are we evaluating in terms of our expansion plans than fortunately, we are developing five new malls of which the mall in Lucknow was supposed to be opened on March 13, 2020, when the first order of shutting down the mall at Bangalore was issued from the Karnataka government. So, our Lucknow all was leased completely and 85% of the mall was supposed to open on that day. So, when the UP government will announce the opening of the malls in the state then that mall will be opened as per the novel scenario. The remaining four malls are being opened at Pune, Bangalore, Ahmedabad and Indore and their brand fit-out is supposed to happen after two years. And, we are confident that the industry will revive in another 12 months. The brands that have tied with us for new malls will continue with their expansion plans with us. Watch Zee Business live TV below: Q: There is a need to understand how big is the concern related to salary cuts and job losses? What time will be required to fulfil the losses that the malls have faced during the two-month closure if the malls are opened from June 1, 2020? Abhishek: Retail industry has employed around 42-45 million jobs and is the third-largest employer in the country. You can now guess the kind of impact that closure of around the shops for around 60-70 days will have. As far as job losses are concerned then I think that if the malls and other stores are allowed to open, maybe phase-wise, then it may not lead to huge job losses. But delaying it further then it may lead to huge job losses because at the end of the day you will have to see that how far a shop owner can wait for the rent of the mall, salary and taxes. They are ready to wait for all these things but there will be a time when his patience may not allow him to bear the pressure. So, if the shops are not opened at the earliest then it may lead to huge job losses.

Arjun Sharma Investments

1 Investments

Arjun Sharma has made 1 investments. Their latest investment was in Wigzo as part of their Bridge on March 3, 2017.

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Arjun Sharma Investments Activity

investments chart

Date

Round

Company

Amount

New?

Co-Investors

Sources

3/27/2017

Bridge

Wigzo

Yes

2

Date

3/27/2017

Round

Bridge

Company

Wigzo

Amount

New?

Yes

Co-Investors

Sources

2

Arjun Sharma Portfolio Exits

1 Portfolio Exit

Arjun Sharma has 1 portfolio exit. Their latest portfolio exit was Wigzo on January 07, 2022.

Date

Exit

Companies

Valuation
Valuations are submitted by companies, mined from state filings or news, provided by VentureSource, or based on a comparables valuation model.

Acquirer

Sources

1/7/2022

Corporate Majority

$99M

1

Date

1/7/2022

Exit

Corporate Majority

Companies

Valuation

$99M

Acquirer

Sources

1

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