Shopping malls in India have definitely come of the age – from being mere shopping arcades, offering products and services to providing wholesome shopping and leisure experiences to consumers. In other words, malls have gone through a complete learning curve, with many bringing world-class experience to their patrons. Right from the time that consumers enter the parking lot of the mall to their reaching the mall lobby and the stores, shopping malls today have started providing enthralling conveniences and services to the consumers. They have upped the ante and have braved the challenges that posed a severe threat to their existence. Retail realty in India has gone through a period of great introspection and the malls that were able to realise the issues have taken remedial measures to emerge undaunted.
While some of the malls learnt it the hard way, there were others took cue from the mistakes made by their predecessors. However, if we talk about the mall scenario of today, then urban India is still witnessing a time where the supply of organised space is much more than the current demand and
consequently, the vacancies are quite high. Today, the retail realty in India is facing a Catch-22 situation where although retailers are looking for spaces, there seem to a dearth of quality mall spaces. These are some of the challenges that are bound to lay open zillions of opportunities, encouraging developers and promoters to look at solutions that ensure that these assets are much more sustainable as consumption markets. We at Shopping Centre News tried to delve deeper on the subject of the evolution and potential of malls in India.
Changing dynamics of mall industry
The retail real estate sector is a significant contributor to India’s economic activity. The sector has gone through an unprecedented growth over the last decade, driven by robust economic growth, rapid urbanisation and changing lifestyles and aspirations of the Indian retail consumer. From less than 1 million sq.ft. of mall space in 2001, the Indian organised retail sector has increased manifold.
Also, due to the opening up of Foreign Direct Investment (FDI), India is emerging as the favourite retail destination for investors, who are making a beeline to enter this lucrative market. “The recent liberalisation of retail FDI norms, the outstanding success of some recent entrants, such as Zara and M&S, and the constant quest of overseas brands to expand into high growth markets will continue to be some of the key growth drivers in the near future,” says Prodipta Sen, Director, Alpha G:Corp Management Services.
According to Sen, even small towns and cities are witnessing a major shift in lifestyles, preferences and patterns, and have thus emerged as attractive markets for international retailers to expand their presence in a concerted manner. Preference for modern retail, rising population of working women, desire for better quality products and easy availability of international brands are all factors that are driving this growth. Thus, the retailer has become crucial to the realty investor when it comes to mall development.
Evolution of malls
Although mall culture is still evolving in India, due to changed consumer behaviour and shopping habits the malls have evolved tremendously, just as the term ‘shopping’ has evolved over the years from just buying to having an ‘experience’. Speaking on the same, Shubhranshu Pani, Regional Director – Retail Services, JLL India says: “Shopping malls have evolved from merely offering products and services to providing wholesome and exceptional experiences to consumers. Right from the time that consumers enter the parking space in a mall to their arrival in the mall lobby and the stores, malls have started providing world-class conveniences and services.”
Also, due to the increase in online shopping, it has become imperative for shopping mall developments to attract consumers by offering superlative experience and conveniences. Malls must now deliver a combination of offerings in terms of shopping, entertainment and leisure, as well as food and beverages (F&B) options.
As per Pani, the introduction of newer concepts and retail formats positively impacts footfalls in a shopping mall, and can be undertaken by reassessing the current space utilisation and creating space for newer attractions. Nowadays, mall developers track the performance of brands in terms of sales per square feet on a regular basis. This helps them assess whether brands are utilising space optimally.
Developers have started to proactively manage store churn and optimise their shopping centres’ performance. They are acknowledging the importance of retaining an optimal tenant mix to ensure the maximum utilisation of retail space.
The new age consumer is better informed than ever before. The exposure to global fashion, tastes and lifestyles has made people more conscious while making a decision.
Commenting on the same, Manoj Agarwal, Head of Operation, Elante Mall says: “Malls today cannot be restricted to only selling products and services but also need to be a place where they can help visitors in taking a purchase decision and gain a wholesome experience. Herein the concept of fashion tips, suggestions on what goes the best with a particular customer’s look and personality, makeover tips keeping the desired look in mind, healthcare tips, etc. would need to be offered. These services would certainly establish a customer connect with retailers and their products.”
According to Benu Sehgal, Mall Head – Mall Management, DLF Place Saket: “Earlier, average-sized malls were considered as the success formula for developers. Now, one cannot run a mall with mere two-three anchor stores, a few vanilla retailers, and one kind of cinema and a simple food court.”
Malls with average size are passé. Today, it is all about large size destination malls which offer entertainment, retail and everything else rolled into one.
A sneak peak on current mall supply
Industry experts feel that the year 2014 was slow in terms of retail real estate growth. Expressing his views on this, Pramod Dwivedi, Head – Marketing, Ambuja Realty says: “The retail real estate sector witnessed yet another slow year in 2014, with limited retail space getting added to the total supply. While supply has exceeded demand in many of the major cities in the country including Raipur, in Kolkata the demand has been more than supply. The situation is similar in other eastern regions like Patna, Bhubaneswar, Guwahati and Ranchi.”
Taking the view forward, Pushpa Bector, Senior Vice President and Head (Leasing & Mall Management), DLF Mall of India, asserts, “As we see, there are very few quality malls coming up this year and the mall supply is decreasing owing to the deep pocket investments involved. There are multiple factors in the ecosystem of the real estate sector including sky high rates of the land, rising costs of raw material and construction, various approvals etc. all of which in turn account for the inflationary effect on the overall project and result in delay of the project.”
“There will always be a huge demand for malls which are built, operated and located well. Today, brands prefer malls that have a good brand mix and that cater to the catchment; hence, the demand for this kind of mall will always be higher. With newer international brands coming in, there is a demand and supply gap especially in the metros. When it comes to quality mall spaces, where shops are leased out, designs are optimal and the management does a good job of controlling brand mix and marketing, there is no glut. However, when we talk of ill-designed malls that are strata sold and have poor managements, a glut certainly does exist. Developers need to look at providing quality space to retailers since there is a huge gap between supply and demand,” informs Mukesh Kumar, VP, Infiniti Malls.
Looming challenges for retail developers
The Indian retail space is likely to see healthier growth in coming times. But shopping malls, with record new supply coming into stream, will continue to face challenges in adjusting to competition, the growth in e-commerce and other factors.
Cost of the land
“Availability of quality real estate space, appropriate size stores and affordable rental values are the some of the issues that plague the retail real estate industry. However, with the new government’s change in policies and growth in economy, the retail real estate industry is expected to shape up,” quips Dinaz Madhukar, Senior Vice President and Mall Head, DLF Promenade.
Echoing Madhukar’s opinion, Yogeshwar Sharma, Chief Operating Officer, Select Infrastructure Pvt. Ltd. says: “Availability of land at a reasonable price and in the right catchment is a big concern, as wherever the land is available the catchment is missing. For instance, one cannot think of setting up a mall in the south of Mumbai due to non-availability of land. If the land is available, then it will be too highly priced. One must also bear in mind that it takes a lot of time for a mall to reach its break-even point.”
To counter the situation Deva Jyotula, GM, Malls-Kalpataru Retail Ventures Pvt Ltd., says, “Working with government to create centres that are integrated with the physical infrastructure would not only provide a reasonable land parcel but also ensure financial viability and good connectivity for the malls. Eg. Integration with Metros or Local railway stations. A mixed use development that combines residential, commercial and retail will also mitigate the 1st three challenges to a great extent.
Developing multi skilled manpower along with the leading educational institutes, improving use of technology and exploring alternate sources of power can help in reducing the rising expenses of a shopping centre.”
“Good access to roads and concomitant facilities like power and electricity supply are the major challenges in setting up a mall. While operating in tier-2 and -3 cities, developers also face challenges in terms of political and social risks. The government should provide good infrastructure in terms of roads, power, water supply, etc. and focus on scaling up developmental activities. Also, policies should be liberalised so as to reduce the approvals required for operating a shopping mall,” shares Pani.
Speaking on same, Sudarshana Gangulee, Sr.GM – Marketing, Mani Group, Says, “Once the leasing-mix has been addressed, what lays the foundation for a successful retail destination is the ease of the shopping experience. This is where mall-design and infrastructure planning comes in. A successful shopping center is one with smooth entry and exit options, sufficient parking provision and well planned infrastructure. Particularly important are utilities like toilets, sufficient vertical transportation options like escalators / elevators / staircases to handle the expected footfalls, and access for differentially-abled people to all areas of the mall. Finally, what will complete the successful mall model is having the right human infrastructure – efficient and courteous housekeeping and security staff, and an effective mall management team.”
In India, most malls have been conceived as destinations for high-end / luxury retail, completely disregarding whether the catchment can support these brands or not. What is essentially required for each shopping center is to understand what the basic brands and the aspirational brands are for its catchment profile – and then target those brands in the marketing and leasing plan. At the end of the day, it will be the cash registers ringing in the different shops that will be the only true yardstick of the success of the shopping center, she adds.
Emerging challenges from e-commerce boom
Growth of the e-commerce segment has led to increased activity in the warehousing segment of real estate, but has also led to a decline in demand for malls. Online retailing is now increasingly becoming the trend and the most preferred mode of purchase across the world. Since these ventures have fewer overheads, lower rentals to worry about and no large-scale staff wages to pay out, online retail is the trend to watch out for. The e-commerce market in India is much smaller than in other international markets, but it is growing at a rapid pace. While there is no doubt that the internet is changing the retail experience, Indians are still trying to build confidence in online transactions. Once that is established, online transactions and business will see an alarming boost. Forrester Research estimates that Indian online retail spending will reach US$ 16 billion by 2018, from US$ 3 billion at present, and the number of online buyers will touch 128 million in the same period.
“The biggest challenge to look out for is ‘e-retail’. Due to the growing size of e-commerce, if a developer looks at opening a mall, they must first decide on the mall size so that the retailer as well the developer can churn out the required money,” informs Sehgal.
Adding further, she says: “Gone are the days when it was sufficient to have 5–6 million sq.ft. of retail space for a mall. Hence, e-commerce is emerging as a huge segment, which one cannot turn a blind eye to. We need to integrate e-commerce with malls. Retail should happen as the by-product, and more focus should be levied on entertainment.” As a remedial measure, she advocated that the government should provide more reforms on entertainment tax.
Taking a counter view, Vivek Kaul, Head of Retail, CBRE South Asia Pvt. Ltd. says: “People go to a mall not only to shop but for a complete social experience, be it entertainment or food. No doubt e-commerce will have an impact on certain retail categories, however it is my opinion that it will not impact all categories. The advantage brick and mortar retail establishments have over e-commerce is experience. As long as retail real estate developers are innovating their retail spaces, e-commerce will not be a threat to them.”
Existence of ‘Licence Raj’
“As many as 63 permissions are required to set up a mall,” informs Sehgal. According to Sharma: “Regulations and licensing are some of the other constraints to set up a mall. Every developer has to go through a number of approvals, which are extremely time-consuming.”
Highlighting the remedial measure he quotes: “Things may improve with single-window clearance or less number of authorities involved.”
Taking it further, he says: “The other factors which impact are lack of mall industry based rules and regulations, for instance employment rules and laws, lack of clarity on third-party power purchase, power trading and building plan or code requirements. In order to have more uniformity in standards, it may be good if mall categorisation is done on the lines of hotel star rating system so that customer perception and expectation from a particular centre is well governed.”
No industry status
Speaking on this issue, Kumar Agarwal shares: “The government has to take concrete steps towards giving Industry status to malls. Creating the right environment for investment in infrastructure and utilities will boost the industry as a whole. A separate tax structure is definitely on the wish list of mall owners. The government should be more transparent with regard to FDI multi-brand retail, which would give a significant boost to the sector. With a stable government in place, which is pro-reforms at the centre, the future for malls in India looks bright.”
The future of malls
Industry veterans are hopeful that the quality of shopping malls would improve in the future, and more superior-grade malls will be developed. Shopping malls will evolve further and large-scale regional malls as well as specialty malls will be built to cater to the growing demand. Also, the management and operations of the shopping malls will improve, as both consumers and retailers prefer well-managed and international-standard shopping centres.
“The planning and development of malls will also get upgraded dramatically with the adoption of sophisticated planning strategies and tools. Increasingly, developers are emphasising a ‘right planning’ approach in order to arrive at an optimal concept and positioning for their shopping malls,” says Pani.
According to Ganesh CV, Vice President – Leasing & Marketing, Express Avenue Express Infrastructure Pvt Ltd, : “All of us dream that by 2030 we will be a market like that in Singapore or Hong Kong, but the bitter truth is that we are not equipped to provide the basic infrastructure for sustainable growth. By 2030, all the malls in India should go green and use alternate resource conservation methods to tackle the scarcity of resources.”
The retail real estate industry is expected to grow over the next few years. The trend may change in terms of requirement of space by the retailers. Most would certainly prefer mall space since it is more organised and preferred by the consumers due to the secure environment it provides with parking facilities, friendly staff, etc.
“The average store sizes will shrink. It is estimated that only 17 per cent of the retail brands in India are profitable today. Also, most retailers inform us that up to a 20 per cent drop in area does not really dent their top-line. Further, even a 30 per cent drop in area reduces their top-line by just 10 per cent. However, such cutting down of store sizes dramatically enhances their store level profitability as there is a significant saving in rents, Common Area Maintenance (CAM) and operating costs where the revenues stay around the same levels. Further, such downsizing only help retailers contain capital exposure in the stores that are not yet fitted out,” says Kumar.
Highlighting the views on same, Rajendra Kalkar, Senior Centre Director (West), The Phoenix Mills Limited says. “In the coming years, shopping centres will evolve significantly. The retail industry will have to make sure to curate new experiences to attract customers. Consumers today look for an experience that is more fun, and real, with more variety in the shopping experience, and thus new forms of architecture and design, natural sunlight, integration with the outdoors,
alternative uses like better and more innovative restaurants, etc. continue to gain traction with the consumers. By 2030, we expect shopping centres to be livelier, and work towards experiential marketing. The malls will be full of innovative experiences instead of brick and mortar shopping places.”
Clearly, there is no doubt that the Indian retail real estate sector will establish itself as an important asset class for investment in the coming years. The market will mature, and projects that offer favourable parameters in terms of location, accessibility.