In search of footfalls

When he returned to India in 2001 after completing an MBA course in the US, a young man from Mumbai got an unusual gift. His father, a real estate developer, decided to present him a mall. He believed his son could spend the rest of his life earning big bucks managing the sprawling shopping complex in India’s financial capital.

Another builder was so impressed by the money his cousin was making through a mall in Jalandhar that he decided to build one in Ahmedabad.

Both decisions, inspired more by the mall rush of the last decade and less by business economics, bombed. After incurring losses in crores of rupees, both malls were converted into commercial spaces some years later.

Lack of planning Across India — in Delhi, Chennai, Kolkata, Mumbai and everywhere in between — there are many similar examples of malls being built without much thought and planning.

Over 40 malls are estimated to have either been shut or converted into commercial real estate in the last two years. In Ahmedabad, nearly a third of the mall space is lying vacant. In Bangalore, some projects that were expected to be operational by the end of 2013 have been deferred.

In some cases a city’s infrastructure has not kept pace with the growth of malls, creating accessibility issues.

Meanwhile, more malls continue to come up. In 2013, an estimated supply of around 5.2 million sq. ft. was registered — 22 per cent more than last year, according to Jones Lang LaSalle India.

Susil Dungarwal, founder of mall management firm Beyond Squarefeet, says that apart from the 250 malls in India right now, 400 more are either under construction or at the drawing-board stage. This supply will be added in the next four years. And if the organised retail scenario does not improve, these will only depress the market further.

Adding to the woes of mall developers, online retailers are taking away a substantial number of shoppers (see story below).

Future tense With so much going against them, can malls continue to run as they have for the last 15 years? Or do they need to rework their strategies to get footfalls that are converted into sales?

Kishore Bhatija, MD and CEO of Inorbit Malls, a subsidiary of the Mumbai-headquartered K. Raheja Corp, says most malls failed as they were sold on a piecemeal basis. “When builders start selling shops without bothering about the brand mix within, things are bound to go wrong.”

He backs the leasing model, where the developer leases shops to retailers and continues to maintain the property.

Pushpa Bector, Senior Vice-President and Head (Leasing and Mall Management), DLF Mall of India, agrees. “DLF follows the leased model, which is successful and profitable,” she says. “We earn money through minimum guarantees or a revenue share from every retailer. As the topline of a brand increases our revenues increase.”

MIXING IT RIGHT In malls where space has been sold outright to retailers, developers do not have any control over the category or brand mix.

The country’s first mall, Chennai’s Spencer Plaza, is a case in point. M. Balasubramaniam, Director of Mangal Tirth Estate, which developed the mall, says Spencer Plaza did well for a decade from 1991. However, walk-ins started falling in the absence of a good brand-mix. “In 1991, the concept of an anchor store was not there. The likes of Big Bazaars or Lifestyle were not around then. When these big retailers came up, we could not rope them in since we had already sold the retail space to various entities, failing to ensure an attractive brand-mix. So, the mall is not very relevant to current times.”

Most malls learn after making mistakes, says Dungarwal of Beyond Squarefeet. While location can make or mar a mall, the layout and design are important too. “Moreover, if you don’t have an interesting mix of categories — food, entertainment, shopping, etc — footfalls are bound to go down,” he says.

The high-end Atria mall in Worli, Mumbai, is a good example. The mall, which opened in 2006, is now up for sale. It has poor road access and is not close to any railway station — essential for footfalls in Mumbai. Even the category mix was not exciting, particularly the absence of a multiplex.

Inorbit’s Bhatija says the brand mix of a mall should be created keeping in mind the catchment — the area from where customers come to the mall. He points out that when Inorbit opened in Mumbai’s Malad suburb a decade back, properties were affordable. But over the years, property prices have gone up and affordability has changed. “You have to tweak the brand mix accordingly,” he says.

Mangal Tirth Estate’s Balasubramaniam adds that the success of a mall also depends on maintenance. This includes housekeeping, security and support services, such as a power backup.

Myriad challenges Gulam Zia, Executive Director, Advisory (retail and hospitality), Knight Frank India, says it is difficult to construct malls within city centres due to high costs. “And outside city centres, road infrastructure does not support movement of consumers. We don’t have great modes of transport and roads and it is way beyond the control of the real estate industry,” he adds.

While there is no dearth of malls in India, there is an extreme shortage of good mall space, says Arvind Singhal, Managing Director of advisory firm Technopak. “Badly designed malls have to be content with smaller retailers,” he says.

But inadequate design, poor location and a weak brand mix are not the only factors hindering the growth of malls. Analysts believe that organised retail itself has not taken off in India.

According to retail project development advisor Asipac, average trading density — the collective total sales a shopping centre or mall achieves for its retailers — has grown at only 6.2 per cent in the last four years due to the economic slowdown.

Asipac says the average trading density for malls nationwide is Rs 1,184 per sq. ft. per month (psfpm), based on carpet area. The estimated average trading density of the best performing mall — Select Citywalk in Delhi — is Rs 2,300 psfpm, almost double the national average (See table: How much they make).

In comparison, the average trading density for malls in the US works out to Rs 2,925 psfpm and Rs 2,750 psfpm in Bangkok. “We believe that Indian malls are attracting the wrong retailers. Unless malls attract traditional local or regional retailers, they will continue to flounder,” says Asipac.

>rashmi.p@thehindu.co.in

(With inputs from R. Ravikumar in Chennai, Anil Urs in Bangalore and Ayan Pramanik in Kolkata)

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