With 'dead' malls littering the landscape, the churn in India's shopping sector continues. A fresh bunch of contenders are trying to change the way malls are conceived and run
Bengaluru: The first thing that strikes a casual stroller walking into The Grand Venice mall in Greater Noida is how eerie it all looks. The dimly lit ambience and pastel yellow paint, along with the old-time gaslights, supposedly a replication of Venice, only add to the effect. A few selfie-taking youngsters are sprawled on the main stairwell leading to the mall, but nobody asks them to give way since there isn’t much of a crowd passing through. “I think they’ll shut down in a year or two," said Manik Vasudev, a first-time visitor on a recent weekday afternoon. “I don’t think I’ll come again," he said.
Vasudev was standing next to the lead attraction, a gondola ride along the “san polo canal", a thin strip of water about four feet deep. The ride is open for limited hours, mostly in the evenings. The gondola is a “curious attraction" which should bring more people, Vasudev feels, “but the people who live nearby don’t have a ‘mall culture’. They sold their agricultural lands to the government in exchange for plots", he said. It’s hard to attract footfalls given these realities, though the only other mall in the vicinity of The Grand Venice is a good 5km away.
Despite all the talk about a booming consumer market, the mall business in India has been tough. It has gone through several cycles in just over two decades, and owners are now increasingly trying to find unique points of appeal, including attempts to bring Venice to Noida.
The past decade has especially been a roller coaster ride for India’s shopping malls. In fact, 2017 witnessed large-scale closures, and nearly 5 million sq. ft of retail space was wiped out, leading to the phenomenon of ‘dead’ malls, show estimates by Anarock Property Consultants. Since 2008-09, it has been a prolonged period of under-performance. Several developers are now exploring opportunities to convert retail spaces into offices, mixed-use developments and hospitals, among others.
But despite the many hiccups, such as the advent of e-commerce, which has been threatening to unseat traditional retailers, and the rising number of ‘dying’ malls, there were more than 500 operational malls across the country as of 2017. Besides, the past three years have also witnessed unprecedented enthusiasm by marque global investors to buy or build malls, making them bigger and different from what Indian shoppers had so far been used to. “It’s clear that shopping malls are (still) evolving in India. They are a work-in-progress with no permanent solutions. It’s a consumer-centric business, so if you don’t remain relevant to the customer, you lose out," said Kishore Biyani, chairman and chief executive officer, Future Group.
CHIP AND CHOP
The new, evolved malls, including the ones that are being developed, are not only larger in size and better looking, but have been set up at prime locations with a higher food, drink, entertainment and play quotient under the same roof. They also have a broad retail mix, with something for every member of a family. Over the next five years, nearly 85 malls, are expected to come up in India, of which more than 30 malls, spread across 14 million sq. ft, will be developed in the top eight cities by 2020, Anarock estimated.
This apart, scores of under-performing malls are being renovated to boost footfall and generate higher revenues. The process is simple: give them a new look and feel, upgrade infrastructure, change the tenant mix, rebrand and reopen to the public. For instance, the Capital Mall in Bhopal, formerly C21 mall, is being repositioned as a ‘smart’, cashless destination with an app of its own. The move followed a 40-45% drop in occupancy. “Malls are evaluated on footfalls, trading density (sales per sq. ft) and customer satisfaction index. A mall needs to bring back customers again and again," said Susil Dungarwal, chief mall mechanic, Beyond Squarefeet Advisory Pvt. Ltd, who is overseeing the leasing and mall management activities of Capital Mall.
Sample this. When the Nirmal Lifestyle mall opened in 2003 in the central suburb of Mulund in Mumbai, people came even from far-off places. The mall did well for almost a decade and, then, the number of visitors dropped. Instead of refurbishing the 500,000 sq. ft mall, the owner and developer now plans to build a bigger, better mall across the road. “Lot of other malls started coming up nearby, new brands came in, the needs changed," said Rajeev Jain, director, Nirmal Lifestyle. Clearly, most malls lost out on inadequate investments in researching the right tenant mix, leasing expertise and the right mall management partners, property consultants said. Now, many are being turned profitable through focused, mixed-use tenanting, and a complete revamp of the business model.
THE NEW MALLS
In Biyani’s words, malls have evolved and grown into spaces where people meet. There are “business meetings, casual friendly gatherings and even matrimonial meetings". It has become increasingly evident that malls cannot depend on shopping as the only source of revenue-generation and footfall, and, therefore, the focus is shifting towards food and beverages (F&B) and entertainment. The managements of new-age malls want the consumers to not only spend more time, but are upgrading their offerings to persuade them to return. They want to bring in the millennials, who are predominantly online shoppers.
“The idea is to make a person spend 5-6 hours in a mall and do much more than just shop. She ends up spending more money. Everything adds to the turnover of the mall and everyone benefits," said Anuj Kejriwal, CEO and managing director, Anarock Retail.
With large global investors, such as Canada Pension Plan Investment Board (CPPIB), APG Asset Management NV, Virtuous Retail South Asia Pte. Ltd (a joint venture with Xander Group Inc.) and Blackstone Group, entering the shopping mall business to ride the wave of India’s urban consumption story, lots has changed. Given that the investors have pumped in ‘patient’ capital, and are willing to stay invested over 7-8 years, the new malls are being built at a cost of ₹ 5,500-6,000 per sq. ft, compared to the earlier ₹ 2,500-3,000 per sq. ft. They are bigger in size, often a million sq. ft or more, compared to the neighbourhood malls of 200,000-400,000 sq. ft.
The generic food courts of the earlier malls, which have lost significance, are being replaced with a broader variety of restaurants and pubs, considered to be a major revenue generator. They have a wider retail mix, offering luxury and high-street brands, along with the usual big department stores. As a strategy, mall operators are adding commercial office space and hotels, leading to retail-led mixed use developments, of which the mall is a key component. One of India’s most successful mall developers, Phoenix Mills Ltd, has been building large office spaces in many of its malls, in a bid to improve performance of its retail assets and boost footfall. “Office space is the new anchor for shopping malls," said Atul Ruia, joint managing director, Phoenix Mills.
Both Phoenix-CPPIB and Nexus Malls, Blackstone Group LP’s Indian subsidiary, have been buying out both under-construction and operational malls and giving them a makeover to make the business profitable. According to Nirzar Jain, senior vice-president, operations, Nexus Malls, the company has taken over several operational or near-ready malls to turn them around with a year or so.
When Blackstone acquired the Alpha One mall in Amritsar, it upgraded the parking area and toilets, created an ‘events’ area, brought in international brands, changed the retailer mix and repositioned it as Mall of Amritsar. Now it is looking at 93% occupancy compared to the 65% it had since its inception. “We don’t differentiate between a visitor going to our mall for a meal, a movie or shopping. When you visit a mall, it is a service you are consuming. What we need to create is stickiness of footfall and use technology to understand customers better," Jain said.
Low vacancy levels and high rentals in tier I cities are now also paving the way for retail expansion in tier II cities such as Lucknow, Coimbatore, Chandigarh, Mangalore and Ahmedabad. An alliance of Phoenix Mills Ltd-CPPIB recently bought two malls in smaller cities, while over 50% of Nexus’ nine malls are housed in distinctly smaller urban centres. Clearly, the next wave of changes in malls will be found in the mini-metros of India.
Mint Short Story
What: Nearly 5 mn sq. ft of retail space was wiped out due to large-scale closures of malls in 2017, leading to the phenomenon of ‘dead’ malls in India. Mall owners are now increasingly trying to find unique points of appeal to increase footfalls.
Who: A lot has changed since large global investors, with ‘patient’ capital, have entered the shopping mall business to ride the wave of India’s urban consumption story. These investors are willing to stay invested for over 7-8 years.
How: The new malls are not only larger in size and better looking, they have a wider retail mix, offering luxury and high-street brands. Mall operators are also adding commercial office space and hotels, leading to retail-led mixed use projects.
Ajai Sreevatsan and Deepti Govind contributed to this story.