Meet the two players bringing the mall back in fashion

Call it pent-up demand or revenge shopping, but urban India’s pre-covid mall mania may be back. Spearheading the turnaround are the ‘big two’ operators with the largest portfolios—Phoenix Mills Ltd (PML) and Nexus Malls, the retail platform of global asset manager Blackstone Group. Between them, the duo has 25 operational malls. More are on the way as the two companies strive to create aspirational retail and leisure destinations for the post-pandemic, e-commerce-savvy consumer. Though their strategies are different, together they are reshaping the business and determining how malls in the future would be run, say analysts. It helps that both players are backed by a pan-India growth strategy, market dominant retail positions, expansive portfolios, investments and strong operational models.

Other developers like DLF Ltd, Lulu Group, Inorbit Malls, Prestige Group and Abu Dhabi Investment Authority-backed Lake Shore, too, aren’t far behind in their expansion plans.

Numbers speak

But first, a look at the numbers. Mumbai-based Phoenix Mills saw retail consumption at 133% this October, compared to the corresponding month in 2019, considered a fantastic year for retail. The Palladium mall, in fact, was the top performer in terms of sales. Blackstone’s Nexus Malls, which is set to launch India’s first retail real estate investment trust (Reit) soon, too, saw 140% and 110% recovery in sales and footfalls, respectively, during the same period. Even DLF Malls saw a 32% rise in sales. The momentum is expected to continue.

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“The retail mall industry has undergone pain and consolidation, and today we have fewer but strong players. Retail is a mix of real estate, hospitality and retail. It needs patient capital. Those who have understood this have survived," says Pankaj Renjhen, chief operating officer and joint managing director, Anarock Retail.

While there has been a near wipeout of poorly managed malls, the future is bright for Grade A malls—those with high occupancy, strong tenant mix, good positioning and active management. Of the 271 operational malls in the top eight cities, Knight Frank Research estimates only 52 malls are Grade A. Significantly, the number of mall developers has shrunk from 123 before 2010, to only 33 post 2018, indicating greater consolidation in the sector and the rise of a few, large operators.

Big Two ops

The Nexus Whitefield mall in Bengaluru is a template for what large operators can do to a struggling mall. The mall had undergone several avatars before Blackstone acquired it from Prestige Group in March 2021, along with seven other malls. Launched a decade ago by Prestige as ‘Value Forum Mall’ with mainly factory outlet stores, it later transitioned into ‘Forum Neighbourhood Mall’.

Nexus repositioned the property, junked the value segment, changed the retail mix and upgraded its look and vibe to cater to the premium residential catchment around it. It is now reporting about 20% higher sales over pre-pandemic levels. Ditto with Nexus Shantiniketan (formerly Prestige Shantiniketan), which almost doubled its sales during Diwali. Nexus Koramangala, always a well-performing mall, did 40% more sales in October.

In just seven years, with 17 malls spanning nearly 10 million sq ft of shopping centres across 13 cities, Nexus has grown to manage the retail assets of Blackstone, also the largest commercial office space owner in the country.

“Creating a single brand, single platform has worked for us. Large retailers have understood our portfolio spread. We are clear about targeting families who visit malls on weekends. We are actively looking at acquisitions and the opportunity is huge," says Dalip Sehgal, chief executive officer, Nexus Malls, which houses 2,700 stores.

Phoenix Malls, backed by Canada’s CPP Investments and Singapore’s GIC, has a retail-led mixed-bag strategy. Currently, it has eight malls across 7 million sq ft. With four more coming up in Indore, Ahmedabad, Bengaluru and Pune, its portfolio size will jump to 11 million sq ft, across 12 malls. It is scouting for opportunities, both acquisitions and greenfield projects, in cities such as Jaipur, Chandigarh, Gurugram and so on.

“We take bigger development risks for higher returns. It’s a long-term investment model for us, where we want to create large consumption centres. Over 2-3 years, we intend to spend ₹5,000 crore, a chunk of which will go into buying land for future projects," says Phoenix Malls’ managing director Shishir Srivastava.

New strategies

While top operators are looking at large-format destination malls, smaller neighbourhood ones, too, are here to stay. DLF Malls plans to build ‘curated’ neighbourhood centres under a new vertical called Plazas wherever DLF Ltd has residential catchments and office districts. The sizes are smaller— 300,000-350,000 sq ft—and offer ease of shopping, salons, food and beverage and daily needs. Two are under construction in Gurugram and Delhi. It is also building a 650,00 sq ft retail city-centre shopping mall in Goa.

“The mood in retail is one of the best I can remember. People clearly know their online and offline needs. They are coming back to physical spaces, and wherever consumers go, we should be the port of call," says Pushpa Bector, executive director, DLF Retail. The company currently has eight operational malls.

Covid led many operators to redo their properties, optimize costs, and make them more relevant to shoppers. DLF, for instance, caught on the athleisure trend during the pandemic and repositioned the Cyber Hub mall accordingly. It also entirely re-did Delhi’s DLF Avenue, focusing on shopping, dining and culture.

UAE-headquartered Lulu Group’s strategy is to build full-scale malls in cities like Chennai and Indore, flagship hypermarket stores in places like Coimbatore, and mini shopping centres in Kerala. “Now that Kerala knows what Lulu is, we want to be closer to people who can’t always travel to malls, with curated offerings," says Shibu Philips, director, Lulu Shopping Malls India. It is revamping the barely operational Manjeera Mall in Hyderabad into a neighbourhood shopping centre.

Beyond metros

Another huge potential lies in small towns, which saw a growth in e-commerce sales during the pandemic. “Tier 3 and 4 towns have shown huge consumption," says Philips. The Lulu mall in Lucknow saw nearly 10,000 visitors between midnight and 4am on Dhanteras festival (22 October). The 2.2 million sq ft mall sees a monthly average of 15 lakh visitors. About 80% of the property is occupied, with shoppers coming not just from Lucknow but also from Bihar in busloads.

“The mall created a buzz, and now has serious customers. The strategy is to be in growth centres. These cities have smaller shopping centres, and there is a lot of opportunity," adds Philips. Ahmedabad will gain two malls soon, from Lulu and Phoenix, while Indore will have a Phoenix mall in the year-end—each one is a million sq ft space.

Prestige Group, which is rebuilding a new mall portfolio, plans to launch a property under its ‘Forum’ brand in Kochi in early 2023. Inorbit, which recently acquired 17 acres in Visakhapatnam for a mall and office space, is adding 100,000 sq ft to its Hyderabad mall and doubling its shopping centre in Vadodara. Three years on, it plans to open one mall every year.

The growth in retail beyond the metros is not isolated. Smaller cities have also recorded a growing presence of flexible space operators and industrial or warehousing hubs. International brands are gung ho too.

“Brands are looking at larger, experiential stores. Nike, Adidas, Uniqlo are setting up stores in Lucknow, Jaipur and Chandigarh. So they are looking at a combination of tier 1 and II," says Ram Chandnani, MD, advisory and transaction services India at CBRE.

Future of malls

Malls are also amping up the fun quotient of food, gaming and entertainment. “The biggest change has to be upgrading the shopping environment for customers. They have to be easy to access, offer varied food options and have a mix of anchor stores. Gaming could be another new area of interest," says Rajat Wahi, partner, consulting, Deloitte India.

Which is why in its 2.0 version, Prestige is doing things differently. First up is a million sq ft mall on Bengaluru’s Kanakapura Road in December. The developer has reduced the shopping space from 80% to 60%, and included a 50,000 sq ft gaming arcade by Tridom of Dubai-based Landmark Group, a 1,000-seater micro-brewery and 1 lakh sq ft of dining space, including a food court. It will also have a Lulu hypermarket.

“Everything—food, fashion, cinema— comes to the customer on his mobile, in a customized, curated manner. We need to do much more to draw customers out. So we are building the next level of ‘Forum’ malls, which are larger and offer deeper customer engagement," says Muhammad Ali, CEO– retail, Prestige Group. After selling eight malls spanning 4 million sq ft, Prestige is now building six across 6 million sq ft.

Lulu’s entertainment zone Funtura is 55,000 sq ft in Bengaluru, and 70,000 sq ft in Lucknow. “Food and entertainment is a big reason for people coming back to malls," says Lulu’s Philips.

REIT factor

Another game changer in the retail sector will be the Reit. Blackstone is planning to file the draft red herring prospectus for the Nexus Reit this month, and launch the IPO in April-June next year. It will add the Select Citywalk Mall in Delhi’s Saket to the Reit portfolio, which will bump up the enterprise valuation to $3 billion. Through the IPO, the Reit, to be called Nexus Select Trust, aims to raise up to $750 million.

A popular instrument globally, Reit was introduced in India a few years ago to attract investment in the real estate sector by monetizing rent-yielding assets. It helps unlock the value of assets and enable retail investors to participate. So far, three Reits have been launched, but all in the commercial office space.

Reits in retail will be the next big move. “The office markets were redefined and became more mature with the three Reits. A retail Reit will give some perspective on how retail makes money and make it more transparent. It will also offer a platform to other mall operators and show how to liquidate their assets, and provide a fund-raising avenue," says Anarock’s Renjhen.

Rajneesh Mahajan, CEO, Inorbit Malls, says it would provide a great exit opportunity to mall developers or owners. Typically, a mall takes about 4-5 years to construct, and another 6-7 years to stabilize and pay back. Most developers don’t have the bandwidth to hold an asset that long, and will look to institutional buyers to reduce debt.

“Retail is a design and experiential asset. Malls have to be bigger today. The number of retailers has grown, as have categories, store sizes and even trial room spaces. Soon, 800,000 sq ft- 1.2 million sq ft malls may become the norm," says Mahajan.

Not just space, analysts are betting big on growth too. Knight Frank Research estimates potential retail sales in malls in the top eight cities to grow at a compound annual growth rate of 29% in FY 2022-23 period reaching $39 billion by 2027-28. The malls may have got their mojo back, for now.