With only a dozen of malls surviving out of more than 200, I think the picture of Indian malls is fading gradually.
This is the scenario of the Indian Malls at present and I presume it will be enough for the readers to envisage what I am going to mention about in the next few pages.
It has been almost one decade of presence of shopping centres in India, as the first center appeared in late 90s – Ansal Plaza, New Delhi and since then the expansion really accelerated in 2002 – 2003. In the year 2008 – the year of economic slowdown, the development was less than expected and it is evident due to the fact that:
– 34 centres were opened (whereas 74 were planned for opening at the beginning of 2008)
– 8,050,000 square meter GLA (whereas 1,800,000 square meter was expected)
Besides the economic downturn, the problem also comes from the developers and retailers. In order to understand them better, a detailed study of the same is given below:
- Developers – The Greed for More
On one hand, it is good to see Indian developers investing and providing excellent infrastructure to the country which certainly enhances the overall image but on the other hand it is disappointing to see the blunders done by them for their own properties. Personally, I believe that a developer can accord to both Residential and Commercials at one time but when it comes to Shopping Centres (SC); they should not fire at their own feet!
The following attributes will give a brief idea of the mistakes done by the developers in past:
- Poor site selection:
Selecting a location without even analyzing about the primary catchment area is a mistake commonly seen. There are many instances in the country wherein erecting a mall at National Highways has been a failure.
- Vertical expansion:
This country has seen a lot of vacant malls with multiple floors. The ideal case is to have a shopping center with lesser number of floors no matter even if the size of the shopping center is small.
- Commercialization Issue:
Poor commercialization is like a house built on sand – it will fall down any day. The first objective should be to position anchor stores in their respective position and second is to attract the vanilla brands by using anchors as a tool. It is also important to note here that with a good floor plan and bad commercialization, things could still work but poor floor plan along with good commercialization may lead to irreversible changes.
- Lack of professional advice:
It is always better to take professional assistance before the commencement of project rather than after its completion, which undeniably reduces the scope of improvement as well as increases costs more.
- Design issues:
It is rightly said that easy plans normally work, the more complicated you make, the more difficult it becomes. There are many instances like: the strange floor plans – proving to be a hurdle for the shoppers, no sitting arrangements, unplanned tenant mix – not making a mall a destination, low quality local stores or kiosk and so on that is diluting the overall image of the project.
- Retailers – Irrational decisions
The slowdown of 2008 has been a great lesson to the Indian Retail companies; they call it lately as correction! Before the year 2008, the expansions had been enormous but now the buzz is “expanding but cautiously.” After reading the factors listed below, one can certainly say the retailers have burnt their fingers themselves:
- Juvenile expansion:
Before the downturn in 2008, the retailers used to expand frantically almost in every SC without giving much importance to factors like location, catchment analysis, long term vision, presence of the actual buyers, reputation of the developer and much more. These lead to problem of surfeit for which the retailers are still in distress.
- Sky -scraping commercials:
During this massive expansion, the retailers were at ease to pay high fixed rentals which resulted in high fixed operating cost. Equivalently, the slowdown had a direct impact on the turnover which landed retailers in a miserable condition. This resulted either in closing down of unprofitable stores or re-negotiations with the developers to reduce the rentals.
Thus, the term Revenue Sharing was introduced; convincing people of the fact it is a Win – Win model.
- Brand visibility was more important than store profitability:
The expansion (prior to year 2008) accelerated in the most imprudent manner considering the fact that brand visibility* is more important than store profitability leading to calamity for many!
*For retailers, the numbers of stores are directly proportionately to brand visibility whereas store profitability is the result of high turnover and low operating cost.
4. Poor store visibility:
In order to enhance brand visibility; more and more outlets were opened which lead to poor project (mall) and location (store) selection. This yielded in low turnover and wastage of enormous capital expenditure on every store. The selected locations were so poor that even with the best marketing and information tools; no one was aware about the existence of these stores.
Hence, it was a Win-Lose situation wherein; the developer was successful enough in leasing out his space but not the retailer!
The road ahead:
The coming year will have a lot of consolidation. The existing smaller or vacant malls will either be converted into commercials or will be acquired by the larger players. The commercialization strategy will improve as the developers have seen enough and have learned to reject the worst and select the best. The tagline “everybody is welcome” will no longer be entertained and the landlords will be more selective in case of tenant mix and assigning locations.
To assimilate the above, complete and professional asset management services are required to assist the developers and to create a good balance between the customers, retailers and the owners. It is possible by correct succession of steps beginning from thorough market research till the designing of the property.
Considering the fact that Indian real estate market has high potential and long way to go; the current phase demands improvisation through professional consultancy and other allied services. It is the time to see how owners employ the best use of these services in future.
And if all this is incorporated, one can hope that Indian Malls can once again be on a path of glory.
Author: Amanpreet Singh Banga, Commercial Manager, Segece India, New Delhi, India