Wednesday, March 4, 2015

Indian Malls-Where are the customers?

What is a Mall? It is am American innovation for attracting customers by providing a comfortable shopping experience where a variety of products, mostly consumer oriented, with different brand names and some services are offered under one roof. Before the advent of Malls in a big way, there have been shopping arcades which also provided essentially the same service but on a smaller scale. Malls are generically huge in size with different individual shops with their own characteristic ambiance, inter connected for easy access and generally have food courts for refreshment and meal service. Being mostly air conditioned they provide protection from severe summer heat or winter cold. It is estimated that business volumes in such Malls for branded products are comparatively high because of high visibility and more foot prints of consumers. The ease of parking vehicles makes them particularly attractive for urban consumers, especially in India where most roads are cluttered, with parking space being at a premium! Still why the Mall concept is not catching on in India as expected though there are many established ones in a few cities like Mumbai, Hyderabad, Bangalore, Chennai, Delhi, Kolkatta etc? Here is an incisive analysis of this phenomenon which explains why Malls are not taking roots in India.

"Revenue from organised bricks-and-mortar retail in India is expected to more than triple to $150 billion by 2020, according to consulting firm Technopak - spurred by a raft of foreign retailers planning their first foray into the market, heating up competition for mall space. In the past six months, Gap Inc (GPS.N) has said it plans 40 stores, The Children's Place (PLCE.O) is looking at 50 while Hennes & Mauritz (H&M) (HMb.ST) has plans for an initial 50 shops. Established brands are also expanding, with Marks & Spencer (MKS.L) aiming to lift its store numbers to 80 from 45 by 2016/17. But India has only 77.6 million square feet of mall space, less than one tenth of U.S. levels, despite having nearly four times the population, with the shortage of attractive malls most acute in New Delhi and Mumbai. One in every six stores is empty, according to property consultants Jones Lang LaSalle, while advisory and management firm Beyond Squarefeet estimates thatup to 25 malls have been shut or converted to other uses in the past two years. That does not include two of Mumbai's oldest suburban malls, Centre One and Nirmal Lifestyle, which have said they are shutting down as shoppers stayed away. Many centres, especially those that went up during the 2006-2007 real estate boom, were built by developers with little mall building experience. Ownership of shops was often sold off piecemeal while many do not have sufficient parking for shoppers or areas for retailers to bring in their supplies. "Many of the malls that grew up did not even think of these things," said Kumar Rajagopalan, CEO of the Retailers' Association of India. Until new and better malls are built, some retailers are looking at alternatives such as leasing standalone shops that can often be less lucrative or investing big in fast-growing but nascent online services. "We...have to look at online spaces in a bigger way much earlier than before, because there is definitely a big shortage (of physical retail space)," said Govind Shrikhande, managing director at Shoppers Stop."

When government of India opened its arms to foreign companies to invest in India in the retail sector lot was expected and it was assumed that international retail chains would flock to India for setting their shop here. Alas this hope seems to have dashed looking at the retail landscape at present. Though many malls and supermarkets were established with lot of enthusiasm, due to poor customer response a significant number of them have already downed their shutters. Though market experts expect that the organized retail sector (a euphoric term for super markets, hyper markets and the Malls) would triple their business volume by 2020, it is a highly optimistic forecast, unlikely to materialize fully. We may recall how pundits were predicting the death knell of our traditional "mom and pop" stores, estimated to be about 8 million in number, once organized retailing comes to India with better resources, organizational skill, management wizardry, decades of experience and financial muscle. What happened? The ground reality is that they are not able to capture even 10% of the retail market business, in spite of struggling for past one and a half decades! Probably unlike in other countries, in India these super business models may not get a supremacy over traditional vendors in the foreseeable future and there has to be a peaceful coexistence between these two competing groups!


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