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Why Malls in India are turning into ghost towns?

Many malls, in India, are shutting down. The article shed light on some reasons explaining why this could be happening.

Tags: malls, vacancy, JLL, Bagpiper whiskey, Royal Challenge whiskey, Blue Riband gin, Blue Riband Duet, Park Avenu

BY Guest author  |  Jun 19, 2017  |  comments ( 0 )  | 
Why Malls in India are turning into ghost towns?

The Indian mall story began the 1990s with Spencer Plaza in Chennai, Ansal Plaza in Delhi and Crossroads in Mumbai. From these two malls to 720 malls (till second quarter of 2016) Indian malls have registered exponential growth. However, vacancy ratio in retail malls is also increasing at staggering pace.

As per the JLL data, India level mall vacancy percentage is staggering 17. However, if we go city wise then picture is not that disappointing, for example in Mumbai has the vacancy ratio of 3%, Bengaluru 4% and Delhi- NCR only 5%. Furthermore, unlike to past, the capital value of superior quality malls is much higher than residential properties. So, the survival of malls located in tier II is only a cause of concern. 

Many malls, in India, are shutting down. Here are some reasons explaining why this could be happening:

1.    Mindset of Mall Owner: Unfortunately, many Mall owners have the mindset of a landlord & they look upon malls as a piece of real estate which they need to lease out in a manner that earns them maximum lease rental. Why do mall owners have this mindset? Because the investment required is gigantic & the gestation period is inordinately large. Therefore they adopt a ‘landlord mindset’ to recoup their investments as soon as possible! The strategy pursued by them to let out space to any ‘person’ who is willing to pay the highest rent result in ‘imbalanced tenant mix.’

2.    Imbalanced Tenant Mix: Take apparel brand owners. Mall offers a great opportunity for their brand. Therefore, apparel brand owners vie to open a store in the mall. Let us assume 3 apparels brands independently approach the mall owner seeking space in the mall for opening a store & are willing to pay the rent demanded by the mall owner. All 3 apparel owners get retail space to open their stores. What happens next? Since all 3 apparel brands cater to the same target segment, hence the business will get divided among them. Result - no one store is able to have sufficient business to even cover its fixed cost. As a result these stores start to run on losses. With time when the initial euphoria dies down & reality sets in, one by one these apparel store move out. The story of apparel stores could well be the story of other stores present in the mall - other stores faced with a similar dilemma move out – because it is unprofitable to operate in the mall.

3.    Absence of an Anchor Store: Successful malls, almost always, have an anchor store –usually a Department Store - like Shoppers Stop or a major retail chain - like Big Bazar, Reliance Retail. Anchor stores ensure that there is a steady footfall in the mall round the year, which invariably translates into business for other stores in the mall.

4.    Easy accessibility & visibility: Malls should be easily accessible & visible from all directions! Malls, which are neither accessible nor visible from a distance, find it difficult to attract footfalls!

5.    Ambience: Mall should have a very attractive ambience, because research seems to indicate that over 60% of purchase decision takes place inside the mall / store. Therefore appropriate lighting, attractive décor, and soothing & peppy music - as per requirement - are just a few things that can enhance the ambience of the mall. Needless to say when the ambience inside the mall is attractive then potential shoppers tend to stay longer, which invariably leads to shoppers, shopping more. But many malls, which have closed or are on the verge of closing, tend to have unattractive ambience, because mall owners do not believe in investing money in creating attractive ambiance. For them it is an expense best avoided! Result: Shoppers avoid such malls!

6.    Attractions: Successful malls invariably have unique attractions. It acts like a magnet to pull in footfalls, which then translate into business for stores located in the mall. Take Dubai Mall – it has Dubai Aquarium; at Mall of Emirates there is an Ice Skating Ring. This means that Mall owners do not have to take every inch of space in the mall & rent it out. They should earmark sufficient space in the mall where unique attractions can be built to attract footfalls. The space utilised for attractions do not result in rental income, but they result in footfalls, which leads to business for tenants housed in the mall. Result: Mall owners can then charge premium rental.

7.    Events right round the year: Mall Owners should organize events at regular intervals, in the mall to keep alive the excitement. Events bring in footfalls, which will result in business for tenants of the mall. Malls can also participates in events. For example most mall do in Dubai participate in Dubai Shopping Festival (DFS). Sadly, Mall owners look upon organising events as an expense, which is best avoided. Result: Shoppers too avoid such malls!

8.    Amenities: Mall owners should offer amenities, which will make the shopping experience more enjoyable. To plan for amenities they should pose themselves the following question – what comes in the way of shoppers form shopping more? And the answer is self-evident.

a.    Tiredness: Shoppers get tired while walking in the mall. Therefore ample seating arrangement should be planned all over the mall to ensure that when shoppers are tired they can sit & recoup there energy before continuing on their shopping spree.

b.    Hunger: Shoppers get hungry while shopping. Food & drink vending machines should be strategically placed in the mall. In addition, a well-stocked food court should be planned to ensure that hunger pangs could be adequately addressed.

c.     Nature’s call: Shoppers do need to use rest rooms. Rest rooms should be strategically located so that shoppers can access them easily.

d.    Basic amenities: In addition, mall owners should also provide basic amenities like adequate car parking facilities, ATMs & more. Malls which are closing down, either do not provide amenities or look upon amenities as a revenue stream. Take car parking – it is priced exorbitantly. On a few occasions the parking charge is more than the shopping bill.

9.    Online Retailers exacerbate the problem: Online retailers have played a significant role in exacerbating the problem faced by mall owners. Money, which could have been spent in the mall, is being spent online … and this trend is unlikely to wane. Mall storeowners contemptuously refer to some shoppers as ‘fit lifters’ – because these shoppers enter the store to ‘touch & feel’ the merchandise, try it for size. And, lo and behold, place order on line for it!

Many malls, in India, are shutting down. Here are some reasons explaining why this could be happening:

1.    Mindset of Mall Owner: Unfortunately, many Mall owners have the mindset of a landlord & they look upon malls as a piece of real estate which they need to lease out in a manner that earns them maximum lease rental. Why do mall owners have this mindset? Because the investment required is gigantic & the gestation period is inordinately large. Therefore they adopt a ‘landlord mindset’ to recoup their investments as soon as possible! The strategy pursued by them to let out space to any ‘person’ who is willing to pay the highest rent result in ‘imbalanced tenant mix.’

2.    Imbalanced Tenant Mix: Take apparel brand owners. Mall offers a great opportunity for their brand. Therefore, apparel brand owners vie to open a store in the mall. Let us assume 3 apparels brands independently approach the mall owner seeking space in the mall for opening a store & are willing to pay the rent demanded by the mall owner. All 3 apparel owners get retail space to open their stores. What happens next? Since all 3 apparel brands cater to the same target segment, hence the business will get divided among them. Result - no one store is able to have sufficient business to even cover its fixed cost. As a result these stores start to run on losses. With time when the initial euphoria dies down & reality sets in, one by one these apparel store move out. The story of apparel stores could well be the story of other stores present in the mall - other stores faced with a similar dilemma move out – because it is unprofitable to operate in the mall.

3.    Absence of an Anchor Store: Successful malls, almost always, have an anchor store –usually a Department Store - like Shoppers Stop or a major retail chain - like Big Bazar, Reliance Retail. Anchor stores ensure that there is a steady footfall in the mall round the year, which invariably translates into business for other stores in the mall.

4.    Easy accessibility & visibility: Malls should be easily accessible & visible from all directions! Malls, which are neither accessible nor visible from a distance, find it difficult to attract footfalls!

5.    Ambience: Mall should have a very attractive ambience, because research seems to indicate that over 60% of purchase decision takes place inside the mall / store. Therefore appropriate lighting, attractive décor, and soothing & peppy music - as per requirement - are just a few things that can enhance the ambience of the mall. Needless to say when the ambience inside the mall is attractive then potential shoppers tend to stay longer, which invariably leads to shoppers, shopping more. But many malls, which have closed or are on the verge of closing, tend to have unattractive ambience, because mall owners do not believe in investing money in creating attractive ambiance. For them it is an expense best avoided! Result: Shoppers avoid such malls!

6.    Attractions: Successful malls invariably have unique attractions. It acts like a magnet to pull in footfalls, which then translate into business for stores located in the mall. Take Dubai Mall – it has Dubai Aquarium; at Mall of Emirates there is an Ice Skating Ring. This means that Mall owners do not have to take every inch of space in the mall & rent it out. They should earmark sufficient space in the mall where unique attractions can be built to attract footfalls. The space utilised for attractions do not result in rental income, but they result in footfalls, which leads to business for tenants housed in the mall. Result: Mall owners can then charge premium rental.

7.    Events right round the year: Mall Owners should organize events at regular intervals, in the mall to keep alive the excitement. Events bring in footfalls, which will result in business for tenants of the mall. Malls can also participates in events. For example most mall do in Dubai participate in Dubai Shopping Festival (DFS). Sadly, Mall owners look upon organising events as an expense, which is best avoided. Result: Shoppers too avoid such malls!

8.    Amenities: Mall owners should offer amenities, which will make the shopping experience more enjoyable. To plan for amenities they should pose themselves the following question – what comes in the way of shoppers form shopping more? And the answer is self-evident.

a.    Tiredness: Shoppers get tired while walking in the mall. Therefore ample seating arrangement should be planned all over the mall to ensure that when shoppers are tired they can sit & recoup there energy before continuing on their shopping spree.

b.    Hunger: Shoppers get hungry while shopping. Food & drink vending machines should be strategically placed in the mall. In addition, a well-stocked food court should be planned to ensure that hunger pangs could be adequately addressed.

c.     Nature’s call: Shoppers do need to use rest rooms. Rest rooms should be strategically located so that shoppers can access them easily.

d.    Basic amenities: In addition, mall owners should also provide basic amenities like adequate car parking facilities, ATMs & more. Malls which are closing down, either do not provide amenities or look upon amenities as a revenue stream. Take car parking – it is priced exorbitantly. On a few occasions the parking charge is more than the shopping bill.

9.    Online Retailers exacerbate the problem: Online retailers have played a significant role in exacerbating the problem faced by mall owners. Money, which could have been spent in the mall, is being spent online … and this trend is unlikely to wane. Mall storeowners contemptuously refer to some shoppers as ‘fit lifters’ – because these shoppers enter the store to ‘touch & feel’ the merchandise, try it for size. And, lo and behold, place order on line for it!

The article has been penned down by Rajesh Srivastava who has 3 decades of corporate & academic experience. He has reenergised companies, including J K Helene Curtis Ltd., & nurtured brands like, Bagpiper whiskey, Royal Challenge whiskey, Blue Riband gin, Blue Riband Duet, Park Avenue range of deodorant & personal care products. He was part of the Visiting Faculty at IIM Indore & also served as COO of S P Jain School of Global Management, Dubai, Singapore, Sydney & Mumbai.. He is an alumnus of IIT Kanpur & IIM Bangalore. He is currently mentoring start-ups, conducting workshops for entrepreneurs, consulting company on value creation & working on his first book.'

 

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