The Fall of the High-Rise Malls

Posted in Marketing & Strategy Articles, Total Reads: 4265 , Published on 05 December 2011
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The Retail Boom, numbers speak louder than words: Indian Retail Sector is US$ 401 billion (Rs 18,673 billion) Industry. It is expected to grow up to US$ 900 by 2014, according to PwC consultancy firm. It contributes for about 22% to the country's GDP and contributes about 8% of the total employment. Only 6% of this sector is organized  (Corporate-backed hypermarkets and retail chains, Privately owned large retail businesses) and rest is unorganized retail segment (the local kirana shops, convenience stores, hand cart and pavement vendors, etc) as of 2010, according to Booz and Co (India) Pvt Ltd. The major driving factors fuelling this Retail Boom are mainly the economic growth, population expansion, higher personal incomes and consumption, favorable demographics and government policies and rapid construction of organized retail infrastructure (read: Shopping Malls). No wonder that India has been ranked as the fourth most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney for 2011. Thus, the big names like Kishore Biyani-controlled Pantaloon Retail, Jubilant FoodWorks Ltd of Dominos Pizza fame, the brand ‘More’, operated by Aditya Birla Retail and others, are part of the celebrated Beeline planning to invest handsome moolah, in order to expand their operations in India in the near future.


High Rise Malls - Success or Failure

Now India’s Shoppers, Stop @ Malls: No week is complete without a visit to your friendly neighborhood mall. That’s how integral malls have become.  The number of brands and services available under one roof is the major driving force. Malls have become the confluence of social gatherings and everyday shopping. Let us put ourselves in the shoes of a Mall Management Team for a moment. Now let’s try to resolve the following situation:

Situation:

There are only seven vacant places in your 3 floor Mall, Ground Floor has 2 vacant places and First Floor also has 2 vacant places whereas the top floor has three vacant places.

Make your choices of what you will have at ground floor, first floor and top floor respectively. After you vote, you will see what others have voted. Make Sure that you make rational choices. e.g, Make Sure your mall has an entry and exit points :). After you are done with the polls below continue reading the article to understand better. Please vote on each question separately.

(Anchor Tenants are the stores like Shopper Stop, Lifestyle etc)

VOTE NOW !

AcePolls

Ground Floor(2 Vacant Places)

Acepolls 2

First Floor(2 Vacant Places)


Acepolls 3

Top Floor(3 Vacant Places)


Voila!!! You just designed a Mall on your own. But how well did you fare, read on to find out.

The Great Indian Mall Story (Past – Present -- Future):India’s tryst with malls began in 1999, with the opening of 200,000sq.ft Ansal Plaza in Delhi and the 150,000sq.ft Crossroads Mall in Mumbai. Fast forward to 2011, India now boasts of a staggering 255 malls. According to reports 22000 crore has been spent on building these 255 malls. 65% of these malls i.e. 170 of them are situated in the Delhi/NCR. Projections say that another 242 malls will be constructed in the next two years with an investment of 2.1 lakh crore. In 2001, the average size of a mall was 250,000 sq.ft. In 2011 it has shot up to 1 million sq.ft. 

The ‘Topline’ feasibility, again the numbers speak louder than words: Out of the 255 malls, around 80 per cent of them are registering losses. Majority of them have been converted into mixed used properties with offices to keep them feasible and economically viable. This sums it up; a successful Mall is more than just a lavish building and glamorous displays. It is indeed a complex Management exercise and requires more than a conventional Management Acumen. Let’s look at some of the Cardinal Sins that have led to ‘the Fall of the High-Rise Malls in India’.

1. Poor Site, Architecture and Design: Location, location, location that’s what drives traffic towards malls. Bad location means not enough people in the mall. Poor locations lead to problems of poor accessibility of Malls. Consumers are often drawn by ‘easy access’ principle. There are also countless examples of badly designed malls in India. Badly designed shops and stores fail to attract consumers. Something as simple as ‘single entry and exit points’ which can lead to congestion and overcrowding, have led to the fall of Malls.

2. Multiplex and Food Court: It is an absolute must for any mall to have a multiplex and a food court, which offers a variety of options. According to a survey conducted by Jones Lang LeSalle Meghraj as many as 80% of the visitors to a mall will visit the food court. Usually food courts get more consumers than any store in the mall making it one of the largest spaces to be managed by mall developers. Food courts could include both fast food joints for customers on the go and specialty restaurants for a proper sit down meal. According to Ashish Saksena, COO Big cinemas (West & South) the relationship between a mall and multiplex is referred to as ‘Synergy effect’ where all the needs of the consumer are taken care of under one roof instead of travelling to different locations for different requirements. Amitabh Vardhan from My Cinema says shopping, mall visits and multiplexes are all packaged under ‘entertainment’ in India. Therefore when a consumer visits a mall, a multiplex is something that he expects. It is also important to drive up the footfall in the mall itself.

3. Size does Matter: A smaller mall in competition with the colossal malls that are coming up today is bound to fail. Innumerable first generation malls in the neighborhood of larger malls have fallen prey to this.

4. Zoning and Strata selling: Mall developers and landlords tended to follow the first-come first-served model when it comes to leasing out retail space. Also, Strata selling, the practice of selling individual shops and spaces to different investors was a major hit among the developers. What the individual investor then does with the space is his discretion. Thus the positioning of shops, in first generation Malls is often not in sync with any underlying theme or consistency of the Mall as a whole. This creates a poor tenant mix like a luxury brand next to a mass-market brand.

5. Ignorance to Power of Promotions: With such a plethora of malls coming up, it is very important for a mall to maintain its visibility. One way of doing this is through promotional activities inside and outside the mall. Promotional activities can bring in greater number of people, which initially may not result in increased revenue but certainly increases awareness. Promotional activities have become necessary expenditure today, and ignorance in this context is no way bliss for the Malls.

6. Poor Parking facility: One aspect that is common among all failed malls is poor parking facilities. It is common knowledge that malls in India often lack adequate and planned parking. The global standard or benchmark is one parking space for every 200-250 sq.ft of gross leasable area (GLA). The Del Amo Fashion Centre in Los Angeles that has a GLA of 3 million sq.ft has 12500 parking spaces. This is far from the actual reality in Indian malls. For example a 50000-sq.ft mall should ideally have 200 parking spaces, which would mean budgeting anywhere between15000-20000 sq.ft for parking. In big cities like Delhi and Mumbai it might involve cutting too many corners making the mall financially unviable. But lack of parking spaces would mean customers happily driving away to the next closest mall.


Mistakes Made, Lessons Learnt: Next generation malls being built seem to have learnt their lessons. One of the examples is of Inorbit Mall in Mumbai. With a size of 550,000 sq.ft and five anchor tenants, it is the perfect combination of scale, tenant mix and design. Kishore Bhatija, the CEO of Inorbit alludes to something called ‘Easy Circulation’ which helps shoppers move around freely and easily thus preventing them from losing interest quickly. Malls are now slowly moving towards the revenue-shared model in calculating rent. Under this model the tenants will either pay a monthly base rent as minimum guarantee or a percentage of sales, whichever is higher. This agreement is mutually beneficial to the landlord and the tenant. The retails are protected against rising rental costs in a situation where the market is weak. Since the landlord’s profit could be directly linked to the success of the retailers, they are motivated to hold greater number of promotional events to increase retailer revenue.


Must know-how, before you design your next Mall:

1) Multiple entry and exit points for both malls and parking spaces reduce cramming of people (you should have arranged them on Ground Floor).

2) The right positioning of stores: For example having an electronics or books store next to a women’s apparel shop. Men or husbands can spend time in the books or electronics store while the women or wives shop for clothes. Having an accessories or footwear shop next to an apparel store is another example of good store positioning (could have been taken care of on first floor)

3) The significance of Multiplex and Food Court has been already explained (these are must haves, ideally could have been arranged on second floor).

Disclaimer: This is the ideal mix we could think of; idea was to make you think…!!!

Final Words of Wisdom: Malls are the great big hope for the Indian Retail Growth Story and sustenance of this growth is strongly dependent on the next generation of High-Rise Malls.


Bibliography


This article has been written and conceptualized by Nitin Amlani and Sandip Chandran from NMiMS,Mumbai.


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