Yeah! What else will you do with them? Massive structures built by Indian developers being too optimistic of the growing consumerism in the country all remain deserted and empty today and accentuating this is the most recent article appeared to today’s ET which states that the boom has burst, though, currently it is restricted to small towns and cities. But then, if I recollect from my experience in the industry since last 7 years, many of the upcoming malls in metros too changed plans mid-way (somewhere 2009 onwards) and converted their malls and shopping centers into commercial buildings.
Quoting excerpts from the Economic Times article: “The bubble has burst,” says economist Bibek Debroy. “There has been excess capacity in smaller towns and not so much demand. These boomtowns haven’t seen a huge consumption story yet and salary levels too haven’t increased the way they were expected to,” he says. Vacancy levels in malls across the country are growing at an alarming rate, says property consultancy Jones Lang LaSalle. In smaller towns, over a third of the space is unoccupied, as against just 7% in 2007. Supply of retail space has increased dramatically, but demand from retailers and overall consumption have dropped.”Many developers overestimated the appetite for retail in these small towns. They did not realise that the consumption threshold here was low,” says Ashutosh Limaye, head of research at Jones Lang LaSalle.
The entire mall culture in India started off on a wrong note. Crossroads in Mumbai failed to understand its target audience when they pioneered this concept way back in the early 2000. What were they thinking when they made it mandatory for visitors to flash wither their car keys or credit cards before entering the mall? Did they even care to do a simple research to find put that majority of the Indian population does not fall in the category of SEC A and B? Was that massive structure built only for the rich and super rich? But then it managed to create enough curiosity and generate interest amidst its peers to follow the bandwagon and open malls after malls with little USPs to differentiate one from the other. When the space in the city was satiated, the bunch started exploring the tier 2 and tier 3 cities and towns convincing themselves that India was truly Shinning and these places were the future of the country. Really? Be realistic guys! If these places were indeed the future of the country then the youngsters from there wouldn’t be aspiring to come to the Metros for their work! Mumbai really wouldn’t be house-full all the time! Providing Shopping Cetners and a good F&B and Entertainment option is not what will bind people to stick to their hometowns. Creating employment opportunities for them through your malls will not do the trick either. You pay them but then who pays the people to come and shop at your malls and if people don’t shop then how would you make money and if you don’t make money, how on earth will you create a sustainable model of employment?
India is Shinning and yes, India is Shopping but the majority of it is still happening in city roads and local markets. Glamorous and glittering malls and shopping centers are good for recreation and to beat away the heat during vacations but otherwise, we still have a long way to go!
During the 6th Edition of The India International Shopping Forum, Anuj Puri from Jones LangLaSalle clearly stated, “Only people who are committed and are hands –on involved and have perseverance will survive. It is a product that will require a lot of financial stability. Those on the real estate side who believe you come out with a box that you develop and sell, than that is not the way ahead.” He spoke on how the 6 malls that he sold in the last six month; 90 per cent out of those were sold purely on the land value where no cost of construction was taken into consideration. The structures were slated for demolition to make way for residential complexes to come up. Puri attributed the failure of malls meeting with success in tier 2 and 3 to the herd mentality we have in India of following the West and having a common formula for everything. Here being, these malls blindly copied the deisgn that they saw being accepted in metros and tier 1 cities. The retailers started feeling a pinch to pay the rent and the CAM. Today, developers across the country are not being able to pay even the interest on the debt component with the rentals they charge and hence this is de-motivating the developers to opt for malls and shopping centers. Instead, developers see residential as more lucrative. Puri strongly advocated that for developers to make money they will have to increase their rentals. Otherwise there is no way that the math will have to stack up but then retailers are not in a position to pay more rentals coz their margins are limited. Many of them will have to re-capitalize their companies as their profitability is so low. They will have to find a way out of the interest they paying on their debts to better their profitability. If this simple math does not happen, we shall see more and more developers shrinking their malls and diverting it to having a residential or a mixed use of their land. There is a fundamental challenge today we facing as an industry.
– Zainab Morbiwala