Lots of Shops, But Who's Shopping?
By Pushpendra N Sharma, CEO - Mantra Consultants

The mall craze is on. You've all read the stories. Knight Frank said that, the organized retail sector's turnover is estimated at $4.2 billion and it is growing at 8.5 percent a year. The government cut taxes on consumer goods - spending has unleashed growth in India that has driven it over 7%. Everyone talks about how the malls are the latest craze, how it has improved the shopping, leisure and entertainment experience, how it has generated employment. But are malls engines of retail growth and the rise in consumer spending.

The answer is really, no. Retail is growing faster. Someone is shopping, in larger numbers, elsewhere. Even though the malls are packed.

Mall Culture began in India in the mid 1990's when the first shopping mall was developed in Chennai, and since then 'Mall-ing' has broken loose. There are more than 250 malls in the works in India. India's largest sector - retail, is seriously undermalled. The Indian mall represents only 2% of the shopping industry - in China it is 20% and Thailand it represents 40%. India is expected to go the same way - ending up with 20% in the next seven years. But if the structure and planning around these malls doesn't change, many of these will may not see the light of the day. And many developers, dreaming of big gains, will lose their shirts.

Let me explain. We take our NRI friends and cousins from the village to see how India is progressing when they visit. Forbes Magazine wrote a glowing story about how Abhay Dixit drives 10 kms to buy cigarettes and a cappuccino. Another talked about how he can hang about in the mall for hours.

But cigarettes ? Cappuccinos ? What about the brands who are spending millions. Isn't a mall really about buying clothes. Books. Services.

For all of us who've been to malls - we know all the shops, where we've browsed for hours. But we know the restaurants better. Food Court at 3C's, Yo China! in Gurgaon, The food is outstanding.

People complain about time to park a vehicle. The wait to get a table. The prices on the goods.

Won't it be interesting to know in this era of Mushrooming Malls, who is actually "buying". Malls have a wide range of retailers such as cinema operators, clothes stores, department stores, F&B outlets, entertainment etc. categorized and divided among 5-6 levels, maybe more. Consumers visit the mall for it's 'feel good factor' i.e. the ambience, entertainment, eating etc. but do not spend money on shopping such as on clothes, apparels etc.

I'm not surprised they are not scared. Most people visiting malls in Delhi and the NCR region do not shop. Walk around the mall - lots of food and drinks, but few shopping bags.
This is quite alarming and gives us a clear indication on what kind of shopping format actually exists in this region. The mall experience as we know today is catered mainly to eating, entertainment, leisure and the least on vanilla shopping. So where are all these malls heading and what kind of formats will we see in future.

If the retailers are losing, someone is winning.

The developers are quickly recovering their investment by virtue of proven and known marketing methods - pre-selling, pre-leasing, sale & lease back models. Investors can easily pick and choose projects to invest in and make a killing, riding the current mall frenzy. Retailers have found suitable ways to reduce their risk by franchising rather than the traditional leasing or buying methods. The surplus supply of Mall space means retailers can set their rental spaces. The food outlets and entertainment-driven activities win as well. They are attracting curiosity seekers in large numbers.

But currently the retailers are losing. In their core business, the high rentals, the lack of buyers means that their returns on investment are not where they should be. The mall experience should be about outstanding shopping, great ambience, and good food.

As more malls come on line, and retailers eventually tire of waiting for the shoppers to come, rents will decline. As the curiosity value declines, and traffic slows, retailers will find even fewer shoppers and bigger losses. The big brand spends will turn out to have been wasted. There will be a big shakeout in the industry - and the growth will slow.

India needs to learn from US and European experiences. Malls typically need to offer a unique store (or combination of stores) to keep the people coming back. JC Penny, Sears, Macy's offer quality products at great prices. These stores draw the greatest traffic - and keeps the public coming back. Malls in India don't have that branding yet. There are no stores that offer a large range of products at everyday low prices. Traffic relies on two factors - curiosity seekers and entertainment seekers (food and movies). Eventually this isn't enough. The first kind would disappear. The second kind would have more alternatives. It is the store and the product that keeps them coming back.

Eventually the crowds will tire of the ambience. Abhay Dikshit won't drive 10 kms to the mall that exists, he'll simply go to the one next door.

Focus on the stores that bring great products at good prices. Learn from the Sarojini Nagar retailers. Old-line sari brands in Karol Bagh. Convince these old established brands to start franchises in the retailers stores. Reduce the rents, and offer longer-term contracts. That'll keep the crowds coming back long after the tourists have gone home.

The products offered by these retailers are more or less similar to their high-street stores, the store ambience is more or less the same so what is the USP offered by these retailers regarding their offering?. Why would anyone spend money in these stores in a mall? Therefore we have seen low sales projections, phasing out of a few retailers from these malls have become quite a regular feature.

Pushpendra Sharma is C.E.O. of Mantra Consultants. Mantra Consultants specializes in Real Estate, Architecture, Retail, Franchising and Mall-Event Management Consultancy. Pushpendra is a qualified Architect and has worked with top tier real estate consulting firms CB Richard Ellis, Jones Lang LaSalle and Chesterton Meghraj, he has also written numerous articles on the retail and franchising sectors in leading national and international magazines and newspapers. He can be contacted on 9810552050 or email on pnsharma@mantraconsultants.com. You can also log onto www.mantraconsultants.com for more details.

Franchise Advice | Franchise Legal | Franchise Finance | Business Advice | Franchise News
Franchise Opportunity | About Us | Contact Us

Copyright © 2006 Franchiseek Limited
Disclaimer
Privacy Policy