The Playbook For A Successful Mall Is Changing

A stack of brand outlets and a bunch of department stores with a cinema complex thrown in doesn’t work anymore. Customers want novelty and freshness in stores, brands and entertainment.

22 May 2024 12:30 AM GMT

Shopping complexes, once a novelty in India, and now an important community space, are losing their sheen it seems. Ghost shopping malls, or mostly vacant malls, have been steadily increasing across the country. A recent report by Knight Frank, a real estate consultancy firm, showed that over 64 shopping centres in India had more than 40% of their units unoccupied, turning them into ghost malls.

What’s ailing malls, the favourite urban-family destination for a Sunday evening meal or a movie or both?

The Knight Frank report suggests that a major reason behind shopping centres turning into ghost malls is that customers are choosing to visit the bigger, better and fancier establishments, known as Grade A malls in business parlance. These Grade A malls seem to be the only ones keeping up with the rapidly changing needs of the Indian consumer. What are they doing right that shopping centres continue to get wrong?

“Some malls have just not been able to keep up with the changing times, and those are ones becoming obsolete,” Kumar Rajagopalan, chief executive officer of the Retailers Association of India said. Consumer tastes are becoming more short-lived than ever. This means malls must keep up with what the customer wants next to stay relevant.

Strata selling (a model in which the developer sells mall units outright rather than leasing them to tenants), shorter store leases, customers moving to digital-first brands and fewer...

Shopping complexes, once a novelty in India, and now an important community space, are losing their sheen it seems. Ghost shopping malls, or mostly vacant malls, have been steadily increasing across the country. A recent report by Knight Frank, a real estate consultancy firm, showed that over 64 shopping centres in India had more than 40% of their units unoccupied, turning them into ghost malls.

What’s ailing malls, the favourite urban-family destination for a Sunday evening meal or a movie or both?

The Knight Frank report suggests that a major reason behind shopping centres turning into ghost malls is that customers are choosing to visit the bigger, better and fancier establishments, known as Grade A malls in business parlance. These Grade A malls seem to be the only ones keeping up with the rapidly changing needs of the Indian consumer. What are they doing right that shopping centres continue to get wrong?

“Some malls have just not been able to keep up with the changing times, and those are ones becoming obsolete,” Kumar Rajagopalan, chief executive officer of the Retailers Association of India said. Consumer tastes are becoming more short-lived than ever. This means malls must keep up with what the customer wants next to stay relevant.

Strata selling (a model in which the developer sells mall units outright rather than leasing them to tenants), shorter store leases, customers moving to digital-first brands and fewer cinema goers are making it difficult for malls to hold on to customers. Indians are constantly seeking novelty as they get bored faster. These changing trends among Indian consumers have also made the usual formula of what it takes to keep a mall running successfully obsolete.

How are the bigger, Grade A malls able to keep up?

Mix And Match

“A majority of them (ghost shopping centres) were strata sold so they lost control of the asset,” Pankaj Renjhen, chief operating officer of ANAROCK Retail, a retail real estate consultancy firm, told The Core.

While experts believe leasing is the better option for malls, it isn’t enough. Variety, quality and relevance lure people to malls, and they must keep up to get footfalls. “Eighty percent of the growth in malls come from churn of brands,” Abhishek Bansal, executive director of Pacific Development Corporation Ltd said. That means to bump up footfalls, sales and activity, malls need to change stores according to what is popular among consumers.

Big developers are now replacing longer contracts, which were popular with tenants until a few years ago, with shorter contracts to keep changing the mix of stores.

According to Renjhen, small stores, which typically signed nine-year contracts, are now inking five- or six-year leases. For anchor stores, the big ones, leases lasted 21-25 years but developers are now pushing for 15-year agreements . “Developers are pushing for shorter term leases as the brand preferences are changing fast with consumers and also being more focused on performing brands,” he said.

The number of brands that a mall can choose from has expanded quite a bit. Indian brands are bringing in newer formats. For example, Westside introduced value offering Zudio, Reliance launched Yousta, a youth-centric apparel brand and Nature’s Basket introduced a gourmet store chain Nature's Basket Artisan Pantry. Digital-first brands such as apparel brand Newme, luggage company Mokobara, and beauty retailer TataCliq Palette are also foraying into offline retail.

International brands are also keen on increasing their presence in India. Inditex, which owns Zara, is looking to bring Zara Home and Bershka to India, American footwear retailer Foot Locker, home decor and furniture brand Pottery Barn and athleisure wear brand Lululemon have shown interest in the Indian retail landscape.

Their entry has given mall developers a large variety of brands to choose from. It suits them as consumers have been asking for newer stores more often. “The younger generation is much more experimental,” Nirzar Jain, chief leasing officer of Nexus Select Trust, a retail real estate investment trust which owns 17 malls across the country, told The Core.

Jain said that brand churn at malls rose from 15-20% five years ago to 20-30% a couple of years ago. That jumped to 35-40% last year. “If we see in the future that some category is becoming less and less relevant, it makes it easier for us to change and get out of a contract and put in a new category or tenant,” Bansal said.

Developers are now looking at doing more pop-ups or temporary stores, sometimes in designated units or when a space newly falls vacant. It suits digital-first brands, which are experimenting with brick-and-mortar stores for growth. For instance, digital-first brand Newme started with a short-term lease agreement for its first store. Other brands like Dyson, Boheco and Sugar Cosmetics are looking at six-month and year-long contracts with temporary retail space lessors to test the waters before going the whole hog.

Store sizes may also shrink as they, particularly department stores, try to cram more brands in. Department stores, which used to occupy 50,000-60,000 square feet of mall space, now take about 30,000-35,000 square feet, Bansal said.

Nexus Select Trust has also created more space for new brands by reducing store sizes in malls like Nexus Koramangala in Bangalore, Mall of Amritsar and Nexus Select Citywalk in New Delhi. “The traditional anchor stores are being squeezed a little, as are hypermarkets, l partly due to the rise of quick commerce and partly because efficiency has increased. Brands need less space to deliver the same performance,” Jain said.

Cinemas Out, Entertainment Centres In

Entertainment has been a key crowd-puller for malls, and its relevance remains. However, how people want to be entertained is changing. For one, they are not too keen on going to the movies anymore.

PVR Inox, India’s largest multiplex chain said that it has exited 85 underperforming screens in FY24 and plans to shut down about 70 underperforming screens in FY25. In its earning call for FY24, Nitin Sood, chief financial officer said, “The malls, which were built 10 years or 15 years ago have become dilapidated and are unlikely to survive in that market given the new shopping centres that have opened up in that city.”

Developers have been reducing the number of screens. Huge multiplexes, which housed 8-10 screens, are now down to 5-6 screens. Before the pandemic cinemas were a raging success, but only big-budget, star-led films are pulling in audiences to theatres now. So, mall operators are bound to look elsewhere.

“Developers are looking at entertainment concepts like skating rinks, gaming arcades, even comedy clubs etc. as opposed to just relying on cinemas for entertainment,” Rajagopalan said. Along with entertainment, eating out has become more popular so restaurants are also getting more space in malls.

Kunal Vardhan, who owns Atria Mall in Mumbai’s Worli, decided to completely transform the identity of the mall from a shopping centre to an entertainment hub with big spaces offered to restaurants, family entertainment centres, and lounges. Vardhan said that 70-80% of his mall is entertainment-based and the strategy is working well with footfalls growing 8-10% every year.

What Makes For A Successful Mall?

The formula for a successful mall remains the same, Renjhen says, but the values in that formula are changing. “You are getting more flexible structures or uses, studying the customer profile much better and shopping centres are places built on experiences,” he said.

The mix of brands is dictated by what the target consumer in the mall’s catchment wants, and in today’s world, it could be a value brand. Mall operators need to be aware of and spend considerable time understanding these shifts on a regular basis to keep the malls fresh, relevant, and bustling with retail activity.

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