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Future tense for shopping malls

Parul Gupta, Parvathy Ullatil | September 29, 2003 09:05 IST

It's raining shopping malls. A study by Knight Frank, a real estate consultancy outfit, says that no less than 25 million square feet of organised retail space will come up across the country by 2005.

Look at the numbers: a staggering 23 malls are coming up in Delhi, an equal number in Mumbai and eight each in Bangalore and Pune.

But experts in the field have started sounding warning bells on whether these cities can sustain so many malls, given the high cost of real estate -- among the highest in the world -- and the low levels of household expenditure -- among the least in the world at a national average of Rs 4,577 per annum.

"Even if there is a considerable shift from high street shops, it is very difficult for all these malls to survive," says Anil Rajpal of KSA Technopak, a retail consultancy firm.

The construction cost of a mall of global standards is in the range of Rs 1,500-2,000 per square foot. For this investment to break even, the mall needs to generate at least 4,000 footfalls a day, with 50 per cent of these people actually making purchases.

At the moment, most malls can boast of large numbers -- the MGF mall in Gurgaon gets over 25,000 footfalls a day, while Ansal Plaza gets up to 65,000 on weekends. The conversion rate -- visitors actually making purchases -- is 10-12 per cent.

But with new malls coming up, these numbers are sure to thin. Also, the traffic from neighbouring towns is projected to dip sharply once malls come up there.

This could see an erosion in the handsome profits retailers in malls are currently reporting. Knight Frank says yields are in the region of 13-16 per cent.

Pizza Hut, for instance, is getting 20 per cent more traffic than projected in its outlets in two malls facing each other in Gurgaon.

Shoppers Stop chief executive B S Nagesh says his store in Ansal Plaza in Delhi is generating as much business as his much bigger standalone store in Mumbai.

The crowd-puller at every mall is its anchor store. As a result, malls offer space to such stores at a discount of up to 60 per cent.

Globally, there are companies like Globus that specialise in setting up such stores. Though such stores have started coming up in India -- Shoppers Stop, Pantaloons, Lifestyle -- consultants say there isn't a large enough number of such anchor tenants to ensure the sustainability of the malls being planned.

Moreover, unless these stores grow in size, they cannot get rock-bottom prices to attract traffic. Wal-Mart, for instance, employs 1.4 million people from its Rs 900,000 crore (Rs 9,000 billion) turnover -- a figure close to the size of the entire Indian retail industry, which employs 30 million people.

It is worth remembering that in the past, more than one such chain has had to shut shop after the business turned unviable. Anil Nanda's Nanz stores is an example.

With competition hotting up, mall owners are now throwing in entertainment in the form of multiplexes into their projects, which raises their costs.

The new norm in the industry is to give 60 per cent space to retail and 20 per cent each to entertainment and food.

"In the absence of this fine triangular balance, the success of a mall would be under question. No one segment alone can attract enough footfalls," says Deepak Sachdev, in-charge of the mall business of the Ansal Properties and Industries group.

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