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The Fall of the Indian Retail Mall

From DNA: Plunging sales see retailers quit malls:

ETAM, the French lingerie brand that has a joint venture with Kishore Biyani’s Future Group, recently pulled out of Palm Beach Galleria mall in Navi Mumbai, together with six other retailers such as grocery chain Foodland Fresh and Manoranjan sarees.

Hey, I live close by and I was in the mall two days ago. Not only have the above shops gone, three of the six small shops in the food court have vanished. (Two large restaurants, a bread variation shop and two veg restaurants are all that are left). This could be because the attraction of the multiplexes is down, due to Fame setting up at the Raghuleela mall close by.

The mall scene here is mega oversupplied. There are four malls within a kilometer or two of each other. Raghuleela, Center one, City Center and Palm Beach Galleria. Another mall in Sanpada, Full Stop, is completely empty for six months and unoperational. Next to Palm Beach Galleria and City Center (which are next to each other) there are about 6 more massive complexes coming up, no doubt intended as shopping and office complexes. And there’s Haware’s Fantasia mall in Vashi and Centurian in Nerul, both of which are near completion.

And this is just Navi Mumbai – the Nerul/Vashi area. Add to this malls in Kharghar (5km away) and Belapur (2km), and you’ll see the pattern go nuts. Mumbai has a greater density of people so malls should be more profitable. But this problem is going to be there in Delhi and Bangalore as the footfalls don’t really justify the high rents.

The National Capital Region (NCR) has also seen the exit of retailers in the recent months with outlets such as Tuscan Verve and Maya’s Toy Store moving out of DLF City Centre owing to poor sales.

Big malls in Bangalore, the country’s IT capital and home to wealthy techies, is seeing vacancy levels of 50 to 90 per cent. Eva Mall on Brigade Road, Bangalore’s high street, has seen the closure of all its retailers and the mall owner is re-drafting sub-lease agreements with new tenants.

Purva Pavilion, in Church Street, has been half empty for the last four years and Sigma Mall, on Cunningham Road, has seen 50 per cent of small stores moving out.

Globus, the apparel retail chain of Mumbai-based Rajan Raheja group, closed two stores in Bangalore. The chain had plans to open 100 stores in the next four years, but now it expects to open those stores in the next five to six years, given the high property costs and unavailability of real estate on time.

Bad news and then more bad news, everywhere. Remember how the funda worked:

  • “Premium” apartments come up
  • Malls come up nearby saying ok, these guys need to shop
  • Apartment rentals and prices go up saying oh there are so many malls nearby. “Developed” area.
  • Mall rentals go up saying look at the real estate prices here.
  • Some big retailer sets up shop and promptly loses money but terms it a long term investment.
  • Everyone else says heck, if he can lose money, so can we, so they also do the same thing.

Now someone’s knocked some sense into everyone’s head. (It’s called “reality”) So as real estate prices have come off the highs, and retailers vanish, soon mall and house rentals will follow. Ghost malls are likely to be common as developers, now flush with cash after the boom, decide they will “ride it out”. They’ll pay interest – increasing rates, btw – until they can bear it no more.

Then they will give in and do anything and everything to get people back. Reduce rentals. Get diversified shops (not just apparel, which seems to be the case now).

But that will happen only after this great recession.

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