Mall growth rates clearly show a polarised trend

Think back – some of your favourite memories are bound to have a linkage to a shopping mall. Be it your first pair of branded sneakers, a great evening out with close ones, the engagement ring or an argument outside a changing room – the shopping mall has been the silent and benevolent platform to host these experiences. But in a world increasingly subservient to a small screen, this big, friendly giant will need to reform.

The international world of retail realty and shopping centres is seeing very challenging times. Thanks to a continued economic slowdown and rapid advance of the digital revolution, markets such as the US are seeing the mall industry retracting and facing high vacancy levels.

On the other hand, organised retail in India is expected to grow steady 12-15% over the next many years. While the demand side factors are firmly in place, the supply side continues to be cautious given a range of challenges. A critical enabler for a booming retail ecosystem is the ample supply of quality shopping real estate and malls.

Malls have played a very integral part within communities – by being the core of retail commerce as well as a social sanctuary for emerging segments of society. Unfortunately for India, the development of malls and shopping centres’ has lagged urbanisation making both access and viability a hard battle to fight. Analysing the development very objectively suggests that the industry is facing a limited loyalty with consumers, the mixed success rate for developers and often high costs for brands despite muted traffic.

Mall growth rates in the industry clearly show a polarised trend. The good are getting better by continuing to drive stronger consumer relevance. Some notable success stories such as Select City Walk in Delhi or Palladium in Mumbai continues to show growing traffic driven by freshness in brands and concepts as well as better consumer services. Demand for space and associated rental growth in the acclaimed malls has shown steady growth despite not the best years for the occupant businesses.

The industry is clearly facing a multitude of headwinds and tailwinds in an extremely dynamic market. The buoyant Indian market continues to drive value growth and malls will always play the role of a credible destination for discovery and engagement. Further, many successful international brands and banners continue to announce their entry into India – the channel always being to go through the high cost-low risk model with proven malls. Seeing the long-term potential, space is attracting a fresh wave of investors and professionals often from international markets to drive the next wave of industry successes.

Having said that, a great location and an established mall banner do not guarantee any success in the future. The digital wave is increasingly affecting the industry by driving a much higher share of engagement and commerce with Indian consumers. Also, a gradual shift of attention towards entertainment and experiences versus classical browsing is evident as you trace the pathway of young consumers in a mall. This implies that malls will need to shift business to where the consumer wallet is through regular investments and remodelling.

Inflation driven prices and costs continue to rise, often disproportionately, making access a challenge for the larger mass of consumers. In a market which ‘values value’ often discount stores play the role of upgrading the consumers to the world of organised retail and for them, mall rentals may not be affordable. Lastly, with limited or no prime land availability and high development costs – the viability of malls and shopping centres will always be under pressure. With a return on capital employed (ROCE) of the best of players struggling to move into double digits, some new tricks need to be brought to action.

The actions ahead for driving the next wave of generative growth are on four fronts. Thematically, mall owners and developers have to transform their thinking from ‘hosting brands’ to ‘owning shoppers’. Discovering consumer choices and habits is no longer the domain of the brands – the developers need to have a strong point of view themselves.

First, they need to drive distinctive and superior experience with consumers – location and space allocation to entertainment, engaging food experiences and new concepts are all levers that winners have pulled in this space.

Second, developers need to be extremely ‘convenience centric’ in their design of mall services and points of interaction. Every inefficient minute at the mall is eating into shopping and engagement time – and hence simple things such as parking management to integrated technology enablement of information services are all available for implementation.

Thirdly, actively drive consumers and brands to embrace an omnichannel way of life. Seamless omni-channelling more than often drives stronger consumer loyalty and associated benefits for the retail ecosystem.

And lastly, keep a very ruthless eye on costs – evaluate every CAPEX and OPEX dollar spent and the mapped gain. If a consumer does not value something in the mall, no one does and hence redirecting investments prudently to improve capital turns is an important internal ability.


Written by: Rachit Mathur, Partner and Director at The Boston Consulting Group